QUESTION:
We are U.S. citizens. My husband and I are looking into buying a 2nd home in Vancouver,B.C. We would like to live in the house in the summer and ( if able) rent it during the winter. We are very confused on the taxes. Do we pay taxes on the income in Canada and the U.S.? Are US citizens able to own and live in the property without being a Canadian citizen? I read somewhere that the renters pay the tax directly to Canada if the owner is not a Canadian citizen.
---------------------------------------------------------------------------
david ingram replies:
You can certainly buy a home here and use it for July and august and rent it to University people from September to May/June with impunity.
If you do that, you will have to file Canadian Tax returns.
You should also read Garth turner's book, The Greater Fool (www.greaterfool.ca) and Ozzie Jurork's book, FORGET ABOUT LOCATION, LOCATION, Location (www.jurock.com) before you buy. And read the last two page AFTERWARD at the back of Garth's book BEFORE you read the book. You will find that Garth still has a house, just the right one. If you do not read the AFTERWARD first, the front of the book is too too depressing.
Back to your tax returns.
In Order
Form NR6 before you rent it and by Dec 31st of each year for the next year. In other words, if you were to buy one to rent in September 2008, you would file an NR-6 before Sept 2008 another one in December 2008 for 2009 and another one in Dec 2009 for 2010 an onward.
Form NR-4 (you and the agent who signed the NR-6 before March 31, of each year.
US form 4868 to extend your US tax filing deadline and maybe a state extension by April 15th.
Canadian Forms T1159 and T776 to report the rental income and possibly pay tax to Canada by June 30th
Schedule TDF 90-22.1 to report the foreign bank account that dealt with the purchase of the Vancouver property. this is filed with the Department of the Treasury in Detroit - Minimum penalty for not filing is $10,000 - maximum $500,000. by June 30th.
The US 1040 with schedule E to report the Canadian Rental and schedule 4562 for depreciation and schedule 1116 to claim any foreign tax credit for taxes paid to Canada by October 15, the date extended to by the 4868 filed by April 15th.
-------------------------------------
The following is a little more detailed.
QUESTION:
I work and reside in the US, but have a rental property in Canada. What deductions can I make, ie depreciation, renovation costs, mortgage interest, on my US tax return?
thanks
----------------------------
david ingram replies:
In Canada, you fill in and have an agent sign a form NR6 BEFORE you rent out the condo. This form must be filled in before the start of every new year. If you did not file one for 2008, you should do so immediately. Then you must file a Sec 216(4) return (form T1139) and a T776
to report the rent and any depreciation by June 30th.
NR6 at - http://www.cra-arc.gc.ca/E/pbg/tf/nr6/nr6-06e.pdf
NR4 (fillable) at - http://www.cra-arc.gc.ca/E/pbg/tf/nr4_flat/nr4-fill-07b.pdf
NR4-Summary (fillable) at - http://www.cra-arc.gc.ca/E/pbg/tf/nr4sum/nr4sum-fill-07b.pdf
T1159 at: - http://www.cra-arc.gc.ca/E/pbg/tf/t1159/t1159-07e.pdf
T776 at: - http://www.cra-arc.gc.ca/E/pbg/tf/t776/t776-07e.pdf
Your agent must also file form NR4 to report the gross rents received and any tax remitted by March 31st.
-- for the US you must file Schedule E to report the rent and expenses, schedule 4562 to calculate any depreciation on the building and fixtures and schedule 1116 to claim a foreign tax credit for any tax paid to Canada.
Schedule E at - http://www.irs.gov/pub/irs-pdf/f1040se.pdf
Schedule 4562 at: - http://www.irs.gov/pub/irs-pdf/f4562.pdf
Schedule 4562 Instructions (good luck) at: - http://www.irs.gov/pub/irs-pdf/i4562.pdf
Schedule 1116 (good luck) at - http://www.irs.gov/pub/irs-pdf/f1116.pdf
Schedule 1116 Instructions at: - http://www.irs.gov/pub/irs-pdf/i1116.pdf
---------------------------------------
Expenses
Accounting
Advertising
Business License
Cablevision
commissions to rental agent
Common expenses
Condo Strata Fees
Delivery
Garbage Removal
Insurance on the property and public liability
Interest on Mortgage
Interest on repair loan
Interest on Down payment loan
Legal expenses to collect rent or draw lease but not to buy property (purchase legal expenses are capitalized)
Maintenance
Management expenses
Motor vehicle - (very restricted)
Office Expenses (stationary, receipts, etc., not a room for an office in your home)
Postage
Property taxes
Repairs
Utilities
Water Rates
miscellaneous
_________________
You can goto www.centa.com and click on TAX Guide in the top left box. If you click on RENTAL Income, you will get something I wrote 20 years ago which is still apropos today.
-------------------------------------------------
Or this
----------------------------
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 $72,000 for NON-RESIDENT withholding tax (this is a true story by the way, only the owner was in London).
There is a way around this problem. The tenant can ask to see, or rather DEMAND to see a copy of the landlord's filed and accepted NR6 form. (See forms in back of book). This form allows the tenant or agent of the landlord to deduct a lesser amount (or nil if a loss) than 25% of the gross rent. It allows for expenses to be taken off and the tax can then be withheld at 25% of the net, rather than the gross. The property management division of david ingram & Associates Realty Inc. files about 300 of these NR6 forms a year. (This is only necessary if you are paying directly to a landlord whom you KNOW to be a non-resident of Canada. If you are paying to an agent or Canadian Resident, you are okay.)
Please note, the NR6 MUST BE FILED BEFORE the first rent cheque is received or 25% of the gross rent must be remitted. For years, we were in the habit of filing `this years' NR6 late with last years tax return. In 1989, National Revenue stopped accepting this sloppy practice and demanded them on time.
