USA resident buying rental in Canada and maybe moving in
Hello David,
I am booked for a 9 PM consultation tonight (June 21st).
My wife and I are Canadians that have been living in the US since 2002. I am on a HB-1 visa and my wife is a dependent that is not working, I am also part way through a green card application. I would like to figure out what I need to do to buy and investment property in Alberta Canada without changing my tax status.
I have 100% US income with no income from Canada, and have had no Canadian taxes since the first full year here. We severed our significant ties when we left and I am currently an deemed non-resident in Canada for tax purposes (and would like to stay that way). I have heard of nightmares where people had to pay on their world income in Canada because they purchased a house because it was seen as a significant residential tie.
Question 1: How can I buy investment property in Canada without affecting my tax / residency status?
(David's Answers in Italics) Buying a house as an investment and renting it out will NOT affect taxation on your earnings in the USA. If you bought it, left it empty and your family used it often (homesick for Canada) it could.
Question 2: What legal language do I use when trying to secure a Canadian mortgage? Is there any reference material?
I do not quite understand the question. I think you are asking, "What do I say?" If you always tell the truth, you do NOT need to remember what you said. Just ell them you are buying the home as an investment to rent out. The mortgage company will likley want a third as a down payment because you are a non-resident of Canada. If you are short and borrow on your US house to make up the down payment, the interest on the down payment loan is deductible in both countries.
Question 3: Should I be looking for a particular type of mortgage firm? A particular type of mortgage?
For cash flow and tax purposes, having a HELOC (Home Equity Line) and paying inte5rest only allows you to use the extra cash flow for other tyoes of investment otr personal use.
Question 4: What do I need to know come tax time? What reference material can I get to help?
* The CRA produces an excellent guide on rentals at
- http://www.cra-arc.gc.ca/E/pub/tg/t4036/t4036-06e.pdf
* Aspecific Guide for electing as a non-resident is at
- http://www.cra-arc.gc.ca/E/pub/tg/t4144/t4144-06e.pdf
Your mother or someone else will have to become your Canadian Tax Agent.
CANADA
OVERALL - this is CRA site general info on non-resident rentals
- http://www.cra-arc.gc.ca/tax/nonresidents/notices/nr6_2005-e.html
* You should both sign and file Form NR-6 and a Pro-forma rental schedule BEFORE the first month's rental.
- http://www.cra-arc.gc.ca/E/pbg/tf/nr6/nr6-06e.pdf -
* Then, she will have to fill in forms NR4 and supplementaries before March 31st of the next year.
- http://www.cra-arc.gc.ca/E/pbg/tf/nr4sum/nr4sum-fill-04b.pdf (fillable form)
- http://www.cra-arc.gc.ca/E/pbg/tf/nr4_flat/nr4-fill-06b.pdf
* Then you have to fill in a Canadian T1 on forms 1159 and 776 by June 30th.
- http://www.cra-arc.gc.ca/E/pbg/tf/t1159/t1159-06e.pdf
- http://www.cra-arc.gc.ca/E/pbg/tf/t776/t776-fill-06e.pdf (fillable)
* You will have to fill in a CCA (capital cost allowance // depreciation) schedule which is part of the T776
USA
* You will convert the Canadian currency to US and put the numbers from form T776 on US form Schedule E
- http://www.irs.gov/pub/irs-pdf/f1040se.pdf - instructions at - http://www.irs.gov/pub/irs-pdf/i1040se.pdf
* US DEPRECIATION WILL GO ON us SCHEDULE 4562
- http://www.irs.gov/pub/irs-pdf/f4562.pdf - instructions - http://www.irs.gov/pub/irs-pdf/i4562.pdf
* If you paid any tax to Canada, it will go on US form 1116.
- http://www.irs.gov/pub/irs-pdf/f1116.pdf - instructions - http://www.irs.gov/pub/irs-pdf/i1116.pdf
Question 5: Can your firm help with taxes for 2007? What are your rates for this type of tax situation?
Yes - it is what we do - Prices, etc., can be found further below
Question 6: If we later move back can we move into this property and convert it to a non-income property that we live in what will happen?
If you move back to Canada and move into the property, you are deemed (considered) to have sold and reaquired the property and trigger an immediate capital gain. The profit would be calculated on schedule 3 and entered on the T1 tax return on line 127. HOWEVER You can then make an election under Section 45(3) to defer paying the tax until sale by putting the same amount on line 256 AND ATTACHING a letter making the election - There is no form, you have to write a letter.
Warning - if you have been deducting depreciation in Canada, you will have to pay the tax 'now' on any depreciatioon claimed because you have now 'recaptured' the depreciation unless the price of the property went down.
Question 7: Is this type of purchase common? Is there any risk come tax season?
Yep, I have been recommending it for years so that someone can return to their place of origin at 'today's' price. If you want to retire to Florida or Vancouver Island or Hawaii or Great britain, I recommend that one go there now and buy a rental so that when retirement time comes, you KNOW you will have the funds to buy there. There is no tax risk - just a more complicated tax return. There IS the risk that property will NOT go up of course..
Question 8: What have I missed? Do you have a check list for this type of thing?
Can't think of anything - You now have a check list as made up above. And, I will use it as a newsletter.
