Deemed Disposition

by Tax Guy - Burlington Accountant on February 1, 2010 Print This Post Print This Post

In certain circumstances property held by a taxpayer can be deemed to be sold even if no actual transaction has taken place. Disposition occur upon death, gifting of property, change in use of property, or on the cessation of Canadian residency.

Other examples include:

  • Transfer of securities from a non-registered account to an RRSP.
  • Converting a principal residence to a rental property.

About The Tax Guy...

Dean Paley CGA CFP is a Burlington accountant and financial planner who services individuals and business owners locally, nationally and internationally. Dean has appeared in the National Post, Toronto Star and Metro News.

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{ 7 comments }

sophie October 4, 2012 at 9:24 am

Hi,
I am thinking of working in a foreign country for a couple of years.
I have been working about 10 years as a full timer in the industry and filed my own tax return based on what I had earned every year.
Apparently, with this foreign job, my earnings are not supposed to be taxable.
However, I have a house under my name, where my two daughters would stay while I am away.
Also, I have a new condo unit which is currently on construction and I had planned to move in in Jan. 2013, however now that I will be out of country for 2 years I am not sure what I will do with it just yet.
My question is: do I have to file my taxes while I am away because I have a house here?
Then, how much / what percentage do I have to pay for tax- return?
This new foreign job, my earnings are a lot less because it is not supposed to be taxable (by the way I am going to the middle east for nursing as the trend seems to be now.^^) So I want to make sure I won’t be paying any significant taxes here in Canada while I am away just because I have a house.
I can sell a new condo if really necessary.
Please help me.
Thank you.

sophie.

Tax Guy - Burlington Accountant October 4, 2012 at 1:48 pm

Hi Sophie,

I really can’t say if you would be liable for Canadian tax or not. But I can say that if you sever ties, you will have a deemed disposition and may have a significant tax bill on departure (although this can be undone if you return).

A home in Canada that is available for occupation is a significant tie as is leaving a spouse or dependent children in Canada.

The rental property will be subject to non-resident withholding tax of 25% of the gross rent unless you use an agent. In the latter case, the withholding is on the net rent.

Again, other factors may tilt the balance one way or another. I would urge you to prepare in advance and meet with a qualified professional to help (I’d be happy to di a tax plan for you).

john January 29, 2013 at 9:22 pm

Hello,

Does Deemed Disposition apply when an old rental house is taken down?
If Deemed Dispostion does apply, when should it be sumitted, when the house is taken down, when the house is rebuilted or when the new house is sold?
If Deemed Disposition apply when the house is taken down, can it be delay until a later date?

John

Burlington Accountant January 30, 2013 at 12:29 am

John,

The building is an asset and it is being disposed of for nil value. The disposition occurs when the building is demolished and the tax year in which occurs would be when it would be claimed. You could only delay it in so far as you can control when the building comes down.

john February 1, 2013 at 8:58 am

Thanks for your reply,

If another rental unit is rebuilded on the same lot, after the old rental house is taken down, can the capital gain be rollover to the new rental unit and avoid deemed disposition for the time being?

Tax Guy - Burlington Accountant February 1, 2013 at 10:01 am

Hi John,
There would be no gain on the demolition because it is considered to be sold for $0. If the property not considered personal property, then the resulting loss can be carried forward and used to offset any future capital gain.

john February 2, 2013 at 12:56 am

Am I correct to say that there is no disposition as there is no ownership change whatsoever – the cost of the old property (land & building) is added to the cost of the new building. No capital gain incurred until the property changes hand, except rollover to a company under section 85?

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