AG Tax Services, Surrey BC

US real estate market prices have taken a plunge in some geographic areas and at some but not all price levels.

Here are some of the factors that are attracting Canadian $ to the US Real Estate marketplace:

• The strength of the Canadian $
• The high inventory of housing available in the US
• The unfortunately high rate of housing foreclosures  in the US
• The low prices

Fig 1. Most prospective Canadian buyers will need help answering these questions

Great opportunities are often accompanied by risk

The above are some of the questions that require research and your decisions. Your answers and the knowledge you gain is critical to making informed and effective decisions AND mitigating risk.

What are the tax implications?

Residents of Canada are taxed on their worldwide income and therefore:

• May owe capital gains taxes on appreciation from purchase price to selling price on owned US properties
• If US property is owned at death, it is deemed to have disposed of it at fair market value – with impact on capital gains and estate taxes
• Rental income from investment or vacation properties, after expenses, is also taxable in Canada AND possibly the US, the dreaded “double taxation”

There are mechanisms that allow you to claim credits for foreign taxes paid on your Canadian return. Setting up certain kinds of trusts can help to mitigate the amount of tax paid, but that requires planning.

Both Canada and the US require tenants to withhold 25% and 30%, respectively, of the gross rental income from their properties owned by non-citizens. This is just one example of “it’s what you don’t know that can hurt you”. You need to know that lack of knowledge of the law can have serious consequences and penalties. Both countries have forms and process that can help to mitigate or minimize this requirement. Talk with an accounting firm specializing in cross-border taxes to learn of the requirements for this and other tax savings processes.

As implied earlier, for Canadians, there are withholding tax, capital gains and estate tax ramifications related to owning, renting and selling US properties.

Handling any of the critical issues  incorrectly may result in significant tax problems. The remedy is effective planning and we can help you with that! Contact Peter at 604-538-8735 for a consultation.

Aylett Grant LLP, Chartered Accountants

12752 28th Ave, (at Crescent RD)
Surrey, BC V4A 2P4
info@agtax.ca
604-538-8735

Note: Details spanning the scope of the US Nonresident Income Tax return can be found in the IRS Publication 519, Tax Guide for Aliens – (www.irs.gov/pub/irs-pdf/p519.pdf).

This information is general in nature and does not constitute professional advice. We recommend that you obtain the appropriate accounting, legal or other professional advice before acting on any of the information contained herein.