A lot of taxpayers emigrate from Canada every year, some to the south of the border and others beyond. In Canada, generally, the owners of the residential property are exempt from the taxes on capital gains if they use it as a principal residence. At emigration, a taxpayer can shelter the capital gains on the principal residence up to that point, or may extend it in a few cases.
This post is for general informational purposes only. The readers must exercise caution while making any decision. You should consult your professional income tax accountant in Canada, and the one in your new country of residence.
We have published another post specifically on the Principal residence exemption, we encourage the readers to read it in order to understand Principal residence and change of use rules. For the purpose of this article, the focus is on the taxpayers who are moving out of Canada.
Principal Residence Exemption at Emigration
When you are moving out of Canada, you can take advantage of the principal residence exemption. At the time of emigration, there is a deemed disposition of Principal Residence, if you are converting it to a rental property. You must report this deemed disposition on your emigrant tax return.
If you are moving temporarily out of Canada, you are still a factual resident of Canada. Deemed disposition happens only when you become a resident of Canada. Factual residents of Canada are treated as residents of Canada. Many taxpayers worry so much about the principal residence exemption that they keep on reporting as factual residents of Canada.
Deemed disposition means that your residence is not actually sold or disposed of but is considered to be sold for tax purposes. Your residence is considered to be sold at Fair market value as of the date of emigration and immediately re-acquired. The capital gains are reported and sheltered up to that date. The fair market value on that day becomes a new cost basis for the property.
Since 2023, there is a rule that if you sell a residential property within 365 days of ownership, the full gain is taxed on the income account. However, certain work-related and education related exemptions are available.
Can I still keep my principal residence in Canada even if I move to another country?
This is a question about which we receive a lot of inquiries. The answer is a yes and no!
Yes, if you meet the Section 54 definition of Principal residence! However, this is only possible if your spouse lives in it afterwards so that ordinarily inhabited requirement of the law is met. In case, if your spouse also moves with you, you cannot claim principal residence exemption. A non-resident’s principal residence exemption is limited up to the years when she was a resident of Canada.
If you are converting the property to an income-producing property or your spouse becomes a non-resident of Canada as well, no, you cannot avoid capital gains.
Moving to United States & Principal Residence
There is Section 121 of the Internal Revenue Code of the United States that allows U.S. taxpayers to exclude up to US$250,000 (US$500,000 for married joint filers) of Capital gain on the sale of a principal residence if the taxpayer meets certain conditions.
One common misconception by taxpayers we have seen in recent years is that think IRC Sec 121 is applicable to them when they become U.S. tax residents. To much of their relief, and by extension to the readers of this article, the U.S. Canada Tax treaty provides relief in terms of re-setting the cost basis for Canadian residents emigrating to the U.S.
As per the U.S. Canada Tax Treaty, Article XIII and Para 6, when a taxpayer who was a resident of Canada and moved to the U.S. while owning a principal residence in Canada gets a set-up of basis. As per the treaty, the adjusted cost basis cannot be less than the Fair market value on the date of emigration. In other words, at the date of emigration, the cost basis in the property is reset to fair market value on that date for both U.S. and Canada.
Some taxpayers also keep on filing taxes as Canadian tax residents just to avoid capital gains taxes in Canada by utilizing principal residence. While doing so they are relying on 4-year rules. They may need to take a closer look at their tax costs.
Also remember that Capital gains of real properties are sourced to the country where the property is located, and the other country has the right to tax (and allow foreign tax credit) these gains as well.
FINAL WORD
The final word is that it is not possible to take advantage of the principal residence exemption to shelter gains if you were a non-resident of Canada. This provision is meant for Canadian taxpayers only. If you are moving to another country, other than the United States, you must check the treaty between Canada and that country. Some countries may not agree to the step-up of basis in the property and that can result in additional taxes in your new host country. You can find this information under “Gains” in the tax treaties.
If you are moving from Canada to the U.S., please click here for a more detailed post.
Nothing can replace the advice of a professional income tax accountant. If you are moving out of Canada, get in touch with us to optimize your taxes at the exit!