Looking forward to our call.
Regards,
I am booked for a 9 PM consultation tonight (June 21st).
My wife and I are Canadians that have been living in the US since 2002. I am on a HB-1 visa and my wife is a dependent that is not working, I am also part way through a green card application. I would like to figure out what I need to do to buy and investment property in Alberta Canada without changing my tax status.
I have 100% US income with no income from Canada, and have had no Canadian taxes since the first full year here. We severed our significant ties when we left and I am currently an deemed non-resident in Canada for tax purposes (and would like to stay that way). I have heard of nightmares where people had to pay on their world income in Canada because they purchased a house because it was seen as a significant residential tie.
Question 1: How can I buy investment property in Canada without affecting my tax / residency status?
(David's Answers in Italics) Buying a house as an investment and renting it out will NOT affect taxation on your earnings in the USA. If you bought it, left it empty and your family used it often (homesick for Canada) it could.
Question 2: What legal language do I use when trying to secure a Canadian mortgage? Is there any reference material?
I do not quite understand the question. I think you are asking, "What do I say?" If you always tell the truth, you do NOT need to remember what you said. Just ell them you are buying the home as an investment to rent out. The mortgage company will likley want a third as a down payment because you are a non-resident of Canada. If you are short and borrow on your US house to make up the down payment, the interest on the down payment loan is deductible in both countries.
Question 3: Should I be looking for a particular type of mortgage firm? A particular type of mortgage?
For cash flow and tax purposes, having a HELOC (Home Equity Line) and paying inte5rest only allows you to use the extra cash flow for other tyoes of investment otr personal use.
Question 4: What do I need to know come tax time? What reference material can I get to help?
* The CRA produces an excellent guide on rentals at
- http://www.cra-arc.gc.ca/E/pub/tg/t4036/t4036-06e.pdf
* Aspecific Guide for electing as a non-resident is at
- http://www.cra-arc.gc.ca/E/pub/tg/t4144/t4144-06e.pdf
Your mother or someone else will have to become your Canadian Tax Agent.
CANADA
OVERALL - this is CRA site general info on non-resident rentals
- http://www.cra-arc.gc.ca/tax/nonresidents/notices/nr6_2005-e.html
* You should both sign and file Form NR-6 and a Pro-forma rental schedule BEFORE the first month's rental.
- http://www.cra-arc.gc.ca/E/pbg/tf/nr6/nr6-06e.pdf -
* Then, she will have to fill in forms NR4 and supplementaries before March 31st of the next year.
- http://www.cra-arc.gc.ca/E/pbg/tf/nr4sum/nr4sum-fill-04b.pdf (fillable form)
- http://www.cra-arc.gc.ca/E/pbg/tf/nr4_flat/nr4-fill-06b.pdf
* Then you have to fill in a Canadian T1 on forms 1159 and 776 by June 30th.
- http://www.cra-arc.gc.ca/E/pbg/tf/t1159/t1159-06e.pdf
- http://www.cra-arc.gc.ca/E/pbg/tf/t776/t776-fill-06e.pdf (fillable)
* You will have to fill in a CCA (capital cost allowance // depreciation) schedule which is part of the T776
USA
* You will convert the Canadian currency to US and put the numbers from form T776 on US form Schedule E
- http://www.irs.gov/pub/irs-pdf/f1040se.pdf - instructions at - http://www.irs.gov/pub/irs-pdf/i1040se.pdf
* US DEPRECIATION WILL GO ON us SCHEDULE 4562
- http://www.irs.gov/pub/irs-pdf/f4562.pdf - instructions - http://www.irs.gov/pub/irs-pdf/i4562.pdf
* If you paid any tax to Canada, it will go on US form 1116.
- http://www.irs.gov/pub/irs-pdf/f1116.pdf - instructions - http://www.irs.gov/pub/irs-pdf/i1116.pdf
Question 5: Can your firm help with taxes for 2007? What are your rates for this type of tax situation?
Yes - it is what we do - Prices, etc., can be found further below
Question 6: If we later move back can we move into this property and convert it to a non-income property that we live in what will happen?
If you move back to Canada and move into the property, you are deemed (considered) to have sold and reaquired the property and trigger an immediate capital gain. The profit would be calculated on schedule 3 and entered on the T1 tax return on line 127. HOWEVER You can then make an election under Section 45(3) to defer paying the tax until sale by putting the same amount on line 256 AND ATTACHING a letter making the election - There is no form, you have to write a letter.
Warning - if you have been deducting depreciation in Canada, you will have to pay the tax 'now' on any depreciatioon claimed because you have now 'recaptured' the depreciation unless the price of the property went down.
Question 7: Is this type of purchase common? Is there any risk come tax season?
Yep, I have been recommending it for years so that someone can return to their place of origin at 'today's' price. If you want to retire to Florida or Vancouver Island or Hawaii or Great britain, I recommend that one go there now and buy a rental so that when retirement time comes, you KNOW you will have the funds to buy there. There is no tax risk - just a more complicated tax return. There IS the risk that property will NOT go up of course..
Question 8: What have I missed? Do you have a check list for this type of thing?
Can't think of anything - You now have a check list as made up above. And, I will use it as a newsletter.
Looking forward to our call.
Regards,
What's Related