Post # 3 / What Went Wrong – Specifics / Financial Risk Created
In the last post S1 & S2 were dealing with the shock of over $20,000 in tax, penalties and interest plus the possible delay of the sale of the family home. These following compliance deficiencies were identified.
Tax Year of Departure 2013
- S1 did not file prescribed “List of Properties by Emigrant of Canada” to disclose 50% interest in family home plus $75,000 RV personal use property. Penalty for failure to file $2,500;
- S2 did not file prescribed “List of Properties by Emigrant of Canada” to disclose 50% interest in family home plus 1,000 shares of previous employer. Penalty for failure to file $2,500;
- S2 did not file prescribed “Deemed Disposition of Property by Emigrant of Canada” or a tax return to report $55,000 accrued gain on 1,000 shares of previous employer. S2 will owe CRA approximately $4,500 for unpaid tax, late filing penalty, and interest because no return was filed in 2013;
- S1’s return will be adjusted to disallow the spouse credit because S2 revised income exceeds allowable limit. S1 will owe CRA approximately $2,300 for unpaid tax and interest.
Tax Year 2014
Because they were renting their family home on a breakeven basis S1 & S2 did not think they had to report this activity to the US or Canadian tax authorities. For Canadian purposes the gross rental income is subject to non-resident withholding tax of 25%. This should have been remitted to CRA in the month following the rent receipt, unless elective procedures followed and a special rent return is submitted by June 30, 2015. The elective return reports rental income net of expenses and tax is charged at normal Canadian marginal tax rates on the net profit only. Often the tax owing at marginal rates on a net basis, is relatively nominal compared to the 25 % withholding
- No elective procedures or special rental return has been filed. CRA can charge $5,400 [$1,800 per month for 12 months @ 25%] plus interest for late payment;
- S1 & S2 held the property jointly. Both should have elected and filed special rental return on their respective share;
Tax Year 2015
- No elective procedures or special rental return has been filed by June 30, 2016. CRA can charge $5,400 plus interest for late payment;
This looks really bad, if you want to know how Hanson Cross Border Tax helped S1 & S2 minimize the financial damage, see post # 4 next week.