QUESTION:

We just purchased property in Spokane washington( a 4 plex apartments)
We plan on renting out 3 of the units and keeping one.  I was told by the border crossing inspector,
that I have to hire a rental agency in order to rent out the apartments.
and I also  have to have a property manger full time..
We will be at our apartment approx 2 times a month..
So we do not need a property manager.
Do you know if this true,, or please direct me to the correct person that would be able to help me.
Thanks for your time.
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david ingram replies:

You need a property manager if you do not want the strong possibility of going to jail for a few days before being deported and then not allowed back in the USA. For a story about US Immigrations hell for a Holiday Inn Manager, try
http://apostille.us/news/local_holiday_inn_express_manager_in_jail_on_immigration_charges;_husband_fights_for_her_return.shtml
or how about a married woman's ordeal in Georgia for a traffic violation  at
http://www.canada.com/ottawacitizen/news/story.html?id=f4f1d2fb-07ae-4560-8f6c-703acf8146fb&k=0

Crossing the border when you have an ad running to show the premises and saying you are going down to spend the weekend in your holiday home (i.e lying to the HOMELAND Security official) could result in seizure of your vehicle and a ban for up to 10 years under their ER (Expedited Removal) process.  In other words, it is more serious to lie to the guard at the border than it is to do the work.

You 'could' actually show the property for rent,  but you can NOT write out a contract for rent or collect a single rent cheque (check) or cash for rent in the United States. There is nothing new about this.  The first time I ran into it was in 1972 or 1973.

If you are physically there, you can NOT cut the grass, shovel the sidewalk, paint or decorate or repair or fix or remodel or improve or take out the garbage for any part of the rental property.

You can paint and clean your own unit if it is NEVER rented or intended to be rented. You can not paint and clean up getting the property ready for rent so DO NOT make the mistake of thinking you can live in one, clean it up and remodel it and then rent it out and do the same for another one and then another one and another one. If you do this and one of your tenants (who maybe doesn't like you because you evicted them or told them to turn their strereo down when you happen to be in town or for any other reason) read my website, (or the uscis website) he or she would find out that you can NOT do this stuff and could phone the Homeland Security office or write an anonymous letter and you could be arrested in November 2008 for something you did in December 2007. 

This may seem unreal, but in US terms, working without a visa is just as serious in law as the spontaneous robbing of a convenience store and the penalties can be worse.  Think of those nightly news shows with 28 illegal Mexican or Guatamelan citizens being stuffed into Paddy wagons on the Arizona border. This is not a racist comment but with the Mexican illegal immigrants, bing rounded up and shipped back across the border is a way of life with no social stigma.  For a nice clean living Canadian, being thown into an immigration detention cell for taking money for rent is a devestating experience. In one case, a mother and her son were thrown into jail for 5 days in Phoenix when she went to Phoenix from White Rock BC.  Her husband owned 18 units and HAD a property manager.  Unfortunately, he also died in the arms of that female property manager and his widow then fired the property manager and she and her 20 year old son went to Phoenix to collect the rent and hire another property manager.

The property manager (who knew the law as everyone in Arizona does) phoned Homeland Security who showed up and arrested mother and son and threw them into the notorious Phoenix Immigration hell with some 300 other illegals. To rub salt into the widow's wounds, the property manager ended up with the property because she was a second mortgage holder on the property and the property fell into default because of the widow's cash flow troubles, largely becasue she could not go to phoenix to hire another property manager.

For instance, for 'you', this kind of arrest could result in imprisonment for a usual five days in a US immigration jail until you posted $5,000 bail each and then being banished from the US for five to ten years. 

It does not stop there.  This type of conviction would stop you getting on an airplane which stopped in the USA on the way to Mexico.  AND,  under new US laws that have been proposed but not yet actually put in place, the arrest and banning would stop your Nov 6 trip to Cancun because people in this position will not even be allowed on commercial airliners that are flying over any part of the US. To get to cancun, you would have to fly from Calgary or Vancouver to London England and then back to Mexico City and 'then' to Cancun and reverse it to get home.

This may be overkill but 'You' are / were lucky that the inspector gave you the correct advice BEFORE you put your foot in it.

By the way, for income tax You ALSO HAVE TO FILE A 1040NR US TAX RETURN WITH A SCHEDULE E AND A SCHEDULE 4562  EACH.  Then the same income gets put on Schedule T776 of your Canadian return.  If you have paid tax to the US, you will claim it as a credit on Canadian forms T2209 and T2036.


