Canadians Buying & Selling Real Estate in the U.S.

Many people ask whether it is wise to buy Real Estate in the U.S. and there really is no straight answer to this question.  We’ve seen people buy and sell real estate in the U.S. recently and lose their shirt, while we’ve seen other people make a small fortune recently in U.S. real estate.  Just like in Canada there are many factors that affect the success of real estate transactions such as location, purchasing with a margin of safety, ensuring a thorough home inspection, having someone to take care of the property and the list goes on.  The real key in any real estate transaction is that you have to realize that you really make the return when you buy, not sell.  Buying the right property in the right location at the right time is really key!  Another question asked is whether people should buy the U.S. property personally or through a Corporation.  This question is different for each individual as everyone has a different situation when it comes to tax, liability and estate.  Keep in mind that the U.S. estate tax, which has been proposed to change recently can be a factor in making your real estate investment decision.  When buying, renting or selling properties in the U.S., you should know the basics on tax.  If you have income from property in the U.S. during a calendar year you must file a U.S. tax return.  If you do not have income from your U.S. property then you do not have to file a U.S. tax return.  You do not have to file an income tax return in the U.S. when you purchase U.S. property, however you must file one if you sell a U.S. property.  As mentioned in my prior blog when you sell a U.S. property they will take a withholding tax (typically 10-20%) on the gross proceeds of the sale.  To get this withholding tax back you must file a U.S. tax return and claim the U.S. tax paid as a credit on your Canadian tax return.  There are many considerations when dealing in the U.S. so please don’t hesitate to contact us for any questions.  We have a lot of knowledge and work closely with specialists in these areas. 

Cross Border Brings Complications, Part 1

Many people never do anything out of Canada so they don’t have to be concerned with the complications of planning cross border.  However, there are many people that spend time in the U.S. and in other countries, invest across border, do business across border, and more.  Many people just get caught in the moment and move forward without seeking professional guidance.  If you are traveling out of the country for any extended time, investing across border or doing business across the border there are key details you must know.  The key point that I want to make here is that whenever you are doing anything cross border, it is imperative to see a professional or multiple professionals that can help to ensure you plan for any tax and reporting consequences that you may have to deal with.  For this blog and the next (parts 1 & 2), we will be mostly talk about cross border in the sense of Canadians dealing and traveling to the U.S. and as always the details in the blogs are date sensitive to the current dates that the blogs are written on.

To start with, let’s talk about some of the main issues that seem to arise when dealing and traveling cross border.  If you or your spouse have dual citizenship or have assets in the U.S. you most likely will have to file a U.S. tax return.  Many don’t file and it can catch up with them later down the road.  Many people just deal with the tax authority where they currently live, CRA in Canada the IRS in the U.S., and many people don’t even understand that there is a tax treaty between Canada and U.S. that determines how many things work for cross border assets, transactions, traveling and more!  Many people get double taxed by not understanding what the treaty offers.  For example the IRS tends to tax capital gains made on RRSPs if the holder is residing in the U.S. Worse, if the holder returns to Canada and discharges the RRSP, the holder gets no tax credit for tax already paid in the U.S. However, in a situation like this, it is possible to defer taxes by invoking the Canada/U.S. Treaty to stop the double taxation. The Canada/U.S. Treaty has been revised multiple times since its 1980 inception and will continue to evolve.  The Treaty can override sections of the Canadian and U.S. Tax Acts to help ensure double taxation doesn’t happen.

EUROPE’S FINANCIAL TROUBLE

The global financial crisis, which had been stirring for a while, really started to show its effects in the middle of 2007 and into 2008. Around the world stock markets had fallen, large financial institutions had collapsed or been bought out, and governments in even the wealthiest nations had to come up with rescue packages to bail out their financial systems. Now comes recovery, a time where the economy is supposed to rebound…but is it rebounding? Look at where Europe is at currently. January 1^st, 1999 the Euro made its debut, and now just over 10 years later the continent is in its own major financial crisis while the world is supposed to be rebounding from the global financial crisis. Europe has many countries, each with distinct financial and cultural histories, that have made this transition and are caught up together in this European Financial Crisis. Maybe if each country didn’t abolish their own currency to turn to the Euro each country could have stood stronger to help the ones that were failing, however they are now all in the same pot and it is taking other continents and countries around the world to look at bailing them out. The issue in Europe is already affecting the world wide economy and the rebound tougher for many countries especially the U.S. Recently the European Union has been working on limiting Europeans from investing in world markets to keep most European investing to Europe only. The issue has also caused the E.U. and G20 to look at developing another world wide tax, and other measures that would hinder the progress of recovering economies. Many are accrediting this financial crisis to Portugal, Italy and Greece not collecting their taxes. Why is it that taxing seems to be the solution. If taxation is increased more than it has already over the last 50 years most people will not be able to adequately manage a household budget without continuously going into further debt. Where will the taxing stop? There are two ways to increase cash flow, increase incoming and decrease outgoing. It seems like governments always to look at more coming in as more important than cutting back on what is going out!