Europeans buying Montreal House for rental and vacation
My question is: Canadian-specific
QUESTION: Hello,
My situation is: Me and my huspand are dual citizens (american/european).We would like to buy an apt. in Montreal, rent it out initialy and keep it as a vacation home eventually.
Question: Is that possible?
Yes.
You will need to file Canadian returns - form 1159 and T776. You will need to include it on Schedule E of your US 1040.
It does not matter whether you are in France, Spain or Florida, the following older Q & A should help.
QUESTION:
Hi,
I am a US citizen living in New York, who purchased an investment home in Montreal in 2002. The home has been rented out, but has never made a profit any year (due to mortgage, depreciation, expenses, etc.). I am just being notified of the new non-resident tax situation (form NR6) that I need to abide by.
I understand I need to find an agent to help handle pass years non-resident income taxes and current/future non-resident income taxes. If the property has never realized a profit, how would recommend I procede. Should i secure an accountant to act as my agent to handle all past/current/future non-resident taxes?
--------------------------------
david ingram replies:
There is nothing new about the NR-6. I do not know when it was brought into play but iIhave been filling them in since the late 70's and the following was printed in my 1989 book.
More important perhaps is the problem with rental properties in Canada. When owned by a non-resident, they are subject to a 25% withholding (or 15% if living in Bangladesh) tax. If the renter does not pay this tax, the government can come along two or three or 15 years later and demand the tax.
Imagine the consternation of a tenant of a house in the British Properties in West Vancouver, or Rosedale in Toronto. Assume the tenant has been paying $2,000 a month for a $500,000 house owned by a Hong Kong resident. After three years of paying $24,000 a year to the `non-resident', they finally buy a house and move. Two months later, there is a knock on the door and a National Revenue representative is standing there demanding 25% of $72,000 for NON-RESIDENT withholding tax (this is a true story by the way, only the owner was in London).
There is a way around this problem. The tenant can ask to see, or rather DEMAND to see a copy of the landlord's filed and accepted NR6 form. (See forms in back of book). This form allows the tenant or agent of the landlord to deduct a lesser amount (or nil if a loss) than 25% of the gross rent. It allows for expenses to be taken off and the tax can then be withheld at 25% of the net, rather than the gross. The property management division of david ingram & Associates Realty Inc. files about 300 of these NR6 forms a year. (This is only necessary if you are paying directly to a landlord whom you KNOW to be a non-resident of Canada. If you are paying to an agent or Canadian Resident, you are okay.)
Please note, the NR6 MUST BE FILED BEFORE the first rent cheque is received or 25% of the gross rent must be remitted. For years, we were in the habit of filing `this years' NR6 late with last years tax return. In 1989, National Revenue stopped accepting this sloppy practice and demanded them on time.
IF YOU SIGN THIS FORM AS AN AGENT, AND THE OWNER DOES NOT FILE HIS OR HER RETURN BY JUNE 30TH OF THE FOLLOWING YEAR, YOU, THE AGENT, ARE RESPONSIBLE FOR THE 30% OF THE GROSS RENT WITH NO REFUND PROVISIONS FOR ANYONE.
If paying 25% of the GROSS rent to Canada sounds bad, cheer up. The United States taxes the Canadian 30% in the same situation. To avoid this, the Canadian needs to notify the U.S. Government that he wishes to be taxed as a business rental house on the "net income" received. But if you do not notify the IRS in advance, the IRS CAN tax you at the 30% of gross rate.
-------------------------------------
What you have to do is get the 2002 to 2006 returns in as soon as possible or be prepared to pay 25% of your gross rent as tax plus penalties and interest if the CRA catches you (remember the US IRS charges 30% in the same circumstances).
Get someone to prepare the returns. If you would like us to do them for you, that is what we do. Then get your NR-6 in with a Canadian resident signing as an agent. You might even try making your tenant the agent. Remember, if you file the NR-6, you can claim your rental expenses and 25% is only withheld on a profit if any. Therefore, if the gross rent was $1,000 and the expenses were $900, the agent only has to remit $25.00 a month.
If there is a loss on a monthly basis, no tax has to be remitted.
Just remember, it is NOT the amount of the mortgage payment that is deductible. Only the interest portion is dedcutible so it is possible to be out of pocket each month becasue of the principal portion of the rental payments, but stillowe tax.
When the actual return is prepared, you can use depreciation to reduce any profit to zero and you will get baxck any tax that was dedcuted.
Also remember, that the figures have to be converted to US dollars and put on a schedule E of your 1040. This will usually result in a refund on your US and New York 201 returns.
We can prepare the Canadian and US return amendments if necessary - see below.