These older questions will help you AS WELL.

QUESTION:

After 5 years away as non-residents to Canada, my family and I moved back to Vancouver from the US at the end of July.
My husband is employed full time here and I am self employed with a company that's incorporated in the US (with US clients).
My question is, since we will have been in Canada this year less than 183 days, will I have to file a Canadian tax return and declare my world income or can I just file in the US this year? (I assume that my husband will have to file here this year because he's employed here. )
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david ingram replies:

When you have moved back to Canada, yuo have a date of entry and the number of days is irrelevant. 

The number of days is used when someone is in and out of the country, (usually on a regular basis),  NOT when one moves to Canada to live. If you moved here with husband on Sept 1 and spent 90 out of the next 120 days working in the USA, you would be taxable in Canada because of your move here. 

In other words, you are taxable on the income from the moment you entered Canada.

You are likely not taxable in the USA on that income unless you are still going across the border to the USA to actually perform the work.

Your email would indicate that you must have had a visa to do the work there but will likley have given that visa up unless you are:

a -   A US citizen in which case, you are still taxable in the USA on your world income but if the work is performed in Canada, would pay tax to Canada first OR

b -   You have a green card and filed form I-131 before you left the USA to keep your green card alive while in Canada (has to be renewed annually) OR

c -   You have an E-2 Visa which would allow you to contiue working in the US for your own company.  If it is your own company, a TN visa should not have been issued if that was what you were using OR

d -   You have an H1 to continue working for the US company in which case, although you call it your own, It would more likley be that you have a 50% or more partner in the USA.

If you are physically performing some or all of the work in the USA, then the IRS and New York has first claim on that money (if you worked in New York, but there is no state tax if you worked in Bellingham, Washington, or Anchorage, Alaska) and Canada has second claim.  You would pay tax to the Federal Government and the State (if in a state with income tax) first and then report the money again on line 104 of the Canadian T1.  You would then report the money again on line 433 of the schedule 1 and claim the tax, FICA, Medicare and State tax on line 431 of the Schedule 1 (fill out T2209 first) and then put any excess on line 48 of schedule 428 (fill out T2036) if there was some left over to claim against your provincial tax.

If you are a US citizen or green card holder and are working in Canada only, you would pay the tax to Canada first and then claim the Fed Tax, Prov Tax and CPP you paid to Canada as a foreign tax credit on US form 1116.

Another possible scenario would be that you are a US citizen who does not really want to live and work in Canada even though your husband is here.  You have sort of moved her but opened an office in Bellingham or Marysville across the border  and are spending a lot of time there and are a factual resident of Canada have to report your world income but not taxable on income not earned in Canada.  In this case, (I have a couple of dozen of these where the wife lives and works in teh US and the husband in Canada or vice versa), you report your incometo Canda but exempt all US income on line 256 under Article IV of the US/Canada Income Tax Treaty.
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I can tell you without reservation that you will likely need help with this and that is what we do. �

I am just starting to gather some information to help me decide what path to follow in filling both Canadian and US taxes for 2007. Also, I am interested in looking into some tax planning for 2008. In looking into a decision if I will contract your services, I have a few initial questions.

 

Let’s start from the fundamentals. My situation is such, that I will be considered resident for tax purposes from both Canada and the US for 2007. Does this give 3 options or only 2? I mean, should I definitely try to apply the tax treaty and make a case for filling non-resident in one of the countries? Or should I still consider the option of filling resident on both and claim the respective credits?

 

A bit more about my situation:

-I moved from Canada at the beginning of the year on a company intra transfer L1 Visa (I should get green car status sometime next year). I am Canadian citizen since June of this year. I am renting in Cambridge, Massachusetts.

-I own a house and a consulting business in Calgary, AB. I have kept all credit cards and bank accounts open. I have exchanged my driver’s license for a Massachusetts license. My common-law partner still lives in Calgary.

 

At this point, the tiebreaker on the tax treaty is unclear to me about the center of vital interests. If I claim that is undetermined and apply part (b) and consider myself resident of the US (my habitual abode) and non-resident of Canada for tax purposes, would this be challenged by Revenue Canada?

 

Best Regards,  


"If you are headed in the right direction, each step,

no matter how small,  is getting you closer to your goal"

 


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david ingram replies:

You sound like a factual resident of Canada and an absolutely tax resident of the US.  If you have a green card application int he works, you are taxable there on world income. 

