QUESTION:

My Grandparents recently passed away here in the United States, where they had been living since moving from Canada in 1956. Their estate includes some money (45,00 canadian)which was left in Canada that the executrix (their daughter)is trying to retrieve. Will there be a tax on this money if it is transferred into an account in the states. If so is there a way to distribute this money to the heirs (all living in U.S.) and avoiding a tax. Thank you.

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david ingram replies:

There is absolutely no Federal or Provincial estate or inheritance tax in Canada.  There ARE fees which need to be paid and which have different exemption amounts and different rates in different provinces.  In BC, for instance, $45,000 would require a payment of 20 times $6.00 or  $120.00 for a $45,000 estate as follows:


(3)  If the value of the estate exceeds $25 000, whether disclosed to the court before or after the issue of the grant or before or after the resealing, as the case may be, the amount of fee payable is

(a) $6 for every $1 000 or part of $1 000 by which the value of the estate exceeds $25 000 but is not more than $50 000, plus

(b) $14 for every $1 000 or part of $1 000 by which the value of the estate exceeds $50 000.

(4)  If, after the issue of any grant or after any resealing, the personal representative learns of the existence of an asset of the deceased that was not disclosed in the Statement of Assets, Liabilities and Distribution exhibited to the affidavit leading to the grant or to the resealing, determines that the value attributed to an asset in that statement must be revised or determines that an asset was otherwise not properly disclosed, the personal representative must disclose to the court the existence and value of that asset and must pay to the government the difference between the fee paid before the issue of the grant or before the resealing and any greater fee that would have been payable under subsections (1) to (3) had the asset been disclosed or appropriately valued in the original Statement of Assets, Liabilities and Distribution.


There would also be filing fees as well.


'IF' the estate is in Manitoba or BC, Lawyer David Stoller at (604) 922-4702 has handled many of these cross border estatres for us. I would make a bet that paying a fee for the professional service will likely save your sister a 'lot' of trouble and be worth it.


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There could be another problem though.  If, as is quite likely, your grandparents were doing as many do and did not report the edxistence of the Candian account on the bottom of schedule B of the 1040 or pay tax to the US and Canada on any interest earned over the years, now is the time when that comes to the authorities attention.  What happens, is they get the T5 slip sent to a brother's or sisters in Caanda and do not pay tax here because it is too small and then do not report in on the US return as well.  they consider the Canadian interest to be their canadian vacation money and only spend it in Canada.


Augustus Bosa, a well known Vancouverite received a criminal conviction for doing the same thing in reverse in Vanocuver with accounts in the US and Italy.  He used the money in those accounts (which also included some undeclared income) for his US and Italian vacations.


In your grandparents' situation as described, the financial institution in Canada should have been remitting 10% taxon any earnings to the CRA every year and your grandparents should have been reporting the interest on their schedule B and answering YES to the foreign account question, second to the bottom on schedule B. they would then have received credit on a dollar for dollar basis for the Canadian Tax paid by claiming it as a foreign tax credit on pasive income on US tax Form 1116.


Then they would have had to fill in Schedule TDF 90-22.1 to report the existence of the foreign account to the Departmet of the Treasury.  The minimum penalty for failure to report is now $10,000 with a maximum of $500,000 PLUS up to 5 years in jail.


Step carefully here with regard to the account. 

QUESTION:

Ontario, Canada

We've been told that we must pay capital gains tax on the sale of my mother's primary residence (after her death).

I thought inheritances were not included as income in Ontario, Canada.

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david ingram replies:   You asre correct.  In general, if mom died and you sold the house two weeks or two months later, there would be no tax.  However, there are two situations where capital gains tax wouold apply.

A.    There is no tax on her principal residence up to the date of  death.  However, if she passed away two years ago and the house is now being sold and has gone up any amount at all, there will be capital gains tax on the increassed value.

B.    Another possibility is that she also had a summer home which had increased in value more than her actual residence and the executor chose to claim the summer home as the tax free capital gain asset and  pay tax on her actual residence. This situation could also apply where mom sold the cabin the year before she died and decided that the family home would be taxable for the same time period she claimed the cabin tax free. 
Of course, 'A' applies to the cabin in this case as well and there would be tax to pay if there was an increase in value between death and the actual date of sale. �

QUESTION:

In July I became a legal residence of the US. Former Manitoba residence.  I am currently on Maternity leave from my job with the Canadian Federal Gov't receiving both EI and top off payments.  In Nov I will will be returnig to work in my position in Canada.  I am needing some expert advice on any tax saving solutions for my situation.  I know that I will still be deemed a Canadian residence for Canadian income tax.  I still own a residence in Canada (now my seasonal residence) and have a left $10K in a RRSP in Canada.  

My question is can anyone help me out with some tax advice/planning and tax prep at tax time?

Another issue is that I would like to purchase a home in the US.  Can I get a Canadian mortgage to purchase it as my income is all Canadian source income?   Is it even possible or is there any tax implications I have to consider?

