Steve McGuinness
Special to Niagara Now/The Lake Report

Maggie, who makes her home at Creekside Senior’s Estates in St. Davids, recently wrote to ask about the tax implications of selling her winter home in Florida.

Maggie and her husband, both retired, will be heading out in November on a drive to spend their final snowbird season down there.

She’s sick of worrying about hurricane damage threats and biting her lip when her MAGA neighbours rave about President Donald Trump. The ongoing trade disputes have also soured her on treks south. So, they’re listing their second home for sale this year.

If you own any foreign property you’re considering selling, you may want to eavesdrop on my advice to Maggie.

Canadian residents are subject to Canadian tax on their worldwide income, including gains on the sale of foreign property. There may also be foreign tax that the buyer of a property outside Canada must withhold from the sales price. An international tax treaty may also apply. In Maggie’s case, this would be the Canada-U.S. Tax Convention.

Let’s review the implications under the Canadian Income Tax Act first. When we sell a property, including real estate, for a price greater than we originally paid to purchase it, the resulting gain is subject to tax. Unlike with ordinary income (from employment or investments), only half of the “capital gain” is included in our taxable income.

Taxpayers can also use the “principal residence” exemption to shield the gain from tax. Any home a taxpayer lives in for some part of the year is eligible for this exemption where a taxpayer owns more than one home, even if the second home is outside of Canada. But only one home can be designated per year.

Next, let’s review what the buyer of Maggie’s Florida home must do to satisfy Internal Revenue Service requirements when the seller is a foreigner.

The sale of a U.S. property by a foreign owner is subject to the Foreign Investment in Real Property Tax Act. This tax act also imposes withholding requirements on the buyer.

The withholding tax rate can be as much as 15 per cent of the purchase price. The American buyer (or their agent) must determine if the seller is a foreign person so they can remit this amount to the IRS upon closing.

There is an exception if the property sells for proceeds of $300,000 (U.S. dollars) or less, in certain circumstances. There is also an exception if the home is a movable property.

I reconnected with Maggie to see what price point she expected to list at and to understand more details about her home.

She explained that it was a manufactured home mounted upon blocks on a rented RV park site and that her sale price target is well below $300,000.

However, if you happen to sell a non-movable U.S. home for over $300,000, you would be subject to this withholding requirement. In that case, when you pay tax on the capital gain in Canada, you would be entitled to claim a credit to reduce your Canada Revenue Agency tax bill by the amount paid to the IRS.

In his Bay Street career, Steve McGuinness was a senior advisor to large financial institutions and is now retired in NOTL. Send your personal financial planning questions to him at smcgfinplan@gmail.com.