---------------------------------------------------
This other question deals with the sale
-- Hello,
I have a home at a BC interior ski hill. We had it built in 2000 and had a rental agent there make a few rentals of it in 2001 and manage it's upkeep for those rentals. He referred us to his CPA for tax returns. We also used this rental agent for 2002. After that we changed to the agent we still currently use. This last spring the first rental agent came up to me and said he had to go to tax court and expected to lose the case and would owe the government $8000.00. He said that it was our fault for not filing the 2001 return on time. This last May he sent me an email demanding the $8000.00 . No documentation, explanation was provided. So is this possible and if so how could it come about. What would my responsibility be. Revenue
Canada gets my returns , they know who I am. I might add that the rentals were $14,000 gross and of course the mortgage interest was more than that so the return we filed shows a small loss as is always the situation.
Thank You
xxxxxxxxxxxxxxxxxxxxxx
Seattle
------------------------------------------------------------
david ingram replies:
I wrote the following in my ULTIMATE TAX GUIDE in 1989. You can find it at www.centa.com about two/thirds of the way through the 'US/Cdn Taxation Section'. Note that it says clearly that the agent is responsible to pay 25% of the gross if the US resident does not file the tax return. In reverse, the US charges 30%.
----------------------------------------------------------------
More important perhaps is the problem with rental properties in Canada. When owned by a non-resident, they are subject to a 25% withholding (or 15% if living in Bangladesh) tax. If the renter does not pay this tax, the government can come along two or ten years later and demand the tax.
Imagine the consternation of a tenant of a house in the British Properties in West Vancouver, or Rosedale in Toronto. Assume the tenant has been paying $2,000 a month for a $500,000 house owned by a Hong Kong resident. After three years of paying $24,000 a year to the `non-resident', they finally buy a house and move. Two months later, there is a knock on the door and a National Revenue representative is standing there demanding 25% of $72,000 for NON-RESIDENT withholding tax (this is a true story by the way, only the owner was in London).
There is a way around this problem. The tenant can ask to see, or rather DEMAND to see a copy of the landlord's filed and accepted NR6 form. (See forms in back of book). This form allows the tenant or agent of the landlord to deduct a lesser amount (or nil if a loss) than 25% of the gross rent. It allows for expenses to be taken off and the tax can then be withheld at 25% of the net, rather than the gross. The property management division of david ingram & Associates Realty Inc. files about 300 of these NR6 forms a year. (This is only necessary if you are paying directly to a landlord whom you KNOW to be a non-resident of Canada. If you are paying to an agent or Canadian Resident, you are okay.)
Please note, the NR6 MUST BE FILED BEFORE the first rent cheque is received or 25% of the gross rent must be remitted. For years, we were in the habit of filing `this years' NR6 late with last years tax return. In 1989, National Revenue stopped accepting this sloppy practice and demanded them on time.
IF YOU SIGN THIS FORM AS AN AGENT, AND THE OWNER DOES NOT FILE HIS OR HER RETURN BY JUNE 30TH OF THE FOLLOWING YEAR, YOU, THE AGENT, ARE RESPONSIBLE FOR THE 25% OF THE GROSS RENT WITH NO REFUND PROVISIONS FOR ANYONE.
--------------------------------
In practical terms, the CRA is not a boogeyman here. What usually happens is that the Agent pays the 25% of the gross rent and issues an NR$ in your name crediting you wiht hte 25%. You do your tax return late and the CRA refunds the money to you and you give the money back to the agent.
However, that is only good for ONE time, AND if 'you' the owner are chronically late, the agent is responsible.
I do not know enough to comment further. However, Ii can tell you that at this moment, I have not personally seen a single case where the money was not eventually refunded if the parties co-operated.
If you filed an NR-6 for 2001 and 2002, this situation is clearly spelt out on that form.. If you were not on time, and the agent suffered a penalty and / or if you have not co-operated in the process, I would think that you do owe the agent whatever he or she is penalized becasue his penalty is based upon your failure to file on time.
If your returns were filed on time, he is not subject to penalities.
One of the problems in Whistler is that there were a dozen unlicenced and unregulated operations acting as property managers. I personally informed 4 of them about their duties when their clients (individuals like yourself) came to me to prepare their US/Canadian income tax returns.
QUESTION: Hello,
My situation is: Me and my huspand are dual citizens (american/european).We would like to buy an apt. in Montreal, rent it out initialy and keep it as a vacation home eventually.
Question: Is that possible?
---------------------------------------------------------------------------david ingram replies:
Yes.
You will need to file Canadian returns - form 1159 and T776. You will need to include it on Schedule E of your US 1040.