Thank-you for your time.

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  david ingram replies:

Your situation is not usual for Maintoba but there are thousands of people doing what you are doiong across the rest of the country where large populations are close to each other like Detroit and Windsor and Vancouver and Bellingham and people commute back and forth on a daily basis between the US and Canada.

From the brief info given, you will be taxable in both countries but foreign tax creidts will mean only one tax in all.

You should likely borrow as much in Canada against your seasonal home and then use it as a large down payment on the home in the USA with a US mortgage on the property.  I give the kind of conbsultation you likely need and want.

You can find the details about charges, etc., below.

You will also want to read the Oct, 93 and Oct 95 newsletters at www.centa.com in the top left hand box.

Also read the US Canada Taxation section in the second box down on the right hand side. �

QUESTION:

My husband & I would like to take advantage of the current exchange rate as well as the deflating housing market in Arizona.  We are concerned about being taxed on our 'world income' which is a Canadian gov't pension and RRSPs as well as other Canadian real estate holdings i.e. two Canadian investment properties and one cottage.  We are concerned about what happens to our estate when one or both of us dies.  You probably have answered this question a million times before but I couldn't pull up information from you site. It may be because I just registered today. Looking forward to your response.  -----------------------------------------------------------
david ingram replies:

assuming you are buying a vacation p[roperty and not an investment property, Canada will treat it the same as if it was at the Lake of the Woods in Ontario, Lake Okanagan in BC or Lake LaBarge in the Yukon.

When sold, Canada, Arizona and The US federal government will all want capital gains tax if it hasd gone up in value.  Canada will give you credit for the tax paid to the US and Arizona.

If one of you dies with a total world wide estate of more than $2,000,000 in 2007 or 2008 or $3,500,000 in 2009 (the amounts have not been set for 2010 and beyond) the unit would be subject to US estate tax on a pro-rata basis. However, Caanada would allow a foreign tax credit against any capital gains tax incurred by the deemed sale on death.

If you are in the US for less than 120 days a year, there is no US tax filing liability.  If you are there for 140 days a year for two years in a row or more than 120 days a year for three years in a row, you trigger the necessity to file a US 1040NR tax return each under the substantial presence test.

Go to www.centa.com and read the April, 1994 newsletter in the top left hand box for an explanation of how and why.

If you are intending to rent the unit the rules are different and this older Q & A will likley help you. �

Please tell me what the implications are when a Canadian citizen with US green card who is married to a US wife and living in the US dies.  What are the estate implications for the wife that remains. I have heard that there are adverse consdquences and I noticed Peter Jennings became a US citizen shortly before he died.  What are the problems that you can encounter.  i think my husband would like to retain the abiltiy to return to Canada if I should die first.  All his children are there.   Thank you,   ----------------------------------------------------
david ingram replies:

The problem occurs when 'you' die and go to leave your estate to a non-citizen husband. 

For instance, he can make a gift to you as a US citizen spouse of any amount but you can only give a non-citizen spouse $100,000 per year without incurring gift tax.

Your husband should take out US citizenship.  He does NOT lose his Canadian citizenship when becoming an American Citizen as well.

Have him go to www.centa.com and read the October 1993 newsletter in the top left hand box. 

HI David, you guys did my taxes.. which was great.... you gusy were very professional.  I was working in and out of Las Vegas at the time.  I have a new job out of ROmania Starting on July 1st now, I work only out of Canada, and so far have made almost $60k over July to SEpt... wondering how much I should be putting aside for taxation, though I will have a ton of write offs from working in the US again.

ANy advice you can give me would be grateful. OF course I Will be paying you guys to do taxes for me again.  I am assuming that everything was ok with my return, and I do not owe any further money to you. IF there is any balance please let me know so that I a nimmediately get it looked after.

Thanx you
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david ingram replies:

In general to cover both CPP and income tax, you should put away at least 33% of the net income (your profit)  up to $100,000. 

 

If you are going to be over $100,000, you should put away 45% of the amount over $100,000 - so 33% on everything up to $100,0000 and then start saving 45%

The reason for these amounts is that (depending on the province) there are 3 to 5 tax brackets fromn zero to over $120,000.  Up to about $35,000, the income tax is 23 to 25% and the CPP is just about 10% on everything up to about $40,000.  Over $40,000, there is no more CPP and the tax rate goes up 27%  29% 33 % 39% and then 44% at over about $120,000.

 

At $100,000

And, my client tomorrow is from Romania as well.

david

Is there a book you would recommend that covers the pros & cons of sole proprietor/ partnership versus incorporation or holding companies? 

My wife bought a new home but kept our old home to rent out.  We are now planning on buying additional rental properties and want to set-up a company for this.  I am not expecting significant annual net profits so my main concern is minimizing the tax on capital gains in the long term.  Also, our original rental property has now tripled but I don’t want to trigger a capital gain by transferring it to the company.

Any help or guidance to reference material would be greatly appreciated.

