Seeking advice on this scenario below.
A person becomes a tax resident in Jan 2023 and would like to do a deemed disposition of a property they purchased when they were non tax resident. In this case,
(1) For the ‘deemed’ capital gains, is it taxable immediately or it could be paid in the future when the gains are actually realized (say, if the property is sold in 2030)?
(2) For the Fair Market Value, is real estate agent’s report good enough for indicating the fair market value of the property in question for the current taxation purposes? Or professional appraisal is required for giving this number?
(3) When should this person get the report or appraisal? If it was not done in Jan 2023, does it mean they will get a “retrospective” report?
(4) Is there any other alternatives than doing a ‘deemed disposition’ for the portion of the previous ‘non tax resident’ years of the property when they sell in the future? Say, if the first year of holding the property is non-tax resident but the following nine years they are tax-residents and this qualifies as their principal residence.
Can anyone kindly advise? Thanks
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Capital gains can be deferred only if a property is sold to an arms-length buyer, and the buyer is paying in instalments over the next several years. This is a “capital gains reserve” - see link below. Otherwise, yes - the gain must be reported on the tax return for the fiscal year in which the disposition occurred. The related taxes will be payable as usual (if the person or corporation is required to make tax instalments during the year, they should probably adjust those amounts for the expected gain or loss).
https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/personal-income/line-12700-capital-gains/what-happens-you-have-a-capital-gain/claiming-a-capital-gains-reserve.html -
CRA doesn’t always ask for supporting documents, and if you send such documents without them asking, they will ignore it. If they ask (which can be up to 4 years later), you should have something ready. Sometimes they will accept a realtor’s report; sometimes they demand an appraisal. If the amounts reported on the tax return appear reasonable, they generally don’t ask for supporting documents.
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Appraisals cost more if you need the appraiser to do it on a historical basis (i.e. other than current market value). But, it’s the taxpayer’s choice whether they want to pay for an appraisal “now” which they may never need, or wait to see if CRA demands it, at which point the appraisal may cost more.
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No. But, they couldn’t have been LIVING in it before becoming tax resident because owning a house (in Canada) and living in it would have made them tax resident as soon as they moved in (generally speaking). On the other hand, the FMV of real-estate doesn’t change that much in one year (unless that property is in Toronto or Vancouver). So, the FMV (upon becoming tax resident) may be equal to (or not much more than) the cost (when they purchased it a year earlier). Thus the capital gain would be zero (or very minimal). But, if the property was rented out for the first year (since they couldn’t have been living there themselves), there would be Part XIII tax payable on the net rental income.
I don’t think this is correct. If the property is a farm or small business shares not only the opposite is true, you get up to 10 years deferral instead of 5 years.
Does it make any sense that for those type of properties you get double the time for other properties no deferral?
The only requirement as far as I know is that if you sell to a non-arm’s length buyer is that it has to be reported as FMV. [even if it didn’t sell for FMV]
@Rein
Yes, you might be right. Sorry. I should have chosen my words more carefully. But you certainly can’t claim a reserve on a deemed disposition of your own house to yourself.
Agreed. You can’t give yourself a mortgage 
Can you clarify please? My understanding is that all new residents are deemed to have disposed of and repurchased their assets at FMV the day they become resident. This is the “deemed acquisition” rule.
That doesn’t mean that tax is due on that amount, it is basically setting the “Cost Base” for future gains while they are resident.
For example, they bought a single stock in a company in 2010 for $10. In 2020 they move to Canada and the stock is worth $15. In 2023 they sell the stock for $17. The only gain that is taxable in Canada is the $2 increase from when they moved to Canada to when they sold the share.
RBC has a brochure on this:
https://ca.rbcwealthmanagement.com/documents/257768/257789/moving+to+canada+from+another+country.pdf/7cd7c738-ca77-4722-8a4f-868271e8e13d
Oh! Yes, you are correct. I can’t remember the last time I had to deal with such a scenario (maybe never?). Most immigrants for whom I prepare taxes don’t have any assets to declare.
Thanks for your detailed explanation! My previous understanding is that new tax residents need to claim their overseas assets by doing “deemed disposition” for counting the “Cost Base”. But I wonder if they are supposed to do a “deemed disposition” for the property that was already purchased in Canada as well?
Bookmarked. I’ll take a crack at this sometime over the weekend when I have more time. @Nezzer has accurate info.