My question is: Applicable to both US and Canada

QUESTION: Hello,
I would appreciate your advice on the following issue:
I am a Canadian resident. Two years ago, I bought a pre-construction apartment in Vancouver jointly (50%-50%) with an American friend of mine who is resident in California with a view to rent it out after completion in 2008. The price of the unit we bought has since gone up considerably.
I have recently come across an article that managing the tax situation could be very complex in our case. I would appreciate if you could advise the steps we should take before and after the completion,renting,and eventually selling of the property. Also, how much would the withholding taxes be if we decide to sell after a year of renting it out or alternatively before renting at all right after completion, or before completion as an assignment. Moreover, I am wondering whether the fact that my partner is American and US resident would complicate my tax situation or obtaining a mortgage from a Canadian bank to finalise the purchase, or both.
Finally, how much would it cost for the  matter to be managed by an accountant/tax expert (yourself?)throughout the life of the project.
I look forward to receiving your response.
Many thanks.
Sincerely,

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david ingram replies:

I apologize but this question is far too complex for this free forum.  I could spend two hours and still miss the correct answer because I don't have all the facts.

I suggest that the two of you book a conference call with me.  The cost would be $424 Canadian for an hour and could likely be dealt with in that time.

Since the tax paid is a progressive tax running from a low of 23% at under $35,000 to 44% at over $130,000 taxable, telling you what the tax would be is also difficult.  If you "flip" the unit, the tax would be on the gross profit at those rates.  If you rented it for ten year and sold it, the tax would b on 1/2 of the profit as a capital gain.

Selling after one year wouold likley trigger a straight profit ruling. 

I no longer manage projects like this.

However Crosby Management at (604) 689-6902 and Ross McDonald at Lighthouse Realty (604) 649-4871 are both set up as property managers for non-resident owners.

The difficulty in getting a mortgage will depend upon both of your credit ratings at the time.  Thousands of Americans have bought condos in Vancouver without a Caandian partner.  The mortgage company will usually ask for 35% equity but if this unit has gone up what I think it likley has for you, you may have your 35% in the increased value alone.

I am selling our current home for $1,000,000 and buying another for $400,000.   My understanding  is that because it is my primary residence here in Canada  that there are no tax implications on gain. 

I am a landed immigrant and U.S. citizen.  How does the U.S. treat this gain for non-res U.S. citizen? 

Thanks

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david ingram replies:

This made the cut to be answered but there is not enough information to answer accurately so i will make a guess which may or may not suffice.

I will assume you are talking US dollars.  If you are a married person (selling 'our' house) and paid $400,000 US and are now selling for $1,000,000 US, you will have a profit of $600,000 US.  This is tax free in Canada as you know.

You and your spouse can each claim $250,000 US tax free and would owe tax on $100,000.  That would generally be a maximum of $15,000 US at max 15% tax rates on long term Capital gains.  If your profit was $500,000 or less there would be no tax and if it was $700,000, it would be $30,000 tax to the IRS.

QUESTION: I had a rental property in Victoria, BC that became vacant.  Not wanting to be a landlord anymore, I decided to sell.  That  process took over 5 months.  During the vacancy period are the usual rental deductions still legitimate?

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  david ingram replies:

interest, taxes and upkeep are NOT a deduction from current income if a property is left vacant while waiting to sell.  They can usually be added to the ACB (adjusted cost base) for the purposes of capital gains.

This old tax case gives you an idea.



In 1986, Ivan Glavanovic lost his claim for five years of rental losses. He had built a house for sale in 1975 and was unable to sell it. He therefore rented it out at a loss for six years. DNR turned down his losses for 1979 and 1980. Judge Tremblay of the Tax Court of Canada agreed with DNR. He ruled that the rental was not to earn income but to hold on to the property. The losses were therefore capital in nature and should be added to the adjusted cost base of the house. It was also clear that there was no reasonable expectation of profit from the rental.

Dear David,   My wife is going to work in the US. We have been married for 7 years and have a 20 year old daughter (I adopted my wife's biological child) who will be studying in the US for that period.   I am going to remain in Canada and we plan to visit each othder during our holidays.   Is there any way my wife can pay taxes only to the US during this period? we would like to make an appointment with you to hear the details ASAP as we need to make a go or not go decision based on the ansawer.   Regards  

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david ingram replies:

If you were separated, there would be no problem. 