It does not matter whether you are in France, Spain or Florida, the following older Q & A should help.
QUESTION:
Hi,
I am a US citizen living in New York, who purchased an investment home in Montreal in 2002. The home has been rented out, but has never made a profit any year (due to mortgage, depreciation, expenses, etc.). I am just being notified of the new non-resident tax situation (form NR6) that I need to abide by.
I understand I need to find an agent to help handle pass years non-resident income taxes and current/future non-resident income taxes. If the property has never realized a profit, how would recommend I procede. Should i secure an accountant to act as my agent to handle all past/current/future non-resident taxes?
--------------------------------
david ingram replies:
There is nothing new about the NR-6. I do not know when it was brought into play but iIhave been filling them in since the late 70's and the following was printed in my 1989 book.
RENTAL PROPERTIES - CANADA - OWNED BY U.S. RESIDENT
More important perhaps is the problem with rental properties in Canada. When owned by a non-resident, they are subject to a 25% withholding (or 15% if living in Bangladesh) tax. If the renter does not pay this tax, the government can come along two or three or 15 years later and demand the tax.
Imagine the consternation of a tenant of a house in the British Properties in West Vancouver, or Rosedale in Toronto. Assume the tenant has been paying $2,000 a month for a $500,000 house owned by a Hong Kong resident. After three years of paying $24,000 a year to the `non-resident', they finally buy a house and move. Two months later, there is a knock on the door and a National Revenue representative is standing there demanding 25% of $72,000 for NON-RESIDENT withholding tax (this is a true story by the way, only the owner was in London).
There is a way around this problem. The tenant can ask to see, or rather DEMAND to see a copy of the landlord's filed and accepted NR6 form. (See forms in back of book). This form allows the tenant or agent of the landlord to deduct a lesser amount (or nil if a loss) than 25% of the gross rent. It allows for expenses to be taken off and the tax can then be withheld at 25% of the net, rather than the gross. The property management division of david ingram & Associates Realty Inc. files about 300 of these NR6 forms a year. (This is only necessary if you are paying directly to a landlord whom you KNOW to be a non-resident of Canada. If you are paying to an agent or Canadian Resident, you are okay.)
Please note, the NR6 MUST BE FILED BEFORE the first rent cheque is received or 25% of the gross rent must be remitted. For years, we were in the habit of filing `this years' NR6 late with last years tax return. In 1989, National Revenue stopped accepting this sloppy practice and demanded them on time.
IF YOU SIGN THIS FORM AS AN AGENT, AND THE OWNER DOES NOT FILE HIS OR HER RETURN BY JUNE 30TH OF THE FOLLOWING YEAR, YOU, THE AGENT, ARE RESPONSIBLE FOR THE 30% OF THE GROSS RENT WITH NO REFUND PROVISIONS FOR ANYONE.
RENTAL PROPERTIES - UNITED STATES - OWNED BY A CANADIAN
If paying 25% of the GROSS rent to Canada sounds bad, cheer up. The United States taxes the Canadian 30% in the same situation. To avoid this, the Canadian needs to notify the U.S. Government that he wishes to be taxed as a business rental house on the "net income" received. But if you do not notify the IRS in advance, the IRS CAN tax you at the 30% of gross rate.
-------------------------------------
What you have to do is get the 2002 to 2006 returns in as soon as possible or be prepared to pay 25% of your gross rent as tax plus penalties and interest if the CRA catches you (remember the US IRS charges 30% in the same circumstances).
Get someone to prepare the returns. If you would like us to do them for you, that is what we do. Then get your NR-6 in with a Canadian resident signing as an agent. You might even try making your tenant the agent. Remember, if you file the NR-6, you can claim your rental expenses and 25% is only withheld on a profit if any. Therefore, if the gross rent was $1,000 and the expenses were $900, the agent only has to remit $25.00 a month.
If there is a loss on a monthly basis, no tax has to be remitted.
Just remember, it is NOT the amount of the mortgage payment that is deductible. Only the interest portion is dedcutible so it is possible to be out of pocket each month becasue of the principal portion of the rental payments, but stillowe tax.
When the actual return is prepared, you can use depreciation to reduce any profit to zero and you will get baxck any tax that was dedcuted.
Also remember, that the figures have to be converted to US dollars and put on a schedule E of your 1040. This will usually result in a refund on your US and New York 201 returns.
We can prepare the Canadian and US return amendments if necessary - see below.
