My question is: Applicable to both US and Canada
QUESTION: I am a US citizen who has purchased several pre-sale condominiums in downtown Vancouver with the intention of renting them out. I recently found out that mortgage interest in Canada is not tax deductible. Would the interest be deductible on my American tax return?
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david ingram replies:
You will be happy to know that mortgage interest in Canada "IS" absolutely deductible if the proceeds of the mortgage are used for investment. the investment must have an expectation of an "operating" profit but could be for a business, an investment portfolio of interest or dividend bearing instruments, or a rental property or properties.
I would be happy to look after your returns for you by email, fax, snail mail or courier.
The following is the answer to another similar question which I am going to repeat here to save myself some time. I have also added your name to a US / Canada Q & A list which will give you a lot more information about US / Canadian Income Tax matters.
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QUESTION:
HI--
I am a US citizen living and working in the US. I am considering purchasing a rental property in Vancouver, BC and wondered about the tax consequences--both in Canada and the US. Would I need to pay taxes on the income in Canada or US?
Both - Canada first on a Section 216 return with an extra schedule T776 - If any taxes were paid to Canada, you would claim a credit on your US return by way of form 1116. After converting the Canadian figures to US $$$, you would have a small loss, not a profit.
Would I be able to deduct mortgage payments and condo fees and management company fees as a business expense?
You can deduct "mortgage INTEREST" and condo fees and management fees in Canada and the US.
If it was to be paid in Canada, would I only be taxed on the rental income--not my personal US salary income.
Canada would not have a claim on your US income unless you were in Canada very often on a fairly constant or continuous basis.
Thank you!
KXXXXXXXXXXXXXXx
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david ingram replies:
Before you rent it out, you need to fill out form NR-6 and have a Canadian "Tax agent" who may or not be the rental agent.
The NR-6 is available at:
http://www.ccra-adrc.gc.ca/E/pbg/tf/nr6/nr6-00e.pdf
This will result in the tax agent having to remit $25% of the net rent to the Canadian Income Tax Department every month.
Then by March 31st of the following year, your tax agent has to file form NR-4 and Summary to report the rental income to the CRA and you.
The flat form is at:
http://www.cra-arc.gc.ca/E/pbg/tf/nr4_flat/nr4flat-03b.pdf
The summary form is at
http://www.cra-arc.gc.ca/E/pbg/tf/nr4sum/nr4sum-fill-00b.pdf
Then by June 30th, you have to file a Canadian Tax return under Section 216(4) to report the rental income to Canada on form T776
http://www.cra-arc.gc.ca/E/pbg/tf/t776/t776-fill-01e.pdf
You can read the T-1 Guide at http://www.cra-arc.gc.ca/E/pub/tg/5000-g/5000-g-03e.pdf
The T776 will give you a good idea of what is deductible -- It is analogous to the US form 1040 with a schedule E.
You can also go to www.centa.com and read the rental income section in the Tax Guide - look around a bit.
Your name has been added to our email list because of an enquiry we have received, we may not answer your question but
another similar question will be as we lump them.
You may find more answers at www.centa.com
If the number of messages is too many for you or the US / Canada Taxation and Immigration information is not of interest, simply reply with a remove request.
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4466 Prospect Road
North Vancouver, BC, CANADA, V7N 3L7
(604) 980-0321 - Fax 913-9123 taxman at centa.com
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This from ask an income tax immigration planning and bankruptcy expert consultant guru or preparer from www.centa.com or www.jurock.com or www.featureweb.com. Canadian David Ingram deals daily with tax returns dealing with expatriate:
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Disclaimer: This question has been answered without detailed information or consultation and is to be regarded only as general comment. Nothing in this message is or should be construed as advice in any particular circumstances. No contract exists between the reader & the author and any and all non-contractual duties are expressly denied. All readers should obtain formal advice from a competent financial, or real estate planner or advisor & appropriately qualified legal practitioner, tax or immigration specialist in connection with personal or business affairs such as at www.centa.com. If you forward this message, this disclaimer must be included."
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