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foreign rental income capital cost allowance


Sarahlee
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Hi Sarahlee. First you need to determine the ACB of the rental unit in CDN$ at the time it became a rental unit. From there you can claim CCA on the Ufile rental statement after entering the ACB in the opening balance for "beginning UCC" not as an acquisition. Entering as an acquisition in 2020 will limit the CCA to the half year rule unless of course you ask for that rule to not apply in 2020. You can claim anywhere between zero up to the maximum CCA provided you have a positive rental income before CCA.

Yes you can take CCA only on the Canadian return. Reporting for the foreign jurisdiction does not have to be the same as the CDN one.

That said you need to also look at the Foreign Property reporting requirements as per T1135. Failing to report as per the requirements can cause penalties of $2,500 per year.

And also remember that when you dispose of the rental property you could have a recapture of previously taken CCA which gets added to rental income.

 

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Thank you so much for your quick response.

I'm going to determine of the ACB of the rental according to your solution.

I first purchased the house abroad in 2003 before moving to Canada and moved to Canada in 2009. It also started leasing in January 2019. When should the building price be calculated?

Should I set the ACB date as 2019.1.1?

Secoded question is I don't know about UCC. Please explain the UCC.

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Hi Sarahlee. This is an interesting situation. What was the house used for between the purchase date in 2003 and when you moved to Canada in 2009? Then what was it used for from the date you entered Canada up to the time you started renting it out in 2019. AND did you own any other homes between 2003 and January 2019 anywhere in the world?

The responses to those questions will determine how you should proceed.

UCC is Undepreciated Capital Cost. ACB (Adjusted Cost Basis) is the purchase price of the property when you purchased it plus major capital improvements as well as legal, professional and land transfer fees paid at purchase. CCA (Capital Cost Allowance) is an amount allowable as a write down of the ACB for tax purposes, commonly referred to as Depreciation/Amortization.

So if you take a write down for CCA it goes against the ACB and reduces the property for tax purposes to its UCC. ACB-CCA=UCC.

Give me answers to the questions above.

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Great. So that house is your principal residence from purchase date until you started to rent it out in January 2019. You need to get a FMV (Fair Market Value) appraisal for it for January 2019. That will become your ACB for rental purposes. You can elect for up to four years to not have a change in use away from your principal residence should that be needed. So you have an option to claim CCA or not.

So to claim CCA you will need to use an appraisal value as at January 2019 for the ACB. Separate the land value from the building value. Only the building is eligible for CCA.

Trust that helps.

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