Thanks.

xxxxx

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david ingram replies:

I would not likely recommend a corporation for the holding of your rental property.  I also accept that most accountants would likely recommend one.

If I wanted to double my cash flow in one year, all I woul dhave to do is tell 150 of my clients to incorporate.

In my opinion most people should not be incorporated because they lose control of their money.

I do not know of any book that deals with the question in any great detail either.

go to www.centa.com and read the November 2001 Newsletter in the top left hand box.  This newsletter deals with making your Canadian mortgage interest on the family home deductible

The following was given out at a free seminar i had on the subject  on August 12th.

.

My question is: Canadian-specific

QUESTION: We have a rental property generating regular rental income and got enough equity to cover our outstanding principle residence's mortgage. Is there a way we can move this equity to pay off the principle residence's mortgage and still be able to legitimately claim interest payable as tax deductible?

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david ingram replies:

Had 91 people at a free seminar at the Holliday INN on Sunday August 12th.

The following is the handout at that seminar. 

Hope it helps.

We recently bought a 4plex in Kitimat as a rental investment. We used a Scotia home equity loan for the down payment and a TD mortgage for the other 75%. We have a mortgage on our principal residence in Langley of $244,000. Our monthly payments on the 4plex will total about $1,300 , and the rents will be about $2,000. What would be the smartest method for paying this mortgage? What do we do with the excess cash flow? Is it possible to deduct the interest on our primary residence mortgage? Thanks. Al Wood. 604-530-3430.


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david ingram replies:

I had some 90 people at a free seminar on this subject today and am just about all "free"ed up on the subject.

You should be taking the rent you receive and use it to reduce the non-deductible mortgage on you r Langley house.
 
You can find out more by reading my November 2001 Newsletter in teh top left hand box at www.centa.com.

Reading Fraser Smith's Book 'THE SMITH MANOUVRE' will also give you ideas on how to make the Langley Morgage deductible.

Your excess  flow should be used to reduce the $244,000 mortgage as soon as possible.  Of course, the interest on the down payment loan is also dedcutible on Form T776.

The following is part of the handout at today's seminar -

QUESTION:

Hi...

As an American citizen living in Vancouver (I also have Canadian citizenship) am I allowed to open and contribute to retirement tax sheltered vehicles such as a ROTH or IRA in the States?... I am debt free and annually max out my RRSP...

Thank you,
xcxxx from New York

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david ingram replies:

Don't even think about it unless you have US earned (wages or self-employment) income which was earned in the US and therefore is taxable in the US first.  (Money paid to you in Canada from a US employer for work performed in CANADA does NOT count.)

Then it might be acceptable.  Acceptable depends on  "IF".  It appears that a US IRA will be deductible for Canadian Tax proposes in the new US/Canada Income Tax Treaty (signed Sept 21, 2007).  However, I have not had a chance to discuss this with anyone yet and am not prepared to make a go for it decision.

You are our typical client.

Get more information about deductions and investments by going  to Fred Snyder's seminars at 1764 West 7th on Thursday Nights at 7 PM (there is also one at noon the same day).

These are free and you have absolutely nothing to lose by attending.  Fred is one of the few financial consultants in Vancouver who has any idea of the reporting rules for US citizens living in Canada.

David Ingram wrote:
Every Thursday at 12 noon and 7 PM, Fred Snyder of Dundee Wealth Management
presents free Financial Seminars for his clients, potential clients and anyone who phones and asks to attend.

THERE is NO CHARGE!  (I used to charge up to $999.00 for essentially the same thing)
AND - NO ONE'S ARM IS TWISTED TO BUY SOMETHING.

They are presented at the Dundee Boardroom (holds about 30 people max)

1764 West 7th
Vancouver, BC

phone (604) 731-8900 - ask for Freda to register for free.

These are genuine educational seminars dealing with everything from how to buy a house to making your mortgage tax deductible to buying an RRSP to alternatives to RRSP accounts to estate planning.  So What started as 13 separate seminars has now evolved into 23 separate topics.

IT IS NOT UNUSUAL FOR PEOPLE TO COME TO ALL OF THEM.
ONE LADY CAME TO 53 separate seminars and her husband came to about 20 with her.

If you have a financial consultant, bring them.  People have brought their bankers and life insurance agents with them.

Take your spouse, your best friend, your son, your daughter, your mother or your worst enemy But do phone 604-731-8900 �

Good Morning David:

If a person were to know that he/she could not file their tax return by the deadline for the tax year in question, but did know exactly what they owed in taxes and did pay this money prior to the filing deadline, does CRA have the right to impose a late filing penalty even though they got the money on time?  Thank you.

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DAVID INGRAM REPLIES:

If your tax is paid, there is not even a real requirement to file a tax return unless you receive a specific request from the CRA.

If, however, you owe a couple of dollars, the law says you must file a tax return.

I have never seen a penalty assessed against a late filed return.  However, filing a return late can count agaisnt you in the future when you do owe tax,

Because you now have two (or more) late filed tax returns, they can double the penalty. �