Canadian Homes and other Capital Property

Canadian Homes and other Capital Property

Last Updated: December 9, 2016

This information is applicable to individuals (not corporate assets) and may be outdated, incomplete, or inaccurate at the time of reading. Do not rely on this information for decisions or tax planning. Always consult an advisor before making decisions based on this content.

YES...You can sell your home, boat or other capital assets after you leave Canada. You may even be able to keep a home or cottage in Canada while you are a non-resident...under specific circumstances. However, there is a deemed disposition of most assets (Capital Property) for tax purposes on the date of departure.

Forms...What Forms?

For this article, there are a few CRA forms that we will mention. Let's give a brief description here so that what follows is easier to comprehend. (There are links to these forms later.)

  1. T1161 - a list of items you own on the date of your departure from Canada, along with their Fair Market Value (FMV). Some of the items are taxable when you leave due to the Deemed Disposition rules...others may be taxed when you sell them later and after departure. But, this is just a list.
  2. T1243 - is the form used to calculate whether you had a gain or a loss on each taxable item, as of the day you departed Canada. Only the taxable items (from the T1161) are listed here and this form determines how much is due in taxes. This is a list of the items that actually are subject to the Deemed Disposition rules. It is submitted with your Departure Tax Return along with the T1161.
  3. T1244 - is a form you can use to apply for a deferral of taxes due as a result of the T1243 Form calculations.
  4. T2062 - is used to report a sale of a taxable item after you leave Canada.
    1. T2062 - is also used to advise CRA that you plan to sell a taxable item after leaving Canada and that you only want 25% of NET gains to be withheld by the sales agent. If you do not file this form, the agent is obligated to withhold 25% of the GROSS sales proceeds of sale of a non-resident's Canadian property.

What is "Deemed Disposition"?

When a Canadian resident leaves Canada to live permanently in another country (and will no longer be considered a tax resident of Canada), CRA will tax capital gains that may exist on the date of departure for that individual....profits (gains) in his or her stock portfolio, for example, as well as other capital property.

The Income Tax Act says that there is a "Deemed Disposition" of those assets on the date of departure from Canada. Not an actual sale of assets...just a "pretend" sale, so that any gains can be calculated as of that date. The assets are still yours. Capital gains after departure may or may not be taxed in Canada, depending on what the asset is. Generally speaking, after you leave, Investment Capital Property is not taxed on capital gains after departure, but gains on Real Capital Property and Personal Capital Property may be taxed after departure. (More later.)

On the Date of Departure, some of those Deemed Disposition assets will have losses and others will have gains. You’ll be subject to capital gains tax on the NET capital gain (gains minus losses) resulting from the deemed disposition and this must be reported to CRA on a T1243 Form which is filed along with your Departure Tax Return.

CRA may allow you to Defer the Payment of Tax on income relating to the Deemed Disposition of property by completing CRA Form T1244 but this deferral arrangement must be made with CRA prior to filing your Departure Tax Return.

So, bottom line is that you could retain an investment portfolio, real estate and other assets after you leave Canada, but... there is a Deemed Disposition of most of those assets on the date you leave for tax purposes. That doesn't mean you can keep your home vacant while you live in another country and still declare yourself a non-resident for tax purposes. But it does open the door for some creative tax planning. Contact TioCorp if you would like a Cost-Free Consultation from a Canadian financial advisor.

Taxable Canadian Property

For non-resident purposes, in general terms, there are 3 basic categories of capital property...

  1. Investment Capital Property which is for investment purposes, including mutual funds, stocks and bonds. There is a deemed disposition of these investments on the date of departure. (EXCEPTION: Investments held in an RRSP, RRIF, TFSA, or any other type of Registered Account are NOT deemed to be sold.)
  2. Real Capital Property includes your home, cottage, land and buildings, and any items which are installed in and attached to the buildings or land. There is NO deemed disposition of these items on the date of departure. Any capital gain will be taxed when sold, even after departure from Canada.
  3. Personal Capital Property which includes movable capital property, such as cars, boats, RV's, furniture, computers...that sort of item. There is a deemed disposition of those items worth $10,000 or more on the date of departure from Canada.

T1161 Form - What to Report

When departing Canada, you must prepare a list of all reportable taxable items on CRA Form T1161 and provide that list to CRA along with your final tax return... which is due on April 30th following the year of departure. It is only a list of all those items and their Fair Market Value on the date of departure.

