QUESTION:
We have been in the US for 2.5 years; working on an L1a Visa. We kept our
home in White Rock and it is currently "rented out". We would like to pay
off our mortgage and are wondering if there are any specifics concerns.
SXXXXXX
-------------------------------------------------------
david ingram replies:
Under any normal conditions, I would not pay off the Canadian Mortgage. I
would reduce it to the position that it the interest was enough to net out
any rental profit.
If you pay it off, you will end up with income tax to pay to Canada and it
will not be in lock-step with the US tax because the US depreciation works
at a different rate.
I would need more information about your family situation before making an
absolute statement but in general I would advise about paying it down
completely.
You might want to book an hour of my time.
I trust that you have filed your NR-6 forms and filed your Canadian Income
tax returns under section 216(4) - One each if in joint tenancy.
The following answer to previous questions might help you.
My question is: Applicable to both US and Canada
QUESTION: I am an American citizen looking to invest in a rental property in
Canada and am wondering if there are any laws that would make this difficult
or not cost effective for me. Would my profits be taxed by both countries?
Would it be better for me to borrow money in Canada or the U.S.?
=====================
david ingram replies:
I am just too busy to answer this question "fresh". However, the following
should help and I would be pleased to help you in the future
\r
QUESTION:
As a US citizen, if I put out to rent an apartment that I own in Montreal do
I have any obligation to file an NR6 or to withhold taxes from the rent? Do
I have any obligation to advise my tenant to withhold taxes? If I do
neither, will I incur any penalty when I file my annual tax return in Canada
reflecting my small gain/loss on the property?
===================================
david ingram replies:
It is your responsibility to arrange for an agent although I did a return
for a fellow from LA this week. He has owned a rental in North Vancouver
for some 22 years without ever having filed an NR-6. The CRA has slipped in
not getting on top of it.
If you file your section 216(4) return on time you will be allowed to deduct
the expenses. If you are more than two years late, Canada will tax you on
the gross at 25% and not allow you any deductions (In the same situation in
the US, the penalty is 30% of the gross with no deductions).
I am going to reproduce another Montreal question I had a few months ago.
================================
QUESTION: We understand that there is a 25% tax on
gross rent from investment properties
owned by non-Canadians who have not
filed their proper forms. We were
ignorant and knew not of what we were
doing when we bought our rental
property... which runs at a loss. In
Montreal the bienvenue tax is over six-
thousand dollars (this is the tax all new
home-owners must pay in Montreal).
Can we deduct this as a tax item on our
federal return this year? Next year we will
have to be sure to fill out all the proper
paperwork.... Thanks for your response.
---------------------------------------------------------------------------
david ingram replies
The 25% tax is a withholding tax, not a tax if you get the proper return in
within 24 months. You will have to pay the 25% first, but if we file a
return under Section 216(4) with the proper whining letter, you will get it
back if you actually lost money in the rental. In fact, the 2003 216(4)
return is not actually due until June 30, 2004 so we do not even need a
whining letter if you get it (the financial figures) here in the next ten
days.
I would be happy to look after this for you because it is a sort of
specialty. All together, we likely prepare over 200 non-resident tax
returns for Canadians with US property or Americans with Canadian Property.
Throw in a couple of Germans, a couple of Australians, a Spaniard, Italian,
Swede and New Zealanders and even an Antarctica worker and you can see that
doing it by mail is simple. An advantage of our doing it is that we can
also prepare the US and State return with the proper tax credits and you do
not need to try an train a local accountant. (It can take 20 to 30 hours to
figure it out the first time).
And, if you have a local accountant that you really want to use, we prepare
a dummy US return with all the proper figures in the right place so that
your accountant can just plug in the figures without having to work at it.
Let me know if I can help.
The Bienvenue Tax is considered a capital addition to the cost of the
building. We have a PPT (property purchase tax) in BC with the same
characteristics.
Answers to this and other similar questions can be obtained free on Air
every Sunday morning.
Every Sunday at 9:00 AM on 600AM in Vancouver, Fred Snyder of Cartier
Partners and I will be hosting an INFOMERCIAL but LIVE talk show called "ITS
YOUR MONEY"
Those outside of the Lower Mainland will be able to listen on the internet
at
www.600AM.com
Local phone calls to (604) 280-0600 - Long distance calls to 1-866-778-0600.
Old shows are archived at the site.
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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