36 thoughts on “Moving from Canada & Principal Residence Exemption”
Hi Maroof,
We have the following situation. Both of us are Canadian citizens and US Green Card holders (I applied for US citizenship but will not get it until much later this year). We have a house in Canada (both of us are on the title), as well as another one in California (only I am on the title). I spend most of my time in California and a couple of months in Canada, while my wife is the opposite: most of the year in Canada and a few months in California. My wife files Canadian taxes as a resident (her employer is in Canada) while I file a non-resident return in Canada. In the US, we file a joint return, including her Canadian income and claiming the Treaty deduction for Canadian taxes paid. My wife purchased a pre-construction condo (only she is on the contract), and we are thinking of selling our Canadian house at some point after the completion of the condo. Question: what are the tax implications of such a sale in both Canada and the US?
Reading your article, it sounds like we should be able to claim the Principal Residence Exemption in Canada, while in the US we might pay the tax if the capital gain (calculated as a sale price – fair market value as of the year of immigrating to the US) is higher than the $500 exemption. Am I missing something?
Thank you so much!
Hi Dmyto, it looks like your wife is not relying on the treaty to determine correct residency status. For principal residence exemption, in Canada, at least one spouse must ordinarily inhabit in it. Now using FMV at emigration is bit tricky. Your wife did not emigrate so why do you want a step up of basis? I believe you need to untangle this first. Also, note down that though a Canadian real property can be a principal residence of a nonresident of Canada if one spouse keeps on living there but the gains on the non-resident spouse’s portion of capital gains during the nonresidency period are not sheltered.
Hi. Thank you for this article. I have this situation.
My ex husband and I are both Canadian Citizen, and we both owned a residential property in Alberta. When we separated and divorced, we rented it out in 2018. I moved out of Canada to work in the US. in 2020. I still filed my tax for that year. But I did not file tax year 2021 since I emigrated. I came back to Canada in August 2022, immigrated back, and filed my tax for year 2022 using my world wide income. I am still currently working in the US. We are planning on selling the house this year if possible. I have credit cards still in Canada. My drivers license expired. Am I considered non resident?
Hello, sorry for the delayed response. We had a very busy run up to now. It is very hard to give a definitive answer here. Your Canadian tax residency status will also depend on your U.S. tax residency status. I assume you must be filing taxes as a U.S. tax resident over there. So, you should rely on the treaty tie breaker rules to determine correct residency status. Tie breaker rules are listed in Article IV, para 2 for the individuals like you. Just read them and apply them in order to determine the status. Tread careful though, as residency status is going to impact both reporting and tax payments on both sides of borders.
I have a dilemma. I am a Canadian citizen, own a home in Florida – I have been here for two years on an F1 visa and will have lived here for more than 2 years constantly by the time I sell my home and have lived here. I have to sell due to extenuating circumstances – will I have to pay the 15% when I sell …I have no home in Canada and my home in Florida has been my primary residence for more than 2 years and owned for over 4 (but I am on an F1 Visa)
Dear Connie
F1 Visa holders are exempt individuals for substantial presence test for certain number of years, hence, nonresident aliens for U.S. tax purposes. Primary residence exclusion in the U.S. and Principal residence exemption in Canada are two different things. You might be referring to FIRTPA withholding in your comment. That’s something your lawyer can determine at time of closing. If you are a U.S. nonresident alien due to F1 visa, you are a Canadian factual resident that may enable you to claim principal residence exemption.
Hi Maroof,
I am a non-resident of Canada and I rented my house when I left Canada. In the future, If I return to Canada and live in my home for few years, then will my home be deemed primary residence? Will I be able to avoid capital gains tax?
Thanks in advance.
Dear Krishnan
When you moved out of Canada, ideally you should have elected deemed disposition and claimed principal residence exemption for the capital gains accrued until then. When you move back, yes, you can file for a change of use. The gains accrued during the non-residency part are not sheltered.
Hi Maroof,
I am a non resident Canadian currently working in the US. When I left for USA, I rented my home in Toronto.
In the Future, When I come back to Canada in a few years and stay in my home, will the home become a primary residence?
The gains accrued during the non-residency part are not sheltered under Principal residence exemption.
