It sounds like you sold or are planning to sell a property in the U.S., Bob. To cut to the chase, selling costs, like a realtor commission, would be deductible on your Canadian tax return.
This assumes the property is taxable, which is typically the case for a foreign property. Interestingly, a property outside Canada can qualify as your principal residence. But this would be unusual for a Canadian resident, whose Canadian home would typically be more valuable than a foreign one, and therefore, more appealing to claim as your principal residence.
Do you have to report the sale in Canada?
Assuming the property in question is a vacation or rental property, the sale would be reported on 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 would be calculated based on your net sale proceeds minus the acquisition cost, including renovations. You have to convert these amounts from U.S. dollars to Canadian dollars based on the applicable exchange rates.
The Canada Revenue Agency (CRA) says you should report foreign income or expenses based on the Bank of Canada exchange rate on the date of the transaction. It will accept a different rate for the transaction date if the source is:
Widely available
Verifiable
Published by an independent provider on an ongoing basis
Recognized by the market
Used in accordance with well-accepted business principles
Used to prepare financial statements (if any)
Used regularly from year to year
Bloomberg L.P., Thomson Reuters Corporation, and OANDA Corporation meet these criteria and are “generally acceptable” to use, according to the CRA.
U.S. tax implications of selling property in the U.S.
The U.S. property sale will also have U.S. tax implications, even if you’re not a U.S. citizen. When a Canadian sells real estate in the U.S., they must file a U.S. tax return with U.S. capital gains tax potentially payable. This is a common requirement in other countries as well.
The U.S. tax paid can qualify as a foreign tax credit to reduce your Canadian tax payable, Bob, to avoid double taxation.
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