A factual resident reports their world income to Canada but deducts the US (or Australian, or French or Indonesian) income on line 256 under Artuicle IV of the respective treaty. .

These two older Questions will help. �

I have vacated my principal residence permanently (to a new principal residence!)and intend renting it out. I understand that there may be a capital gain liability due to a change of use ruling? What is the change of use ruling?


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david ingram replies:

The change of use is in reverse.  If you move INTO a rental property, you trigger an immediate capital gain as the question following reveals.  Note, that if you do NOT claim depreceiation or CCA, you can move back into the old house and not have to pay the tax until actual sale.

 If I were to sell my principal residence in Canada....can I take the funds and buy property in somewhere like Morocco, Bahamas or Mexico without their being any big tax implications.  My plan would be to make that my principal residence for a couple of years and then sell it so I would like to find a country that didn't have capital gains for that type of sale.  Can you give me any guidance? 

 

Thanks

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david ingram replies:

There are lots of places you can buy without a capital gains tax and some that have a capital gains tax but it does not apply to your principal residence.

For instance, until 2002, your house was tax free in Mexico if you had lived in it for the two years before sale.  Now you have to  get the Notario handling the transaction to agree that it was your residence or he or she will tax it because they are responsible for the tax if you do not pay it so they want to collect first. You will have to possess an FM-2 or FM-3 visa as well.

In the US, you have to have lived in the house for 24 months out of the last 60 for it to be tax free up to $250,000 profit each and you have to be a legitimate resident of the US.  That implies that you have an L1, H1, TN, O1, P1 visa or a green (resident alien) card.

In Canada, it is tax free if it is your principal residence.  You can have a summer cabin or winter ski chalet and a house in town and decide whioch one will be taxable and which one is tax free. Of course, you have to be legitimate resident as well.

There is no capital gains tax in the Bahamas, Costa Rica, Grand Caymans, Turcs and Caicos, Dubai, and another 100 countries, etc., etc.

I do not know about Morocco.  However two of my clients who are Algerian citizens are very happy to be in Canada and this article (at http://www.commondreams.org/news2005/0930-04.htm)
would want me to avoid the place if it came to buying a home there. Both of these clients had come to Canada years ago and went back to Algeria to make money and left super high paying jobs because they were literally afraid for their lives. 

And remember that going somewhere and buying a property for two years is not going to make you any money unless you just happen to pick 'the' next hot real estate market.  You are staitstically more likely to lose money in two years than make money in my opinion.

By the way, one of the best places to buy is likely Ecuador.  You could  look up Gary Scott;'s Site at www.garyscott.com or read his specific article at http://www.garyascott.com/2007/01/08/1460.html.

Gary was in my office in the summer of 2000 and was pushing Ecuador then.  It has done well since and International Living published another article praising Ecuador in the last couple  of weeks.

However, I would not advise you to buy in Ecuador, Mexico, or any other place for a planned two year period.

My question is: Canadian-specific

QUESTION: Hello
My husband and I have recently bought a mobile home on an acre in Nelson to move to in a few years when we find work there, or much later when we retire.  We currently live in a rented apartment near Vancouver as we work in town.  Our mobile home is rented out to tenants and we intend to let them stay until we would like to move to Nelson.  It is the only home that we own but it is rented out until we can move there. Can you let us know how that would affect us in terms of Capital Gains?  I know that each year we will have to claim the rental income and write off our costs for the mobile home / land against it.  Thank you very much for your feedback.

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david ingramn replies:


When you move into the former rental, it is considered a deemed disposal and re-acquisiton.  Capital Gains tax is due and payable on any increase in value at that time.

 UNLESS

If while renting, you did NOT claim CCA (Capital cost Allowance) or depreciation on the T776 (rental schedule), you can defer paying the tax at that time though.

When you do move in, calculate the increase in value and report Half on schedule 3 of your return and half on schedule 3 of your husband's return That schedule will, in turn, result in one half of the half being put on line 127 of your return as taxable income. 

You can now write a letter to the Tax office stating: " I hereby elect to defer opaying the tax triggered by my moving into my rental property under Section 45(3) of the income tax act."

You then write the amount on line 127 on line 256 where it is subtracted from taxable income.  Write - see election letter  beside line 256.

These older Questions are in the same vein. �

QUESTION: Hello David
I em an naturalised citizen  and I just sold my home in mexico .
My question is will my money be taxed when it enters the usa .
I plan to invest the money in a new house .      thanks 
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david ingram replies:

There are two problems.

