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Same House, Different Tax Rules: Selling a House in Canada

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Cross-border couples often enjoy the best of both worlds: travelling between the U.S. and Canada, experiencing two distinct cultures and exploring the natural beauty unique to each country. Indeed, Canada and the U.S. are different in many ways. For married homeowners in Canada, one important difference is how the U.S. and Canadian tax systems treat selling a home.

capitalgainstax-cp-thumbLet’s take a look at Laurie-Anne and Jack’s story. Laurie-Anne is a Canadian citizen, married to Jack, a U.S. citizen. They had owned and resided together in their home in Montréal for ten years before selling it this year. In a robust market, they sold their house for $380,000 more than they had paid for it.
After the sale, Laurie-Anne and Jack were concerned about tax on their capital gain, so they sought our advice. What they learned is that even though they are splitting the proceeds equally, the tax burden will not be the same for each of them.

As a Canadian citizen, Laurie-Anne will not have to pay tax on the capital gain; Canadian tax law does not require taxation on the sale of a home when it has been the principal residence for the entire duration of ownership. In fact, the couple will not even have to report the sale on their tax return in Canada.

Jack files his U.S. tax returns as “married filing separately.” U.S. regulations require that Jack declare all income—worldwide—including his share of the capital gain on the sale of the couple’s home in Montréal. There is an exclusion that benefits Jack: if he has owned or lived in the home long enough to qualify, he is allowed to exclude up to US$250,000 of capital gains from the sale of the house in Canada.

The same house, sold by the same couple, will be regarded entirely differently depending on which side of the border your paperwork is filed. Knowing your rights and obligations—and how they differ between the U.S. and Canada—can help you hold on to your “gains” as you prepare for your next big investment.

Terry Ritchie is the Director of Cross-Border Wealth Services at the Cardinal Point, a cross-border wealth management organization with offices in the United States and Canada.  Terry has been providing Canada-U.S. cross-border financial, investment, tax, transition, and estate planning services to affluent families for over 25 years.  He is active as an author, speaker and educator on international tax and financial planning matters. www.cardinalpointwealth.com

Cardinal Point Wealth Management featured in the Wall Street Journal, “A Cross-Border Retirement Without Tax Woes”

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Our own Jeff Sheldon was recently featured in a Wall Street Journal article, “A Cross-Border Retirement Without Tax Woes.” He shared the story of a couple who retired to the U.S. from Canada. While they sought sunny weather and a simpler life, when it came time to sort out their taxes and streamline their retirement investments, they were confronted with a cloudy, complicated situation. Adding to the challenge, “the wife was a Canadian citizen, the husband held dual citizenship in Canada and the U.S., and the couple owned retirement plans, property and other assets on both sides of the border.”

What to do? After other advisors told the couple to liquidate their Canadian retirement accounts and transfer those assets to U.S. accounts, the couple turned to the cross-border expertise of Cardinal Point. Jeff was concerned that such a move would subject those assets to double taxation, first as a withholding tax in Canada and then again as taxed income in the U.S. Fortunately, he came up with a solution that enabled the couple to avoid being taxed twice while still receiving funds from their tax-deferred Canadian retirement accounts.

Then Jeff identified a significant issue with their estate plan. “[T]he husband’s estate was considerably larger than his wife’s. That ordinarily wouldn’t be an issue, but the wife isn’t a U.S. citizen and isn’t eligible for the unlimited marital exemption.” As a result, the wife would owe estate taxes on what she inherited from her husband. To prevent this, Jeff employed two strategies to help ensure she wouldn’t owe estate taxes on that money.

As with many cross-border moves, there were no “one size fits all” solutions to fit the couple’s complex financial, tax and estate planning needs. It wasn’t a quick fix, but our tailored advice helped the couple worry less about their retirement and enjoy more Florida sunsets.