It appears like you could have sold or are planning to sell a property within the US, Bob. Long story short, selling expenses, corresponding to a realtor’s commission, can be deductible in your Canadian tax return.
This assumes that the property is taxable, which will likely be the case with a foreign property. Interestingly, a property outside Canada can count as your primary residence, but this is able to be unusual for a resident of Canada, whose Canadian home will likely be more precious than a foreign one and subsequently more attractive to list as a primary residence.
Do it’s good to report the sale in Canada?
Assuming the property in query is a vacation or rental property, the sale can be reported in your Canadian tax return. In addition to your selling costs, Bob, your acquisition costs, including legal fees, renovations or improvements, can reduce your capital gain.
Your capital gain is calculated based in your net sale proceeds less acquisition costs, including renovations. You must convert these amounts from U.S. dollars to Canadian dollars based on prevailing exchange rates.
According to the Canada Revenue Agency (CRA), it’s best to report foreign income or expenses based on the Bank of Canada Exchange rate on the day of the transaction. A distinct rate for the transaction date might be accepted if the source:
- Widespread
- Verifiable
- Is constantly published by an independent provider
- Recognized by the market
- Used in accordance with accepted business principles
- Used to arrange annual financial statements (if any)
- Used repeatedly from 12 months to 12 months
Bloomberg LP, Thomson Reuters Corporation and OANDA Corporation meet these criteria and are “generally acceptable,” in keeping with the CRA.
Tax implications of selling real estate within the USA
Selling a U.S. property also has U.S. tax implications, even when you should not a U.S. citizen. When a Canadian sells property within the U.S., they need to file a U.S. tax return, potentially incurring U.S. capital gains tax. This is a typical requirement in other countries as well.
The U.S. tax paid may qualify as a foreign tax credit and reduce your Canadian tax payable, Bob, to avoid double taxation.
