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Emigrant tax return, Principal Residence transferred to son, Son in Canada. Issues?
Senior Couple Departed Canada in April, 2021 for India. India & Canada do have a tax treaty. Intention was to go back & forth between both countries. But both of us developed serious health issues - so both can't come back to Canada anymore, due to Cardiologist and Neurologist advice. How do we clear this nightmare now with CRA voluntarily with minimum penalties & interest for both us & my son. We are 82 & 88 with severe health issues and stressed due to all this. Any help is highly appreciated!
Had a principal residence semi detached house in Canada. Just 1 house , no other house in Canada or anywhere else. Did not file a Departure tax return. Bought in 2000 for $ 220,000/- and lived in it since 2000 till date of departure. Never rented it. Was always occupied by us.
2. Bought a house in overseas country in July, 2021. Son & wife sold their condo in March, 2021. And came to live with us. We departed in April, 2021.
3. In August, 2022 transferred our house in Canada to our son & Daughter in law, who lives in Canada in our house for $ 1. FMV of the home was probably $ 900,000 in August 2022. He had a Condo, which he sold in March 2021 & moved in with us. We left Canada in April, 2021. Son/DIL were living in the house for 1 year, when it was transferred to him for $1.
4. Been filing as a resident of Canada since 2021. OAS, CPP and Canadian bank interest are our only source of income.No withholding tax was held on OAS, CPP & Canadian bank interest.
5. Do I have to pay Capital Gains tax on the principal residence now? As we left in April, 2021 and house was transferred 1 year later in August, 2022 to our son & DIL for $1.
6.Does Principal Residence Exemption apply in this case?
Does the + 1 year rule apply to us to claim PRE?
Or some reduced Capital Gains tax apply to us? Like pay Capital Gains tax for only 1 year from 2021 (date of departure) to 2022 (date of transfer to the son) on some pro rated basis?
7.
The fact that it was transferred for $1 , how does that affect us who are overseas now, and our son who is in Canada? FMV of the home was probably $ 900,000 in 2022 the year of transfer for $1. Bought for $ 220,000 in 2000 year.
What are the tax issues now both for us & our son
8. Form 2091 and Schedule 3 was filled by us in 2022. $1 was shown .
9. But no certificate of compliance, clearance certificate was obtained from CRA.
No 25% withholding tax was held back.as transfer was between parents and son/Daughter in law for $1.
How much trouble are we in now? How do we rectify this situation? How much taxes do we owe now, if any?
Any good CPA in GTA, especially MISSISSAUGA who can help us clear this mess?
Son is willing to sell the house transferred to him for $1 and go back to renting in case there is a huge tax bill, interest and penalty for him & us.
We can also sell our condo overseas which we got in July, 2021 and rent overseas to cover any tax liability we might have from this huge mistake.
Just need to get a ball park figure of how much we might owe CRA.
Thanks.tejasmunro@yahoo.com
Dear TJ
Thank you for reaching out. I understand that this situation has been stressful for you, and I want to assure you that we can work towards resolving it in the most tax-efficient way possible. Below, I’ve outlined the key considerations and next steps regarding your departure from Canada, the transfer of your home, and tax compliance requirements.
- Departure Tax & Principal Residence Exemption (PRE)
- Since you left Canada permanently in April 2021, the CRA considers you non-residents from that date.
- This means you were subject to departure tax, which deems you to have sold all capital property at fair market value (FMV) on your departure date.
- Canadian real estate held by an individual(s) is not subject to departure tax
- The FMV of your principal residence as of the date of your emigration from Canada should have been reported on form T1161. A penalty of $2,500 can be assessed by the CRA for failure to file Form T1161 with your departure tax return.
- Action: We need to file a late departure return to ensure your home is properly reported on form T1161.
- Transfer of Property to Your Son for $1 – Tax Implications
- Although the home was transferred for $1 in August 2022, CRA considers the transfer to have occurred at FMV ($900,000 at the time).
- Since you were non-residents at the time of transfer, the PRE covers you until April 2022, meaning any capital gains after April 2021 could be taxable. However, if the FMV remained the same between April 2021 and August 2022, there may be little to no taxable gain.
- Action: We need to determine if there was any appreciation in value between April 2021 and August 2022. If the FMV did not change significantly, your tax liability should be minimal.
- Withholding Tax & Certificate of Compliance (T2062)
- As non-residents, you were required to obtain a Certificate of Compliance (T2062) and withhold 25% of any taxable gain at the time of transfer. Since this was not done, CRA may impose penalties and interest.
- Action: We can file the late T2062 form and possibly apply for CRA’s Voluntary Disclosures Program (VDP) to minimize penalties.
- Impact on Your Son
- Since your son received the home at FMV ($900,000), his cost basis (ACB) for future capital gains tax is $900,000.
- He does not owe tax now, but if he sells the home later, capital gains tax will apply on any appreciation above $900,000.
- Selling the home now may not be necessary unless there is a significant tax burden, which seems unlikely given the PRE coverage.
- Recommended Next Steps
- File the overdue departure tax return and form T1161.
- Submit Form T2062 (Certificate of Compliance) for the 2022 transfer, even if late, to avoid additional penalties.
- Apply for Voluntary Disclosure (VDP) with CRA, which may help reduce penalties for missing the compliance certificate and form T1161.
- Confirm the FMV of the home in April 2021 and August 2022 to determine if any capital gains tax is applicable.
- Potential Tax Liability (Estimate)
I would be happy to assist you with filing the necessary documents and working towards a resolution with the CRA. Let me know a convenient time to discuss this further.