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Parents left Canada permanently. Did not file a departure return.
Transferred their Principal Residence in Canada to us from abroad as a Gift after 1.5 years after leaving Canada permanently, when they were already Non Resident. Tax Implications??
1.Parents bought house in 2001 for $ 220,00/- . It's their Principle Residence. Never rented it. No other house besides that. It was their PR through out. Both are 65+.
2. In April -2021, they left Canada permanently.
Did not file a Departure return. The house was still their Principal Residence and in their name at that time.
No Form T1161 or Form T1243 were filed either. They only had their paid off Principal Residence and Bank account when they left. No RRSP, TFSA, Stocks or Mutual Funds. Were they even supposed to file these forms? Since they only had a Principal Residence and Bank account, when they left.
3. I moved into their house when they left Canada permanently in April, 2021. In August, 2022 from abroad, they transferred the house to my and my wife's name for $1.00 as a gift.
4. FMV of the house was around $ 900,000/- in April - 2021 when they left Canada permanently. And FMV of the house was around $ 1 Million in August, 2022 when they transferred the house to us for $ 1 as a gift from abroad. They were non resident in August - 2022.
5. How much penalties and interest and Capital Gains tax we have to now pay?
6. I am guessing they (parents) or we (myself and wife) only have to pay the Capital Gains on the appreciation of the FMV of about $ 100,000/- between April -2021 ( when they permanently left Canada) and August - 2022 ( when the house was transferred to us for $ 1)
7. Besides this unpaid Capital Gains Tax. Are we looking at any other penalties and interest? Will they charge us interest also on this Capital Gains tax from 2021 or 2022.
8. Were they required to also
File Form T2062
Obtain a Certificate of Compliance
Pay 25% withholding tax on the gross sale price (FMV) - On August, 2022 when the house was transferred for $ 1.
25% of $1,000,000 =
$250,000.
9. Now do I have to deposit $ 250,000 with CRA? Or just pay the Capital Gains tax?
Hi Nick,
Thanks for the detailed facts. There are a few moving pieces here, but the key point is this:
A) Departure return (2021): likely no tax on the principal residence, but the paperwork may still have been required
When someone leaves Canada and becomes a non-resident, CRA generally expects a departure return for that year.
- If the only meaningful asset was a principal residence (never rented) and cash/bank account, there is often no “departure tax” payable because the principal res
- That said, CRA can still expect the departure return filing to report the change in residency and (depending on the situation) the deemed disposition reporting.
- Form T1161 is only required if the person’s total property exceeded the reporting threshold at departure (and some property is excluded). Whether it applied depends on the full asset list and values at the date of departure.
- Form T1243 is used to calculate the deemed disposition/departure tax. If everything was covered by the principal residence exemption and there were no other taxable assets, it may not have been necessary, but this depends on how the departure is reported.
idence can generally be protected by the principal residence exemption.
B) The 2022 transfer for $1 is treated as a transfer at fair market value (FMV) for tax purposes
Even though the house was transferred to you and your wife for $1, CRA treats this as if your parents disposed of the property at FMV on the transfer date.
If your parents were already non-residents in August 2022, transferring Canadian real estate is treated as a taxable disposition in Canada (even if it’s a “gift”).
C) Capital gains: often the “1st question” is whether the principal residence exemption covers 2001 to 2022
Your parents may be able to claim the principal residence exemption for the years the home qualifies as their principal residence (including potentially the year they left). The fact that you moved in after they left does not automatically eliminate the exemption, but it can affect the analysis depending on whether the home remained “ordinarily inhabited” by them/family and whether they claimed any other property as a principal residence.
So it’s not always as simple as “only pay tax on the $100,000 increase from April 2021 to August 2022.” Sometimes the gain can be largely or fully exempt, but it needs to be calculated properly.
D) Section 116 (T2062) compliance: yes, usually required for non-residents disposing of Canadian real estate
If your parents were non-residents at the time of the transfer, the Section 116 clearance certificate (Form T2062) is generally required.
- The 25% withholding people talk about is typically handled through the purchaser’s/lawyer’s holdback process.
- In a gift/related-party transfer, there may not have been a lawyer withholding funds at the time, but CRA can still assess compliance requirements and penalties.
- The clearance process is meant to ensure CRA can collect any Canadian tax that may be payable on the disposition.
E) Penalties and interest
Potential exposures can include:
- Late-filed departure return penalties (if applicable)
- Late/non-filed Section 116 (T2062) penalties
- Interest on any unpaid tax from the balance-due date of the relevant return
The exact amounts depend on what was filed (or not filed), the exact residency position, and whether the principal residence exemption eliminates some/all of the gain.
F) Your question: “Do I need to deposit $250,000 now?”
Not necessarily as a lump-sum “deposit” today, but if Section 116 was missed at the time of transfer, CRA may require the transaction to be brought into compliance and may assess penalties/interest. The actual tax payable (if any) depends on the capital gain calculation and availability of the principal residence exemption.
What I recommend (practical next steps)
- Confirm your parents’ exact date of departure and whether CRA would view them as non-resident from April 2021.
- Confirm whether the home was ever rented (you said no) and whether they owned/claimed any other property.
- Obtain FMV support for April 2021 and August 2022.
- Bring the file into compliance: determine the correct filing approach for:
- Departure return / reporting (2021), and
- The 2022 non-resident disposition and Section 116 process.
If you want, our firm can help you map this out and clean it up properly. The first step is to review the facts and documents and then confirm the best filing strategy.
(Allan Madan, CPA, CA)