Hi Maroof,
We are Canadian citizens and in the green card process stage to the US. We, me and my wife, have a house in Canada by both of our names. Do we have to pay any capital gain if we sell it before moving to the US or after moving to the USA
If the home was your principal residence at the time you left, elect deemed disposition of that real property and claim principal residence exemption. If you want to sell it after the move, the new cost will be FMV when you left Canada (and would have already claimed PRE at the time you left).If you sell before, simply claim PRE on gains. If you sell after the move, gains will be taxed for the non-residency period only. However, the purchaser will also withhold taxes.
HI Maroof
I sold my house in Canada in April (contract finalized) but had to move to the US in May and the house actually closed in June. My spouse was still going back and forth for the month or so to wind up things. What is the ruling applicable in my case?
Dear Shakeel, the ruling needs to be requested from the CRA. If you are asking about the tax residency, that’s more of fact based analysis. The information provided by you (back-and-forth in Canada) is too limited to conclude residency related questions.
I have a primary house in Canada, we are planning to move to the USA this year and are planning to sell the Canada house and buy a house there in the USA.
do I need to pay tax on the capital gain? Could you recommend what option will be best for me to save some tax?
If you sell your house before you moved to the U.S., you can claim principal residence exemption. If you sell the house after the move, you can only shelter the capital gains up to the point you were Canadian tax resident. The future capital gains will be equal to the Proceeds less FMV at time of emigration. Further, treaty also allows the step up of cost basis.
Dear Maroof, we have just moved to India, from Canada. Both CDN citizens, should we declare our canada home as principal residence? It is currently rented out to tenants. We plan to return in 4-5 years. We don’t have plans to sell right away, so would be moving back into it. What is best option for us, should we declare it a principle residence while we are in india, or not? Thank you.
Dear P.R.
If you moved in 2024, you can elect the deemed disposition at emigration on your 2024 tax return that you will file in 2025. What is best for you, it depends on your circumstances.
Maroof,
I am a Canadian Citizen. I married an American. I am in the process of becoming a resident of Montana. I am 10 months into the green card process from outside the country so I travel back and forth. I have met the substantial presence test and will be filing in both countries in April. My question surrounds my shares in my Canadian family ranching Company. I am an equal shareholder as my 3 siblings. My dad is the principle owner. I receive a small dividend typically. The ranch is in the family for 128 years. I have a home on the ranch where I pay rent out of my dividends. Would the ranch be considered a principal residence for an exemption? There would be no sale of shares unless my dad was no longer with us and maybe not then either. Thoughts?
Dear Tami
You mentioned it’s a company that owns, so principal residence exemption cannot be claimed by a corporation.
Hi Maroof,
Working in the USA on TN. Have a house in the USA (principal residence; jointly owned with my wife). Have a house in Canada (principal residence) where my wife is residing. Have jointly owned vehicles both in the USA and Canada. The company in US wants to start green card processing. So, for 2024 I am going to use the “deemed non-resident” status. I’m assuming this is different from emigrating. What are the implications of becoming “deemed non-resident”? Does this also trigger “deemed disposition”?
In the future:
Capital gains on the sale of the house in USA?
Capital gains on the sale of the house in Canada?
Is it possible to refile 2022/2023 as a “deemed non-resident” or is there a clock on it?
Thanks in advance!
hi Anil
You must first determine your tax residency. At the time you become deemed Non-Resident, there is a deemed disposition of the assets. When you prepare your taxes, discuss this in detail.
Hi Maroof,
My question is if I sale my primary residence and get capital gains and move out of Canada with gains do I need to pay taxes in Canada or the country(India) where I am going would tax me?
If you are a Canadian tax resident and sell the principal resident of Canada, you can claim principal residence exemption. It should not be taxable in a country where you will be a tax resident in future.
Hi Maroof,
Thanks for the blogs and info on cross country taxation.
We are Canadian citizens (me and my wife) moved to California, USA in the first quarter of 2023 on TN Visa. We sold our primary home in Canada in the month of SEP2023 (closing date). Since we sold the property within one year of moving, we got T2062 from CRA for the exemption on capital gains. We owned this property for more than 2 year and lived there until we move to USA. While filing my taxes in USA do we need to report our capital gains to IRS, if so will there be taxes or they can be exempted in USA?
