Canadian Real Estate Sale

[taxconnected]

Could use some help with Canadian tax procedures.
Client is a US citizen and a non-resident of Canada.
Client is planning on selling a piece of real estate located in Ontraio, Canada. Gain on sale is expected.
Can sale be reported on US schedule D citing a tax treaty provision or does it require filing
a Canadian non-resident tax form? If it is the latter will the tax paid and reported on US form 1040 line 47 (foreign tax credit) completely cover the US tax liability to prevent double tax liability occuring on the same transaction.
Have also heard that when sale is finalized real estate company automatically withholds a
certain percentage of the sale price. If true how is this handled?
Would appreciate any input from those familiar with doing US/Canadian returns.
Thanks is advance

[kpangelinan]

Any takers?

Any takers?

[Gary2]

I can't answer specifics for Canada, but can provide some generalities.

If indeed income tax is withheld on the sale, then the usual procedure would be to file a tax return in the jurisdiction to recover it. I've had to do this for non-residents of other states who owned or co-owned property with parents or other relatives. It's conceivable that Canada has special procedures for non-residents to file just to recover withholding in these cases, but I'd start by looking at the general Canadian non-resident income tax forms and instructions.

The foreign tax credit is designed to avoid double taxation, but will generally result in paying the maximum of the two tax rates (similar to state tax credits for taxes paid to other states). In other words, if the Canadian tax bill is 10% and the US rate would be 15%, then Canada gets the 10% and the US gets the remaining 5%. But if the Canadian tax bill is 20% and the US rate would still only be 15%, then Canada gets the full 20%, but the credit on the US return will only be 15% worth - the US won't subsidize a higher foreign tax rate.

I'd read Pub. 597 as well as relevant Canadian documents and instructions.

[MAMalody]

US citizens are taxed on their world-wide income. The sale would be reported on Schedule D. You may have a reportable transaction to Canada on the appreciation of the property. You may want to check Publication 597 Information on the US-Canadian Tax Treaty. I think that Publication 901 has a scource also on the tax treaties. You will probably have to check with someone on a border state who does more of these returns to verify any Canadian reporting requirements. If you are a member of NATP, they have people in all the states that are available to answer questions. Some of them may have this experience. Sorry, I can't help more.