[bleagues]

I currently own a condo in the states, I bought it in an area where prices were depressed in 2011, for a sum in the low $100k range. I conservatively value it at double what I paid for it.

I also currently own a home in 'joint tennancy' with a family member in eastern Canada. Which is in the process of being sold, from those proceeds another house will be bought. The valuation on this house has not increased much from the approximate $200k purchase price.

I am thinking ahead to tax time whether it be next year or whenever and the capital gains I will have to pay.

My questions:

Can I designate my US property as my 'principle residence'?

If I can designate my US property as my 'principle residence', do I have to pay capital gains tax on my share of the property that is being sold in eastern Canada?

Am I better off to designate my eastern Canadian home as my 'principle residence', purchase the next house with said family member and then, after that purchase, declare my US property as my primary residence?

Any help, or ideas on my situation would be greatly appreciated.

 

[stardancer]

Although I cannot find where the rules refer to a Canadian address, I would say- a foreign property cannot be your principal residence; if it were then you would be non-resident. We are talking Canadian after all. You should call CRA for an answer.

At any rate, you would not be able to avoid capital gains on both properties.

 

[WiseOwl]

Yes, foreign properties can qualify as a principal residence for Canadian income tax purposes, depending on the facts. This is confirmed by CRA in their folio (Link: http://www.cra-arc.gc.ca/tx/tchncl/ncmtx/fls/s1/f3/s1-f3-c2-eng.html#N111A0).

For each property you own, you will need to go through the criteria outlined in the principal residence definition to determine if your homes meet the definition of a principal residence. That same folio can help you with that, as it discusses the requirements to qualify as a 'principal residence' (e.g., types of property that qualify, ownership requirement, ordinarily inhabited rule). The ordinarily inhabited rule is generally the critical one to consider as the other tests are usually easier to meet. I also assume you don't earn any rental income from the US condo and it is strictly personal use only.

Assuming you go through the analysis and determine that both properties could qualify as a principal residence, you can make the choice as to which one you will designate as your principal residence in years that you owned both properties. If you are desiginating the US property as your principal residence, then yes, the sale of the home in Eastern Canada will be subject to full taxation. Vice-versa if you were to desiginate the home in Eastern Canada as your principal residence.

As a general rule of thumb, it makes sense to designate the property that has the highest capital gain per year. From what it sounds like, the US property has the highest gain per year, therefore you would want to consider designating that property as your principal residence for the years where you owned both properties. You would want to do the calculations to confirm though.

Cheers,
WiseOwl

 

[stardancer]

Thanks for the link. I couldn't find any

 

[MoreMiles]

You do know that by declaring yourself a USA resident, you may be subject to their IRS income tax for your worldwide income? They also have estate tax unlike Canada so your asset may be subject to a major tax bill when you pass away?

Also, are you getting OHIP coverage? How can you have OHIP if you are not a resident in Canada? Is that insurance fraud then?

These are the issues to think about.

 

[MoreMiles]

Look at this, you don't want to pass the 'substantial presence' test.

http://www.advisor.ca/retirement/retirement-news/residency-rules-snowbirds-need-to-know-65336

 

[bleagues]

Thanks for the replies everyone. Some good points made.

I file the IRS form 8840 every year specifically for the 'substantial presence' test. I'm never close to being in the USA for that many days in a one year span.

I did call Canada Revenue the other day. I spoke with an agent and provided them with more details than I have to you on here.

With the usual disclaimer about every tax payers situation having to be dealt with in a one on oner basis, the agent did say that it was possible to designate a foreign property as a principle residence and that in my situation it 'sounds like (I'd) be entitled to do so'.

They also provided good tips on how to show proof of it being a principle residence. I'm glad I called them.

 

[Guban]

^ what good tips did you get? I would have thought that WiseOwl's descriptions were sufficient.