MessageHi David,
I am a Canadian who has been working and living the U.S. for the past 5 years under a TN Visa. I do not own any property in Canada and I am contemplating on buying a residential property in Canada. I was wondering if I will subject to income tax once I do so? I would like to buy the property because of low interest rates and the prices have risen by 30% the last 5 years I've been away, so I would like to lock it in before I eventually move back.
If I am subject to taxes, how can I avoid being tax liability? I have to qualify for a mortgage in Canada, but can I transfer the title to another member of the family and not be subjected to Canadian income tax?
Regards,
Mxxxxxxxxxxx
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david ingram replies:
Buying a house in Canada will not make you liable for tax if you rent it out to a stranger and do not keep a room or suite in it. Article IV of the US / Canada Tax treaty will only "possibly" make you liable for tax if you keep a house ready for you to move into instantly. If it is rented out on a year to year lease, it is not available to you and you are not taxable.
Article IV follows:
Article IV of the US / Canada Income Tax Convention reads as follows:
Article IV - Fiscal Domicile - (it is the same number in most treaties)
For the purposes of this Convention, the term "resident of a Contracting
State" means any person who, under the law of that State, is liable to
taxation therein by reason of that person's domicile, residence,
citizenship, place of management, place of incorporation or any other
criterion of a similar nature, but in the case of an estate or trust, only
to the extent that income derived by the estate or trust is liable to tax in
that State, either in its hands or in the hands of its beneficiaries. For
the purposes of this paragraph, a person who is not a resident of Canada
under this paragraph and who is a United States citizen or alien admitted to
the United States for permanent residence (a "green card" holder) is a
resident of the United States only if the individual has a substantial
presence, permanent home or habitual abode in the United states and that
individual's personal and economic relations are closer to the United states
than any other third State. The term "resident" of a Contracting State is
understood to include:
(a) the Government of that State or a political subdivision or local
authority thereof or any agency or instrumentality of any such government,
subdivision or authority, and
(b) (i) A trust, organization or other arrangement that is operated
exclusively to administer or provide pension, retirement or employee
benefits, and
(ii) A not-for-profit organization that was constituted in that State,
and that is, by reason of its nature as such, generally exempt from income
taxation in that State.
2. Where by reason of the provisions of paragraph 1 an individual is a
resident of both Contracting States, then his status shall be determined as
follows:
(a) he shall be deemed to be a resident of the Contracting State in which he
has a permanent home available to him. If he has a permanent home available
to him in both Contracting States, he shall be deemed to be a resident of
the Contracting State with which his personal and economic relations are
closer (centre of vital interests);
(b) if the Contracting State in which he has his centre of vital interests
cannot be determined, or if he has not a permanent home available to him in
either Contracting State, he shall be deemed to be a resident of the
Contracting State in which he has an habitual abode;
(c) if he has an habitual abode in both Contracting States or in neither of
them, he shall be deemed to be a resident of the Contracting State of which
he is a national;
(d) if he is a national of both Contracting States or of neither of them,
the competent authorities of the Contracting States shall settle the
question by mutual agreement.
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