My_question_is: Applicable to both US and Canada
Subject: condo purchase in Montreal
Expert: taxman at centa.com
Date: Saturday February 26, 2005
Time: 09:10 AM -0800
QUESTION:
I am considering buying a condo in Montreal for my daughter to live in while
she goes to Concordia. Do you have any good web sites for me to get info on
tax imlications, or whether I am better off with a Canadian mortgage, or pay
cash?
Thanks,
Pxxxxxxx
================================
david ingram replies:
The following questions I answered in the past should help you. If your
daughter is just living in it, you do not have any need to file a Canadian
Tax return.
If it was in her name and she was a Canadian resident for the two years and
it went up in value, it would be tax free for both countries.
If you pay cash, and consider yourself to have loaned the money to your
daughter, you will not have to worry about gift tax and she can pay you back
when she sells it.
Unfortunately, there is a possibility of gift tax or imputed interest if you
are not careful. Basically, you can loan your daughter up to $100,000 US
with no imputed interest provided your daughter does NOT have investment
income of $1,000 or more. And the loan should be a demand loan. And you
need to have a financial statement from your daughter showing that she is
solvent and will be paying you back in the future. A General imputed rate
could be as high as 5% so if you do not watch out, you could be paying tax
on $5,000 have been considered to be "giving" her the interest you are not
collecting.
If you are married, your wife can also loan her $100,000 under the same set
of rules. That should make up enough to buy the apartment and get two
things:
one - you do not have to pay tax on any earnings from the money and
two your daughter will make any increase in value tax free up to $250,00 US.
I am putting this out to my email list in case someone wants to tell me that
the $100,000 loan cap has been raised or lowered or that some other thing
has come up that I have not covered such as a change in imputed interest
rate, etc.
Note that if you loan your daughter more than $100,000 individually, you
will have an imputed interest which I think is about 5% at the moment.
You and your wife can also give her $11,000 each as well.
================
read the following for some other ideas.
--------------------------------
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
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Every Sunday at 9:00 AM on 600AM in Vancouver, Fred Snyder of Cartier
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YOUR MONEY"
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