One, unless the home qualified for/as a homestead in Mexico, the sale will be taxed in Mexico.

It used to be that the Mexican home was tax exempt if it was your principal residence for two years but that was cancelled in 2002.



What the Mexican Notary (Notarios) Decide is Critical  - the following was 'lifted' word for word from http://www.bajainsider.com/baja-business/taxes-mexico-real-estate.htm You may want to read the rest.



Under Mexican Income Tax Law, Notarios are jointly liable with the seller for all taxes due on the sale of real property in Mexico. If Hacienda (the equivalent to the Treasury Department in the US) decides the Notario did not calculate these taxes correctly, the Notario may be required by the tax authorities to make up the difference. Obviously, when they are doing dozens of transactions each year, very possibly involving millions of U.S. dollars, Notarios have to be very careful and will generally take a conservative approach.

The homestead tax exemption is still available to resident taxpayers in Mexico, and it is the Notario who decides who meets the requirements of tax residence. To make this determination, Notarios can base their decision on two different sets of laws: Mexican tax laws and Mexican immigration laws.



Since the Mexican Notary (Notario) is jointly responsible for the capital gains tax on real estate if it is due, the notary becomes the tax collector for the government.   As a consequence, foreigners are having a hard time  getting a tax free exemption.  San Miguel sales are a crap shoot with some people getting tax free status and others not.  each case is being dealt with on an individual basis.  In Mexico City, Foreigners are routinely granted tax free status.  In most other places foreigners are being taxed on the sale of their Mexican home.

1.     However, if you are a Mexican National and this is/was your family home, it should be tax free. 

2.   If you have a green card, you are taxable on your world income and the sale of a Mexican, Canadian, Australian or Ethiopian home/house is reportable and maybe taxable.  However, again, if it is the only home you own and you have physically occupied it for 24 out of the 60 months before sale, you are eligible for up to $250,000 per owner tax free on your US 1040.

Another factor is to 'top up' the value of the home on the day you actually immigrated to the USA.

So the money is not taxable when you take it to the USA to buy your home there but the Mexican sale itself may be taxable in both Mexico and the United states. �

we are currently incorporated in the state of Nevada and are looking 
at moving 10 of our Canadian employees and their spouses to our US division.  
Could you tell me what type of Visa we should apply for that will allow 
their spouse to work and for them to eventually become a permanent US Resident? 

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david ingram replies:

The only visa that would allow the spouses to work is an L1 Via.

It is unlikely that you can transfer 10 employees at a time under an L1 because the transferee must be a supervisor, manager, or a person of very specialized knowledge.

Computer programmers can NOT move to the US on a TN visa. 

They 'can' go to the USA with an H1 visa but the quota fills quickly which is the reason for MICROSOFT opening in Vancouver. AND, spouses can not work with an H1 or TN visa unless they qualify for their own visas.

However, an L1 would serve your purposes 'IF' your employees truly have unique or very very rare specialized knowledge or are management or senior supervisors.  If in a supervisory role, a rough rule of thumb would be eight to ten others working under their supervision.

Remember that even Microsoft has given up on getting programmers into the US and is opening up in Greater Vancouver as shown in the following which was taken from http://chinesecanadians.blogspot.com/2007/07/microsoft-to-open-development-center-in.html

I have a business that is doing contract work for a U.S. company.  The work is being done from Canada and I will not need to travel to the U.S.  However the company wants me to fill out a W-8ECI form.  This form states that I would have to file a U.S. tax return. Would I have to file in the U.S. and what is the proper form I should be filling out?

Thank You


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david ingram replies:

I think you are the person who talked to me on the phone as well.

I am answering this to send to the group to seeif any of the others have a differnt idea.

The W8-ECI form is designed to stop withholding taxes.  To Quote: "Certificate of Foreign Person’s Claim That Income Is
Effectively Connected With the Conduct of a Trade or Business in the United States"

See the form at:
http://www.irs.gov/pub/irs-pdf/fw8eci.pdf

Filling it out will stop the payer from deducting tax.  The form has you agreeing to file a USD tax return which on the surface makes no sense.  However, if you did, since all the profits are in Canada and you have no fixed base of operation in the US and are not doing anything 'in' the United states, if you do file a tax return, it would be claiming all profits tax free under the US Canada Tax Treaty.

Anyone any other opinion?  This is / has been tightened up under the auspivces of the new US Canada Tax Treaty signed on Sept 21, 2007. �