Canadian selling US property — capital gains on the sale (FIRPTA): what part of this actually needs a professional?
Some of it, yes — and we will say so on the call if that is the honest answer. The parts that are worth paying for are the ones where a missed election, a missed deadline or an unverified threshold costs more than the fee: a pre-closing certificate application can reduce the withholding to something close to the real tax.
What if I have already filed and got it wrong?
That is a common starting point. We re-derive the position, identify whether an amendment or a disclosure route is the right vehicle, and tell you which one preserves the relief that is still available. The order matters more than the speed.
How long will it take?
It depends on the documents rather than on us. Once the pack is complete most filings turn around inside a fortnight; anything that needs a certificate from a tax authority runs on that authority's timetable, which we tell you at the start rather than at the end.
Why is the buyer holding back part of my US sale proceeds?
Because on a sale of US property by a foreign seller the buyer is required to withhold from the proceeds and remit that money to the IRS. The withholding is computed on the sale price, not on your profit, so it bears no relation to the tax you actually owe and routinely exceeds it. On a sale at a loss it is taken anyway. The buyer is not being difficult: the obligation sits on them personally, which is why closing agents apply it strictly. The route to a smaller figure runs before closing, not after.
Can I reduce the FIRPTA withholding before the sale closes?
In the ordinary case, yes. An application can be made to the IRS before closing for a certificate that reduces the amount withheld to something close to the tax the sale will actually generate. It has to be made and processed on the closing timetable, which means starting when the contract is signed rather than in the week of completion. If the certificate is not in place at closing, the full withholding on the price goes to the IRS and comes back only through the return cycle.
How do I get back withholding that was more than the tax due?
Through the US return for the year of the sale. The withholding is a payment on account, so the return computes the tax on the actual gain, credits what was withheld, and the difference is refunded. That takes the normal processing cycle, and the money sits with the IRS in the meantime. Two documents carry the claim: the closing statement showing what was withheld, and the evidence of your cost in the property. Without the second, the gain is computed against a cost the IRS cannot see.
Do I also report the US property sale on my Canadian return?
Yes. Canada taxes a resident on worldwide income, so the same sale is reported here as well — but not on the same numbers. The Canadian computation runs on its own cost base, converted to Canadian dollars at the relevant dates, so the gain reported in each country can differ materially from the other. Relief from double taxation comes through a foreign tax credit for the US tax on the sale, subject to the usual limits and to the two countries' timing not lining up neatly.
We are selling at a loss — is withholding still taken from the price?
It is, unless something is done before closing. The withholding is calculated on the price rather than the gain, so a sale producing no tax at all can still have a substantial sum remitted to the IRS. That is the clearest case for the pre-closing certificate application, because the tax the sale will generate is nil or close to it and the application says so with the figures behind it. Left to run its course, the money goes to the IRS and returns through the filing cycle.
When should I start the withholding certificate application before closing?
As soon as there is a contract and a closing date, and earlier if the cost history is complicated. The application has to be prepared, supported with purchase and improvement records, and lodged in time for the IRS to respond by completion. What usually causes delay is not the application itself but the evidence behind it: original purchase documents, improvement invoices and, where the property was let, the depreciation history. Gathering those while the sale is under contract is the practical difference between a reduced withholding and a refund claim.
Is the capital gain taxed twice when a Canadian sells US property?
It is reported twice and taxed once, if it is done properly. The United States taxes the capital gain because the property is there, and withholding is normally taken from the gross proceeds at closing as security for that tax. Canada taxes the same gain because you are resident here, and gives credit for the US tax actually paid on it. The two computations do not start from the same cost base or the same currency, so the credit only works if both are prepared together.
How do I report the sale of a foreign property?
On your residence-country return, as a disposition, with proceeds and cost base converted at the rates for their own dates. Separately, the country where the property sits may require its own return and may hold back tax at closing until a clearance or certificate is issued — Canada does this for a non-resident vendor, and the United States withholds on a foreign seller of US real property. Those steps have their own deadlines, often before closing. See clearance certificates on a property sale.
