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Where are taxes calculated on sale of Canadian-owned USA property?

Region: Ontario Answer # 1087

On the sale of Canadian-owned USA property, taxes are calculated under the Foreign Investment in Real Property Tax Act (FIRPTA). Similar to the requirements in Canada, if you sell your USA property for a higher amount than what you paid for, you pay a tax on the difference – known as capital gains tax. Even as a Canadian resident, tax obligations fall first to the US government for the sale of a USA property. You must report the gain or loss of the property on the U.S. Non-Resident Income Tax Return, known as the 1040NR form.

Although Canadians residents must report any worldwide income, the Canada-USA Tax Treaty avoids double taxation. The US Capital Gains tax takes priority but can then be claimed as a foreign tax credit against Canadian and provincial tax.

The FIRPTA also requires that any non-USA resident who sells property in the USA is subject to a 10% non-resident withholding tax on the gross sales price. By filing form 8288-B, one may request to have the withholding tax subject to the net capital gain rather than the gross sale price. Lastly, the withholding tax can be waived altogether if the gross sale price is under $300,000 and the purchaser intends to use the property as their residence for at least 50% of the next two years.

For more information on FIRPTA and paying tax on US property, refer to the Internal Revenue Service (IRS).


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