Thanks in advance.
Dear Durga, I assume the Canadian side is all straightforward. The U.S. tax treatment for primary residence exclusion, Section 121 exclusion, can be claimed! However, please note that exclusion is amount limited to US$250k for an individual (500k for joint filers). If you meet the Section 121 exclusion criteria, you can exclude that gain. If you do not, then you have the option using the tax treaty to Step up the basis of that property equal to the FMV on date of emigration. However, California does not conform to this tax treaty election.
Hi Maroof,
Thank you very much for your blogs. Really gave me more clarity.
I would like to get your opinion with my situation. I am a Canadian Citizen and I had left Canada and moved to US with a “green card” at the end of 2022. I had a common-law partner for more than 10 years, but we decided to go our separate ways because of some issues (We decided that we are separated since end of 2022). We were living in the same house, which I own, for at least 10 years. She is claiming that she have a claim of a certain percentage of the house and she decided to live in it. I wanted to have the house rented out, but I can not, because of this. I was told that I need to report to Canada the usage of the house since I am being deemed non-resident. If that is the case, how can I report the usage if she is there? I am not sure how to approach this.
Thank you in advance!
hi Don
While we do not get into specific tax issues of readers on the blogs, here is some information that may help you.
Since you are a Canadian citizen who emigrated, you should report the deemed disposition of the principal residence on the emigrant tax return. This will adjust the cost basis of the property. When you said usage, I am not sure what did you mean by that.
Hi Marrof,
My wife and I are Canadians residents and will be moving to the USA(Georgia) as permanent residents. We have already sold our house(principal residence) as of June 2024 with the closing date set for July 31 2024. If we do our landing as residents on July 15th, what will our tax implications be. Will we get PRE both in Canada and USA(Georgia)
Thanks
Hello Maroof
I moved to the US on a TN Visa in 2023 but filed as a Canadian resident since I moved at the end of the year. This year I am selling the principle residence. I understand there would have been a deemed disposition once I moved. The capital gains above FMV would be subject to US tax or they would get the $250k exemption? No tax would need to be paid in Canada?
Hello Maroof,
Thank you so much for your blog post. Illuminating.
I will have a greencard in a few months and planning to sell my principal Canadian house a couple of months after.
I also own a house in California which I will keep.
I am wondering how to “crystalize” the FMV for both houses just before I emigrate. Is there a specific form I should do? Is it the T2061A? Or is the “Deemed disposition” will “crystalize” them anyways on the Canadian side?
In the US side, is there something to do to “crystalize” the value of my California home at the time of emigration?
Thank you so much for your help
hi Joan, when you get a green card, you should seek a personalized tax advice. Regarding your question, for Canadian tax purposes, a taxpayer can elect deemed disposition on T2061A and the basis will become equal to the FMV at departure. The U.S.-Canada tax treaty also allows a step up of basis for the principal residence of emigrants from Canada.
Hi Maroof,
I want to thank you in advance for your time in this matter.
We are Canadian citizens and owned a home but we are moving to the USA some time soon.
My question is, once ready to leave, we are going to sell our home (primary) where we have been leaving for over 6 years.
Are we going to have to pay any capital gain on our home or any assets that we may have?
I’m not aware of any new laws passed in 2024
Hi Andrey, when you move from Canada, you will be, most commonly, electing deemed disposition on that property. The cost basis will become equal to the fair market value as of the date of emigration. So you will claim principal residence exemption until then up to the FMV.
Hi Maroof,
Before i describe our situation, I would like to say thank you for doing a good job sharing your knowledge about taxation between Canada and US.
We are Canadian citizens. We sold our Canadian primary residence home last July 4 2024, the closing was September 23. We have green cards and we moved to the US last August 28, 2024. Do we need to pay tax in US and or in Canada from the sale proceeds of our home?
Please let me know.
TY
Hi Remiel, If you sold your primary residence after you moved from Canada, you need to check if the sale meets primary residence exclusion criteria in the U.S. You will be applying for certificate of compliance for the same in Canada.