Question

Kresna Dubchuk lives in Kenya and is in the process of selling her Canadian real property, situated in New Brunswick, which has been rented to various tenants over the last 10 years. The selling price of the property is $100,000 and her ACB is $35,000. She will incur $6,500 in real estate commissions and $500 in legal fees in connection with the sale. A few days after complying with the requirements concerning the proposed disposition of the property, Kresna receives a copy of a proposed assessment from the CRA from the agent collecting the rent on her behalf in Canada. The assessment is for income taxes, plus penalties and interest for the past

three taxation years.

(A) Describe and detail Kresna's Canadian tax obligations arising on the sale of this property.
(B) What is the probable cause of the proposed assessment? Can you offer Kresna and her agent

Answer 1

Kresna Dubchuk must report the capital gain from the sale of her Canadian property on her tax return and address a CRA assessment likely related to unreported rental income and unpaid non-resident taxes.

Step-by-step explanation:

Kresna Dubchuk's Canadian tax obligations on the sale of her Canadian real property involve reporting the capital gains realized from the sale on her income tax return. The capital gain is calculated by subtracting the Adjusted Cost Base (ACB) and any associated expenses from the selling price. In Kresna's case, the capital gain would be the selling price of $100,000 minus the ACB of $35,000 and the expenses of $7,000 (real estate commissions and legal fees), resulting in a capital gain of $58,000.

The probable cause of the proposed assessment by the Canada Revenue Agency (CRA) could be due to non-compliance with tax filing and payment obligations related to rental income earned from the property over the past three years. To address this, Kresna and her agent should review her tax returns, confirm that all rental income has been reported, and check if appropriate non-resident tax was withheld and remitted to the CRA. Payment of outstanding taxes, along with penalties and interest, will likely be required to resolve the assessment.