However, as a married couple, the CRA will want to tax your wife on the basis that her family ties are in Canda BUT is she has her daughter with her AND if  'you' visit her in the US four times to one rather than her "coming home' every couple of weeks, she should be considered factual resident of Canada whose US income is exempt from Canadian tax under Article IV of the US / Canada Income Tax treaty.

Article IV of the Treaty reads as follows:

Article IV

Residence

1.  For the purposes of this Convention, the term "resident" of a Contracting State means any person that, under the laws of that State, is liable to tax 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, an individual who is not a resident of Canada under this paragraph and who is a United States citizen or an 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 to any 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 States or in neither State, 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, 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 States or in neither State, he shall be deemed to be a resident of the Contracting State of which he is a citizen; and

(d) if he is a citizen of both States or of neither of them, the competent authorities of the Contracting States shall settle the question by mutual agreement.

3.  Where by reason of the provisions of paragraph 1 a company is a resident of both Contracting States, then if it was created under the laws in force in a Contracting State, it shall be deemed to be a resident of that State. Notwithstanding the preceding sentence, a company that was created in a Contracting State, that is a resident of both Contracting States and that is continued at any time in the other Contracting State in accordance with the corporate law in that other State shall be deemed while it is so continued to be a resident of that other State.

4.  Where by reason of the provisions of paragraph 1 an estate, trust or other person (other than an individual or a company) is a resident of both Contracting States, the competent authorities of the States shall by mutual agreement endeavor to settle the question and to determine the mode of application of the Convention to such person.

5.  Notwithstanding the provisions of the preceding paragraphs, an individual shall be deemed to be a resident of a Contracting State if:

(a) the individual is an employee of that State or of a political subdivision, local authority or instrumentality thereof rendering services in the discharge of functions or a governmental nature in the other Contracting State or in a third State; and

(b) the individual is subjected in the first-mentioned State to similar obligations in respect of taxes on income as are residents of the first-mentioned State.

The spouse and dependent children residing with such an individual and meeting the requirements of subparagraph (b) above shall also be deemed to be residents of the first-mentioned State.

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Under these circumstances, she can even file in the US as a head of household (with a non-resident non US citizen spouse with no US income) which will give her a very good US tax rate.

Phone Gillian Bryan at 604-980-0321 between 10:30 and 4 PM to make an appointment to see me �

QUESTION:

Hello,

I am Canadian and have lived in the US for about 2 years.  I am on a HB-1 visa, and I plan to file a green card application in October this year.  I would like to figure out what I need to do to buy an investment property in Vancouver 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.  I severed my significant ties when I left and I am currently an deemed non-resident in Canada for tax purposes (and would like to stay that way).  Nonetheless, I've kept one Canadian bank account and credit card account alive.

How can I buy investment property in Canada without affecting my tax / residency status?

I've found your answer to a similar question here:

http://tax.centa.com/article.php?story=20070623235705172&query=property

But I'm asking this question again because my situation is a little different.  I'm interested in buying a new condo that is due for completion 2 years later.  That means I can't rent it out until then.  However, that also means I can't live there either even if I wanted to.  So, it seems I can't prove that I'm buying it as investment, and yet I can guarantee that I won't live there for at least 2 years.  What can I do in this case?

Thank you.
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david ingram replies:

Although the concept of having a  home available to you in Canada can make the CRA take a run at you, you would have to spend more than 6 monhts a year in canda before you became taxable in Canada on your world income.  Even if you left the condo open for you  to visit and stay in two months a year, you woul d only be taxable on earnings actually earned by working in Caanda at that time.  That could occur if you came to Vancouver for a couple of months and telecommutred back to your US employer.

However, it is not available while being built and if rented from the time it can be rented, it will not make you taxable on your US income if you do not come back to live or spend significant time here. �

QUESTION:

where and who can get a gift for a down payment on a home and will most banks accept them and can the seller be the one to give you the gift, if not related to the buyer

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david ingram replies:

Anyone can give you a gift for a down payment.  If they do, it is common to get a "gifting" letter from them to the bank.  This letter would state that the money is a gift and they do not expect any repaymnet or services in return and that you do not owe the giver anytjhing in the future.  i.e., it is a gift, pure and simple. Gifts of this kind almost always come from Parents, Aunts, uncles, grandparents or other blood relatives or very close family friends.