---------------------------------------------------
This other question deals with the sale
-- Hello,
I have a home at a BC interior ski hill. We had it built in 2000 and had a rental agent there make a few rentals of it in 2001 and manage it's upkeep for those rentals. He referred us to his CPA for tax returns. We also used this rental agent for 2002. After that we changed to the agent we still currently use. This last spring the first rental agent came up to me and said he had to go to tax court and expected to lose the case and would owe the government $8000.00. He said that it was our fault for not filing the 2001 return on time. This last May he sent me an email demanding the $8000.00 . No documentation, explanation was provided. So is this possible and if so how could it come about. What would my responsibility be. Revenue
Canada gets my returns , they know who I am. I might add that the rentals were $14,000 gross and of course the mortgage interest was more than that so the return we filed shows a small loss as is always the situation.
Thank You
xxxxxxxxxxxxxxxxxxxxxx
Seattle
------------------------------------------------------------
david ingram replies:
I wrote the following in my ULTIMATE TAX GUIDE in 1989. You can find it at www.centa.com about two/thirds of the way through the 'US/Cdn Taxation Section'. Note that it says clearly that the agent is responsible to pay 25% of the gross if the US resident does not file the tax return. In reverse, the US charges 30%.
----------------------------------------------------------------
RENTAL PROPERTIES - CANADA - OWNED BY U.S. RESIDENT
More important perhaps is the problem with rental properties in Canada. When owned by a non-resident, they are subject to a 25% withholding (or 15% if living in Bangladesh) tax. If the renter does not pay this tax, the government can come along two or ten years later and demand the tax.
Imagine the consternation of a tenant of a house in the British Properties in West Vancouver, or Rosedale in Toronto. Assume the tenant has been paying $2,000 a month for a $500,000 house owned by a Hong Kong resident. After three years of paying $24,000 a year to the `non-resident', they finally buy a house and move. Two months later, there is a knock on the door and a National Revenue representative is standing there demanding 25% of $72,000 for NON-RESIDENT withholding tax (this is a true story by the way, only the owner was in London).
There is a way around this problem. The tenant can ask to see, or rather DEMAND to see a copy of the landlord's filed and accepted NR6 form. (See forms in back of book). This form allows the tenant or agent of the landlord to deduct a lesser amount (or nil if a loss) than 25% of the gross rent. It allows for expenses to be taken off and the tax can then be withheld at 25% of the net, rather than the gross. The property management division of david ingram & Associates Realty Inc. files about 300 of these NR6 forms a year. (This is only necessary if you are paying directly to a landlord whom you KNOW to be a non-resident of Canada. If you are paying to an agent or Canadian Resident, you are okay.)
Please note, the NR6 MUST BE FILED BEFORE the first rent cheque is received or 25% of the gross rent must be remitted. For years, we were in the habit of filing `this years' NR6 late with last years tax return. In 1989, National Revenue stopped accepting this sloppy practice and demanded them on time.
IF YOU SIGN THIS FORM AS AN AGENT, AND THE OWNER DOES NOT FILE HIS OR HER RETURN BY JUNE 30TH OF THE FOLLOWING YEAR, YOU, THE AGENT, ARE RESPONSIBLE FOR THE 25% OF THE GROSS RENT WITH NO REFUND PROVISIONS FOR ANYONE.
RENTAL PROPERTIES - UNITED STATES - OWNED BY A CANADIAN
If paying 25% of the GROSS rent to Canada sounds bad, cheer up. The United States taxes the Canadian 30% in the same situation. To avoid this, the Canadian needs to notify the U.S. Government that he wishes to be taxed as a business rental house on the "net income" received. But if you do not notify the IRS in advance, the IRS CAN tax you at the 30% of gross rate.
--------------------------------
In practical terms, the CRA is not a boogeyman here. What usually happens is that the Agent pays the 25% of the gross rent and issues an NR$ in your name crediting you wiht hte 25%. You do your tax return late and the CRA refunds the money to you and you give the money back to the agent.
However, that is only good for ONE time, AND if 'you' the owner are chronically late, the agent is responsible.
I do not know enough to comment further. However, Ii can tell you that at this moment, I have not personally seen a single case where the money was not eventually refunded if the parties co-operated.
If you filed an NR-6 for 2001 and 2002, this situation is clearly spelt out on that form.. If you were not on time, and the agent suffered a penalty and / or if you have not co-operated in the process, I would think that you do owe the agent whatever he or she is penalized becasue his penalty is based upon your failure to file on time.
If your returns were filed on time, he is not subject to penalities.
One of the problems in Whistler is that there were a dozen unlicenced and unregulated operations acting as property managers. I personally informed 4 of them about their duties when their clients (individuals like yourself) came to me to prepare their US/Canadian income tax returns.
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