The Tax Times: FATCA May Expose American Expats in Canada to US Tax on Their Sales of Their Canadian Principal Residences!

Monday, March 30, 2015

FATCA May Expose American Expats in Canada to US Tax on Their Sales of Their Canadian Principal Residences!

The one million Americans living in Canada are being reminded that they should pay US capital gains tax on the sale of their principal residence if they realise a gain of more than USD250,000. In the past the US authorities would not have been aware of such transactions, but in future they might infer them from FBAR or FATCA reports.

In Canada a house can be sold tax-free as long as it’s a principal residence. Americans get a tax deduction for the home mortgage interest they pay, but they may also face a capital gains tax when selling a house at a profit. This applies in both the United States and Canada.

An estimated one million U.S. citizens live in Canada. Those affected by taxes on the sale of a home would be the long-timers who over the years have seen house price gains measured in the hundreds of thousands of dollars. Residents of the prime neighbourhoods in Vancouver and Toronto might see that kind of price appreciation in a fairly short period of time.

US tax law provides that the first $250,000 gain on the sale of a house is exempt from taxes for a U.S. citizen or $500,000 for spouses who are both U.S. citizens or where there is a Canadian spouse if the couple has elected to file joint returns in the United States. Gains above those thresholds are taxed at rates of 15 to 20 per cent, he said. A 3.8-per-cent Medicare surtax applies for higher-income people.

What is different now is that with the additional information provided by FATCA and the increased reporting and enforcement of FBAR reporting;these gains are much more likely to be discovered. Then in the past. See our post U.S. Signs FATCA Agreements with Canada and Hungaryand our post Canada Limits Model I FATCA Agreement for more information regarding the US Canadian Model I FATCA Agreement to implement the Foreign Account Tax Compliance Act in an effort to discourage offshore tax evasion.

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