The question of whether it can come from the seller is interesting.

In reality, it would usually mean that a non-related seller had merely reduced the price of the unit unless they fell into the very close family friend..

A banker might accept the concept if there was a very high appraisal from a very qualified appraiser and give the loan bassed upon the equity you would have.

i.e. the house is appraised at $250,000 and you are getting it for $200,000 and there is a perceived $50,000 equity..

In a falling market though, a bank is not likley to like the idea if it is a non-related or close friend gift..

Remember, that if the gift exceeds $12,000 per person, there is gift tax involved.  However, parents could each give $24,000 a year if there is a daughter and son in law because mom can give $12,000 to each o fthem and dad can give $12,000 to each of them with no gift tax.

My question is: Canadian-specific

QUESTION: I have an 8 suite apartment building held inside a limited company, I would like to sell it and buy another apartment.  Can you tell me how much I would pay in capital gains tax?  The amount of the gain is $1.5 million.  I am assuming that the percentage paid for a limited company is different from an individual? Thank you so much!   ---------------------------------------------------------------------------

david ingram replies:

Assuming that the property in in

British Columbia, the Corporation tax should be about $256,000

Manitoba         $273,000

New Brunswick   $263000

Nova Scotia      $286,000

Saskatchewan   $273,000

Newfoundland   271,000

North West Territories   $254,000

Every province is different as you can see. �

Hi David,   I am employed by a Canadian Employer and does the work for a Company in America in Canada for their 4 months project. All my day to day expenses that I have is re-imbursed to me after sending my bills to that company. They send me a US dollar check. Does this have any tax implicatios. This is not an income but only the re-imbursements for the bills payed using my credit card.   Please let me know your thoughts on it.   Regards,  

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david ingram replies:
The expense reimbursement is not taxable unless there is an excess payment for unaccounted for meals or mileage.

Just make sure that you keep copies of every receipt that you send off.  This is so that you have them to show to the CRA just in case they want to tax you on the reimbursement cheques. �

QUESTION:

I am a Canadian citizen living in Vancouver.  I am joining an Atlanta firm as their COO and will continue to reside in Canada for the time being.  The company attorney indicates that I need to work as a 1099 employee until the company is registered in Canada.  I am getting shares in the company.  I am concerned that working under a 1099 would not qualify me for an L1 visa after one year from now. Please advise.

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david ingram replies:

If you want to be paid, you do not have much choice.  However, unles they have employees and an operation in Canada with other people left behind in Canada after you leave on your L visa after a year's employment, you will not qualify to move on an L-1 visa.

In other words, unless the company is intending to open and maintain a branch in Canada for ever, you do not qualify for a transfer under the L classification.  It is more likley that they should hire you now, let you do most of your duties in Canada while waiting for an H visa to be issued.  In the meantime, it is possible that a management consultant TN visa would let you go south to advise management on an occassional basis.  

That would preclude your having the COO designation for tjhe US operation until the H visa was issued which would take over a year presently.

However, although I do consult on the matter because of the tax and immigration problems, I am NOT a lawyer and NOT a member of the AILA.  I suggest that you should be consuilting a US lawyer with lots of experience moving people across the border to the USA. Spending a few dollars of your own on someone really good will put you in a better position to deal with the lawyer your company hires.

You should contact Joe Grasmick at www.grasmick.com or Greg Siskind at www.visalaw.com.  Both have extensive experience with Canadian Immigration to the US.

Both are set up to do phone consultations with Canadians and can follow up later with Homeland Security.  Greg Siskind has an associate office in Toronto. Joe Grasmick worte the TN Handbook (about $400 as an e-book on Amazon.com) which every Immigration lawyer has or should have.

In Vancouver, you could confidently use David Anderssen, who as well as being a very competent US Immigration Attorney, is also the president of PACE (Pacific Corridor Enterprise Council) , a US / Canada business association which you should likely join as well if your Business is going to be operating on both sides of the border. www.pacebordertrade.org

The following will show my charges and you will likely need my services for the tax part of the move.  It is also important that the tax returns and your immigration status match.  Goto www.centa.com and read my section on 'Entering the USA' which you will find in the second box down on the right hand side. �