Selling when you aren’t a Canadian resident

canada-1If you are not a Canadian resident, or will not be on the day of closing, budget for getting a lot less money on the day of closing. Tax laws in Canada may require that you pay capital gains tax, and so your lawyer could have to hold back up to 25% of the sale price to cover the possible taxes. There are some exemptions, and you can speak to an accountant about getting approved for one before closing, but you may need to pay it. Especially if you have a mortgage, or need to use those funds right away, you should look into this as soon as you have an offer to minimize the effect on you.

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Death and taxes

Cemetery 2Someone once said that the only sure things are death and taxes. Sometimes, those come together.

When you die, you still owe taxes for the year of your death. You could also owe back taxes, and Canada Revenue Agency will not forgive them because the person has died. After you have filed the final return for the person who has died, you can apply to CRA for a clearance certificate, which will state that they do not owe any back taxes. Until you receive this clearance certificate, which can be up to a year after the date of death, you should hold back at least some estate assets to cover any tax amounts; if you give them all away, then you can be personally responsible for paying CRA.

Pay your taxes

Most people aren’t aware of this, but if you don’t pay your municipal property taxes, the city or town has the right to sell your house out from under you.

Keep in mind that justTaxes because they can, doesn’t mean they necessarily will. First, the municipality cannot start the process until the third year after the taxes are due (the second year in the case of vacant land). Second, after the process is started, you have a full year to repay the taxes owing, after which it is cleared and they cannot sell your home. The municipality can also extend that year, so you can effectively have a grace period before they start enforcement. However, if you don’t pay, they can put your house up in a tax sale, and accept an offer from the highest bidder. And this is final – all you are entitled to is any profit above what is owed on taxes, your mortgage or any other amount owing against the land, and the municipality is not required to accept the highest or best price or inquire into property values.You can check out the Municipal Tax Sales Act here.

HST rebates

Here’s another tax-relNew houseated post for near tax time: HST rebates on a new home. If you are buying a brand-new home, you are entitled to a rebate, but only in specific circumstances:

  1. You must intend to live in it as your primary home. It can’t be a cottage or other seasonal residence.
  2. If you are not going to live there, an immediate family member of yours (or of your spouse’s) must intend to live there. You can rent it to your brother and get the rebate, but you can’t rent it to a friend.

If you meet these requirements, you can save a significant amount in taxes.

Tax tips for executors

Tax timeIf you are the executor of an estate, you have very clear and strict rules for filing taxes for the deceased.

First, you have to file their final return. This includes all income received up until the date of their death. If the date of death is before October 31, the return is due by April 30 of the next year; after October 31, it is due within six months of the date of death.

Second, you must file a T3 Trust Return. This includes all income earned by the estate from the date of death until the estate is wound up.

Finally, when the Assessment Notice is received for the final tax return filed, a request should be made to Revenue Canada for a Clearance Certificate. The Clearance Certificate will confirm that there are no further taxes owing by the deceased or their estate and any funds remaining in the estate can be given to the beneficiaries.

Estate taxes can be difficult and complex, and you can be liable for misfiling if you are the executor. This is a situation where it may not be appropriate to do it yourself; an accountant can help immeasurably with estate taxes.

Tax time

With tax time coming up shortly here in Canada, I thought I would revisit a topic: when do you have to pay HST on a house?

The short answer: always, unless there is an exemption. One major exemption is for resale homes; as long as it has been used for residential purposes, there is generally no HST. There are also significant rebates on new homes if you or an immediate family member plans to live there. There are also a number of very grey areas: farmland, houses used as part of a business, or houses that have been substantially renovated. If you’re not sure whether HST will apply, ask a specialist.

Getting credit

If you are a first-time buyer, you are eligible for tax credits for costs associated with buying your first home. Items like legal fees, land transfer tax, and other costs associated with buying your home are open for a claim on your income taxes the following year. Keep those receipts!

First-timer benefits

The Home Buyers’ Plan is a plan that allows a home buyer to withdraw funds from most registered retirement savings plans (RRSPs) in order to buy or build a qualifying home either for you, or a relative that has a disability. Some RRSPs that do not allow any withdrawals to be made include some locked-in or group RRSPs, but more information about this matter can be obtained from the individual who issues your RRSP.

In any single calendar year up to a maximum of $25,000 can be withdrawn from the RRSP. You have the option to withdraw a single lump sum or you can make a series of smaller withdrawals throughout the year, as long as the total amount of withdrawals does not exceed the maximum amount of $25.000. It is important to note that before any amount is withdrawn from your RRSP, the RRSP contributions must be in the RRSP for at least 90 days, or else they may not be deductible. Any withdrawals that are made have to be repaid within a period of 15 years, and each year you will have to make a payment until the HBP balance is completely paid off. If you fail to repay an amount in a certain year then the amount will be included in your income for the year in which the withdrawal was made. You should consult with your financial advisor before withdrawing any funds for this purpose.

Property assessments

Last week, I received my 2012 property assessment notice from MPAC. The Municipal Property Assessment Corporation assesses property values every four years for the purpose of determining municipal taxes. They do this through an analysis of sales, and focus on five major factors: location, lot dimensions, living area, age of the structure(s) (adjusted for renovations or additions) and quality of construction. Items like garages, fireplaces, boathouses and the number of bathrooms can affect value, as can features such as proximity to a golf course or green space.

MPAC has a feature called AboutMyProperty where you can get more detailed information about your house when the assessment is released. If you are unsatisfied with the assessed value, you can also appeal it to the Assessment Review Board.

An update on taxes for Americans outside of America

I’ve written several posts before on tax planning for Americans in Canada (you can see them here, here and here). The Globe and Mail published this article a couple of weeks ago on what the IRS is now doing to assist Americans living outside of the U.S. who have not been filing their taxes.

As I have mentioned before, the U.S. is one of the few countries in the world that taxes based on citizenship rather than residency. If I moved to Miami, I would stop filing taxes in Canada as I would no longer be a Canadian resident, but if my cousin Jennifer in Miami moved to Barrie, she would still have to file her U.S. taxes unless she renounced her citizenship.

The problem for many Americans is that they have not been filing because they were not told they needed to. For the most part, they are unlikely to owe any taxes to the U.S.; tax treaties between our countries essentially net everything out for most people. However, there are penalties to not filing taxes, and that is the bigger issue for many Americans resident in Canada.

With these new rules, qualified individuals must  submit three years of back taxes, six years of bank reporting forms and a signed letter explaining why they haven’t filed. To qualify, they must have “simple” returns (as defined by the IRS) and owe less than $1,500 a year in taxes, based on the past three tax years.

If you have American citizenship and have not been filing your taxes, you should see an accountant to determine whether you can access this amnesty program.