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I am preparing to sell 3.4 acres in Nova Scotia. I am a Canadian citizen living in Michigan USA. The attorney for the buyer says I will have to hire a $500 accountant to figure what tax I must pay.

I find it hard to believe in this simple transaction I need a $500 accountant... I can do math. All I need is the percentage owed and the rules. I do not make enough money under Social Security to pay income tax in either country, Canada or the US.

The buyer has agreed to pay $12,000. That is $8,239 more than I paid for the land 23 years ago. They are telling me I will net only about $9,900 after my tax. I do not believe I would owe income tax. I receive less than $1,000 a month.

Is there another type of tax just because I don't live in the province? And why do I have to pay $500 to an accountant to figure out what I would owe? Lawyer for the buyer wants to withhold something, but won't tell me what unless I hire a $500 accountant. Any way around this? Or what are they trying to pull?

Grade 'Eh' Bacon
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Diane Petryk
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  • As a side-note to my answer below, the reason why you are recommended to get an accountant to do this for you can be seen by the simple fact that you expected no taxes to be owing, although it is quite likely they will be. Tax law is complex; international tax law doubly so. If you really put your effort into this one I hope you can solve on your own, but make sure you don't get too overconfident; you will need to spend a solid effort doing this to get the correct result. Good luck! – Grade 'Eh' Bacon Nov 01 '18 at 20:57
  • A sad reminder that the idea that "we Own land" is a joke :/ – Fattie Nov 02 '18 at 04:51

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The short answer is, yes you probably will need to pay Canadian tax on this.

The reason is that Canada will have the first right to tax the sale of the property, under the Canada-US Tax treaty. At the same time, as a non-resident of Canada, you are entitled to basically no tax deductions or non-refundable tax credits [typically in Canada you can earn ~10k without paying any tax].

So basically you will have taxable income of roughly 5k (1/2 of your 10k gain), with no offsetting amounts to claim against it - assume taxes would be about 1.5-2k.

Because you are a non-resident, the buyer is probably legally obligated to withhold those taxes from you, as they've indicated.

If you want to avoid the accountant, you will need to do a fair amount of legwork, although it may be worth it to you to do so. Unfortunately time may be of the essence, if you are worried about the buyer walking away.

Here's a good place to start, on the Canada Revenue Agency website: https://www.canada.ca/en/revenue-agency/services/tax/international-non-residents/information-been-moved/disposing-acquiring-certain-canadian-property.html#nrcp

You may also end up owing US tax on this, as 1k / month + 10k gain = ~22k in income, so even with long term capital gain rates you likely will owe something at the end of the day, although it's quite likely you will be able to claim your Canadian tax paid as a foreign tax credit, meaning your net US tax liability would be nil.

Grade 'Eh' Bacon
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    Added complication: the purchase/sale amounts for the property must be converted into US currency as of the date of each transaction before calculating capital gain for US income tax... – DJohnM Nov 01 '18 at 22:42