AG Tax receives many questions from investors regarding potential purchases of US real property (rental properties or business purchases for example). The Foreign Investment in Real Property Tax Act (FIRPTA) (see our FIRPTA summary here) is one of the many factors that should be considered if you own or are planning to own US real property as a foreign person. There have been some changes to FIRPTA proposed recently through a bill by the name of “The Real Estate Investment and Jobs Act of 2013” (H.R. 2870), and also through Administrative proposals. Let’s take a moment to cover what these proposed changes are, and how they may affect taxpayers.
Proposed Changes to Ownership Threshold for FIRPTA Tax
H.R. 2870 proposes to increase the foreign ownership threshold of Real Estate Investment Trusts (REITs) exempted from FIRPTA from 5% to 10%. This would allow foreign investors to largely increase their share in a REIT without being subject to FIRPTA. The bill also specified that a publicly traded REIT may presume that less than 5% shareholders are U.S. persons, except where the REIT has actual knowledge to the contrary.
Proposed Changes to Taxation of Foreign Pension Funds under FIRPTA
The need for FIRPTA reform has also been acknowledged by the Obama administration, and one of the upcoming changes is related to foreign pension funds. Currently the gain of a US pension from the disposition of a US real property interest is generally exempt from tax. However, if the situation was exactly the same, but the pension fund was foreign, the gain would be subject to tax under FIRPTA. The Administration proposes to bring the treatment of foreign pensions in those circumstances in line with how they would be treated if they were US pensions. To do this, gains of foreign pension funds from the disposition of US real property interests would be exempt from FIRPTA taxes.
If approved, this proposal would be effective for disposition of U.S. real property interests after December 31, 2013. These reforms would provide a higher degree of consistency in US tax law, which should make it easier for foreign persons to invest confidently in US real property, more clearly knowing where they stand with potential FIRPTA tax.
AGT Tax LLP Can Help
Given the constantly changing landscape of tax laws, potential investors in US real property should always consult their tax advisors before making a purchase or sale. Proper planning is crucial in avoiding the various tax issues (FIRPTA only being one of them) that could occur when investing in US real property.
If you have any questions or concerns regarding FIRPTA, the proposed changes to FIRPTA, or simply general questions about investing in US real property, you should call an AG Tax advisor with your related queries. AG Tax professionals are well-versed with FIRPTA and the required compliance.
Additionally, if you have any tax-related queries, need assistance with tax planning or filing your tax returns please contact us. Our team comprises of highly experienced tax professionals with extensive knowledge of U.S. and Canadian tax laws as well as cross-border compliance.
As a full service accounting firm, AG Tax assures complete assistance with even your most complex tax needs.
We can assist with:
- Canadian Personal and corporate tax returns
- Cross Border Taxation and Business Planning
- U.S. Personal and Corporate Taxation
- Disclosure of Foreign Assets and other information filings
- Retirement planning
- State Sales Tax & E-commerce Taxation
- 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.
