US real estate market prices have taken a plunge in some geographic areas and at some but not all price levels, and many Canadians have purchased or are considering purchasing property in the U.S.

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

Considerations prior to buying US Real Estate

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 on owning US property?

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.

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).

AG Tax LLP Can Help

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!

If you have any tax-related queries or need assistance with tax planning or filing please contact AG Tax. Our tax professionals are highly-experienced with US and Canadian tax laws and can provide you the right guidance to handle your tax situation.

Aylett Grant Tax LLP is a full service accounting firm with a dedicated team of experts, who are highly-qualified and experienced in handling situations related to US, Canadian, and other international tax laws. We can assist with:

  • Canadian Personal and Corporate tax returns
  • Cross Border Taxation and Business Planning
  • US Personal and Corporate Taxation
  • Disclosure of Foreign Assets and other information filings
  • Retirement planning
  • Estate Planning, Inheritance tax advice

To obtain a quote or to arrange for a consultation to discuss your tax related queries, please contact us at:

  • 416-238-5920 (Greater Toronto Area, ON)
  • 604-538-8735 (Greater Vancouver Area, BC)
  • 780-702-2732 (Greater Edmonton Area, AB)

 

Disclaimer: The information in this publication is accurate as of the time of its publication. AG Tax assumes no responsibility for changes to tax legislation subsequent to the publication of this document. The information provided is for general information purposes only and should not be acted upon without seeking professional advice. If you would like to engage our services, please contact our staff and obtain authorization to send our firm confidential information. A client relationship is not created by the transmission of information. A client relationship is only formed with our firm when a scope and engagement letter signed by the firm and the potential client detailing the terms of engagement is present.