The first book I ever read without being forced was an instructional picture essay on defensive hockey skills, featuring Bobby Orr and Tim Horton. I read it dozens of times, idolizing No. 4 with every ounce of my 48 pounds of boyhood. I still awkwardly try to pattern my game after his majestic ways.
By the time my sixteenth birthday rolled around, Orr was an even greater legend than in my boyhood.
He had been traded to the Chicago Blackhawks, and my father had, around that same time, been offered a job in The Windy City, with a substantial increase in salary. Nothing like Orr's, but it was pretty good.
Living alone with my father, and nearing the end of high school, the move decision was left up to me. What would life be like owning a real house in suburban Chicago? I had managed to keep my friends away from our very modest townhouse by the train tracks in East Burnaby for three years, embarrassed by its humble furnishings and paper thin walls.
Tickets to occasionally see Mr. Orr's Blackhawks were thrown into the mix, and I was truly, seriously tempted. Dad's salary would more than double. Middle class was beckoning.
But we would be saying good-bye to beautiful B.C. and I would have to part ways with a certain curly-haired girl with a cute little nose. Hmmm.
Well, Bobby Orr had a bad knee anyways, so we stayed home, where I clumsily mimicked my hero, playing defense for Burnaby Minor, while dad trudged along inspecting restaurants throughout B.C. He passed away just a few months later while on a business trip. I often wonder what life would have been like if we had gone south with our dreams.
Many Canadians did just that during the past few years, as U.S. home prices, and the relatively favorable exchange rate, made U.S. home-buying a reality for some. In this, our second submission on this topic, we explore tax issues related to the sale of a U.S. home by Canadians.
Tax on sale of your
U.S. property
As a Canadian resident, if you sell your U.S. real estate property, the following U.S. tax rules will apply to you:
i) The gross sale proceeds will be subject to a 10 per cent U.S. withholding tax at the time of transfer.
ii) You will need to file a U.S. non-resident income tax return and pay tax on the capital gain.
The purchaser of your property is obligated to act as a withholding agent for the IRS. They must file IRS Form 8288 - U.S. Withholding Tax Return for Dispositions by Foreign Persons of U.S. Real Property Interests and are required to withhold and remit withholding tax on the amount you will receive on the sale of property unless an exception to the withholding tax requirement applies, discussed below.
The purchaser is not required to provide the seller with a copy of Form 8288-A since the IRS must approve and stamp it first and will then provide it to the seller.
The seller will use the form to claim the withholding tax remitted on the U.S. non-resident tax return that they are required to file.
The purchaser is required to file these forms with the IRS by the 20th day after the date of transfer.
10 per cent withholding tax on the proceeds of sale
If you meet the following two exceptions, you may be able to reduce or waive the 10 per cent withholding tax:
Exception 1: sale price is US$300,000 or less.
If you sell your U.S. real property
for US$300,000 or less and the purchaser intends to use the property as a principal residence, then the 10 per cent withholding tax requirement will not apply.
No form or documentation is required to be filed by the purchaser with IRS Form 8288 to declare the property as a principal residence.
Exception 2: sale price is greater than US$300,000 - withholding certificate.
If the proceeds are greater than US$300,000 and you expect your tax liability on the gain to be less than
10 per cent of the gross sale price, you can request for a reduction or elimination of the withholding tax requirement by filing IRS Form 8288-B - Application for Withholding Certificate for Dispositions by Foreign Persons of U.S. Real Property Interests.
You must complete this form before the closing date of the sale. If the IRS grants your application, the certificate will indicate the amount of tax that should be withheld by the purchaser instead of the full 10 per cent.
U.S. non-resident tax return to report the sale
You will need to file a U.S. non-resident income tax return (Form 1040NR) to report the sale of your U.S. real estate. You may realize a capital gain/loss or recapture (the treatment of all or a part of the gain as ordinary income).
If you were subject to withholding tax, the amount withheld will reduce the amount of taxes you have to pay to the IRS.
As a resident of Canada, you will also be required to report the sale on your Canadian tax return. You can claim a foreign tax credit for the U.S. income tax you paid.
This will eliminate or minimize double taxation.
The information in this article is not intended to provide legal or tax advice. Readers should obtain professional advice from a qualified cross-border tax advisor before acting on it.
Mark Ryan is an advisor with RBC Wealth Management, Dominion Securities, (member CIPF) and can be reached at [email protected] or 250-960-4927.