IF YOU SIGN THIS FORM AS AN AGENT, AND THE OWNER DOES NOT FILE HIS OR HER RETURN BY JUNE 30TH OF THE FOLLOWING YEAR, YOU, THE AGENT, ARE RESPONSIBLE FOR THE 25% OF THE GROSS RENT WITH NO REFUND PROVISIONS FOR ANYONE.
RENTAL PROPERTIES - UNITED STATES - OWNED BY A CANADIAN
If paying 25% of the GROSS rent to Canada sounds bad, cheer up. The United States taxes the Canadian 30% in the same situation. To avoid this, the Canadian needs to notify the U.S. Government that he wishes to be taxed as a business rental house on the "net income" received. But if you do not notify the IRS in advance, the IRS CAN tax you at the 30% of gross rate.
--------------------------------
In practical terms, the CRA is not a bogeyman here. What usually happens is that the Agent pays the 25% of the gross rent and issues an NR$ in your name crediting you with the 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 because his penalty is based upon your failure to file on time.
If your returns were filed on time, he is not subject to penalties.
One of the problems in Whistler is that there were a dozen unlicensed 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.
--------------------------------------
OR THIS
-----------------------------------
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 proceed. 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 ii have 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 deductible so it is possible to be out of pocket each month because of the principal portion of the rental payments, but still owe tax.
When the actual return is prepared, you can use depreciation to reduce any profit to zero and you will get back any tax that was deducted.
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.
----------------------------------
SUGGESTED PRICE GUIDELINES - May 17, 2008
david ingram's US / Canada Services
US / Canada / Mexico tax, Immigration and working Visa Specialists
US / Canada Real Estate Specialists
My Home office is at:
4466 Prospect Road
North Vancouver, BC, CANADA, V7N 3L7
Cell (604) 657-8451 -
(604) 980-0321 Fax (604) 980-0325
Calls welcomed from 10 AM to 9 PM 7 days a week Vancouver (LA) time - (please do not fax or phone outside of those hours as this is a home office) expert US Canada Canadian American Mexican Income Tax service help.
email to taxman at centa.com
www.centa.com www.david-ingram.com
pert US Canada Canadian American Mexican Income Tax service and help.
David Ingram gives expert income tax service & immigration help to non-resident Americans & Canadians from New York to California to Mexico family, estate, income trust trusts Cross border, dual citizen - out of country investments are all handled with competence & authority.
Phone consultations are $450 for 15 minutes to 50 minutes (professional hour). Please note that GST is added if product remains in Canada or is to be returned to Canada or a phone consultation is in Canada. ($472.50 with GST for in person or if you are on the telephone in Canada) expert US Canada Canadian American Mexican Income Tax service and help.
This is not intended to be definitive but in general I am quoting $900 to $3,000 for a dual country tax return.
$900 would be one T4 slip one W2 slip one or two interest slips and you lived in one country only (but were filing both countries) - no self employment or rentals or capital gains - you did not move into or out of the country in this year.
$1,200 would be the same with one rental
$1,300 would be the same with one business no rental
$1,300 would be the minimum with a move in or out of the country. These are complicated because of the back and forth foreign tax credits. - The IRS says a foreign tax credit takes 1 hour and 53 minutes.
$1,600 would be the minimum with a rental or two in the country you do not live in or a rental and a business and foreign tax credits no move in or out
$1,700 would be for two people with income from two countries
$3,000 would be all of the above and you moved in and out of the country.
This is just a guideline for US / Canadian returns
We will still prepare Canadian only (lives in Canada, no US connection period) with two or three slips and no capital gains, etc. for $200.00 up. However, if you have a stack of 1099, or T3 or T4A or T5 or K1 reporting forms, expect to pay an average of $10.00 each with up to $50.00 for a K1 or T5013 or T5008 or T101 --- Income trusts with amounts in box 42 are an even larger problem and will be more expensive. - i.e. 20 information slips will be at least $350.00
With a Rental for $400, two or three rentals for $550 to $700 (i.e. $150 per rental) First year Rental - plus $250.
A Business for $400 - Rental and business likely $550 to $700
And an American only (lives in the US with no Canadian income or filing period) with about the same things in the same range with a little bit more if there is a state return.
Moving in or out of the country or part year earnings in the US will ALWAYS be $900 and up.
TDF 90-22.1 forms are $50 for the first and $25.00 each after that when part of a tax return.
8891 forms are generally $50.00 to $100.00 each.
18 RRSPs would be $900.00 - (maybe amalgamate a couple)
Capital gains *sales) are likely $50.00 for the first and $20.00 each after that.
Catch - up returns for the US where we use the Canadian return as a guide for seven years at a time will be from $150 to $600.00 per year depending upon numbers of bank accounts, RRSP's, existence of rental houses, self employment, etc. Note that these returns tend to be informational rather than taxable. In fact, if there are children involved, we usually get refunds of $1,000 per child per year for 3 years. We have done several catch-ups where the client has received as much as $6,000 back for an $1,800 bill and one recently with 6 children is resulting in over $12,000 refund.
Email and Faxed information is convenient for the sender but very time consuming and hard to keep track of when they come in multiple files. As of May 1, 2008, we will charge or be charging a surcharge for information that comes in more than two files. It can take us a valuable hour or more to try and put together the file when someone sends 10 emails or 15 attachments, etc. We had one return with over 50 faxes and emails for instance.
This is a guideline not etched in stone. If you do your own TDF-90 forms, it is to your advantage. However, if we put them in the first year, the computer carries them forward beautifully.
-------------- next part --------------
An HTML attachment was scrubbed...
URL: http://www.centa.com/CEN-TAPEDE/centapede-ca/attachments/20080716/f12fe201/attachment-0001.html
What's Related