  1. Investment Capital Property - You must list every individual stock, bond or other investment that you own, including the shares of most Private Companies (more below on private shares).
  2. Real Capital Property - You must list all real property, including real estate, land, home, cottage, insurance policy cash values, business buildings and equipment.
  3. Personal Capital Property - They also get listed on the T1161. But...Only If The Fair Market Value (FMV) of the individual item is $10,000 CDN or more. So if your boat is only worth $5,000, forget it...if it is worth $10,000 or more, it gets listed on the T1161.
  4. Private Company Shares This is especially complicated. Private Company Shares are generally considered to be Investment  Capital Property, but they will remain taxable even after you leave Canada and they need to be listed on the T1161 along with everything else. That becomes a problem.
    1. The value of a public company’s stock (one that is traded on the exchange) is simply the share value on the day you leave. That's easy.
    2. BUT... a private company is one that is not traded on any stock exchange. You may have invested you’re your brother’s personal incorporated company and received some shares in return, for example. Therefore, if you own such private shares, you must report their deemed disposition at fair market value (FMV). But... because they are not publicly traded, how will you know what they are really worth? Professional assistance will likely be required to obtain the value of a private company. If you own Private Company Shares, there may be ways to mitigate taxes and perhaps even shelter taxes after departure.

Selling Capital Property After You Leave

What do you do?

  • Investment Capital Property... There is a deemed disposition of these investments on the date of departure. (Here we are referring to the non-registered investment portfolio.) You will have paid any capital gains taxes due on departure (unless you posted security to postpone the taxes) and so there is nothing to do if you sell these as a non-resident. There are no capital gains taxes due and you will receive the total proceeds of the sale. There are no forms to file.
    • Remember that RRSP's, RRIF's and other registered accounts did not have a deemed disposition. When these are withdrawn after departure, the proceeds become taxable according to tax treaty rates.
  • Real Capital Property... There is NO deemed disposition of these immovable items on the date of departure. Any capital gain will be taxed when sold, even after departure from Canada.
  1. The item being sold was listed on the T1161 along with its Fair Market Value (FMV). Now that it is being sold, capital gains (if any) will be triggered. 
  2. Your lawyer, real estate agent or you (if you are selling personally) must report the sale and submit 25% of the GROSS sales proceeds....UNLESS you file CRA Form T2062. With that form, only 25% of the NET proceeds needs to be remitted to CRA within 10 days of the transaction.
    1. Hint: Your lawyer will automatically withhold and remit 25% of the Gross sale amount unless you file CRA Form T2062 PRIOR to the sale. Your lawyer and/or real estate agent should facilitate that for you and therefore will withhold only 25% of the NET gain, if any gain.
  3. Note that your primary residence will be subject to prorated capital gains on any growth in value while you were a non-resident. You may need professional tax advice on what to report. Contact TioCorp if you would like advice from a Canadian Licenced Financial Advisor.
  • Personal Capital Property... There is no deemed disposition of these items on the date of departure from Canada unless the item's value was $10,000 or more. For those items worth $10,000 or more on the date of departure, there may have been taxes paid...or not...depending upon the cost and their FMV at the time of reporting (more later).
  1. Assuming no gain was reported at departure, these items are treated just like Real Capital Property. The item being sold was listed on the T1161 and its Adjusted Cost Base (ACB) was reported. Now, it is being sold, so capital gains may be triggered. 
  2. Your sales agent or you (if you are selling personally) now must report the sale and submit 25% of the GROSS sales proceeds....UNLESS you file CRA Form T1062. With that form, only 25% of the NET proceeds needs to be remitted to CRA. There may be no gain and in that case, no taxes due.
    1. Hint: Some personal use property is titled...such as a boat or a car. These items are normally expected to depreciate. Generally, it is reasonable to assume that if you own personal use property worth more than $10,000 on the date of departure then it will have depreciated since its acquisition. For example, if your original cost was $75,000 (boat, for example), its FMV is generally going to be lower when you leave Canada which means no taxes were due at departure.                                                           
    2. However, if the item is licenced and it remains titled in Canada (licenced boat, for example), that means that its sale after you leave Canada will be reported to the appropriate licencing authority for sales tax purposes. If the reported sale price is higher than the FMV reported on the T1243, then capital gains taxes will become payable when calculated and reported on the T1062. If it sells for less than what you reported on the T1243, there is no impact....no taxes due.
  • Life Insurance Policies...These are a special situation.
  1. If you have a life insurance policy with cash value, there is no deemed disposition on the date of departure, but if you "surrender" your policy (cash it in) after departure, income taxes apply. It is NOT capital gains, it is considered income and is subject to tax treaty rates.
  2. Should you decide to surrender the policy, your Life Insurance Company will file CRA Form T2062B to report the cash paid to you as income paid to a non-resident.
  • Your Principal Residence...If you kept and rented your Canadian home after departure, Capital Gains will apply to the time you owned it as a non-resident. Another special situation.

This Section Under Development. Contact TioCorp if you would like a Cost-Free Consultation from a Canadian financial advisor.

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