IN FOCUS: Cross Border Tax Planning

Canadian owners of U.S. properties: it is time to pay the piper

Sep 14, 2015
After the market crash of 2008, properties were dirt cheap in the U.S., and Canadian investors were gobbling up as much as they could – especially with a strong Canadian dollar to sweeten the deal.

How times have changed.

Today the dollar is flirting with 70 cents against the U.S greenback, and those investors are older and looking to sell – but now it is time to pay the piper.

For Robert E. Ward, J.D., LL.M., of Ward Chisholm P.C, it should be a no-brainer that Canadian investors retain a tax advisor well-versed in American tax law.

“It is imperative that you consult a tax advisor experienced in U.S. tax matters, preferably a lawyer or accountant with a practice based in the United States that advises non-U.S. persons regarding ownership of U.S. real estate,” says Ward, whose background of expertise includes tax law, business planning, estate planning, international taxation and tax planning and foreign trusts.

As someone owning U.S. property, you are subject to the laws of the United States, Ward points out, and the taxes and penalties that are associated with it.
“If the U.S. property which you own is rented, you will be subject to U.S. income taxation on the rental income,” says Ward. “Even if you use the U.S. property exclusively as a vacation residence, any U.S. property owned at death will be subject to U.S. estate taxation.”

Many investors might questions why they would be subject to income taxation when the expenses they are paying out of pocket for real property taxes, maintenance and mortgage interest exceed rental income.

“Absent special election, rents received by a person who is not a citizen or resident of the United States are subject to a withholding tax imposed at a 30 per cent rate on the gross rental income,” he says, “without reduction for otherwise deductible expenses associated with the property.”

But is there a way to avoid the 30 per cent withholding tax?

The United States revenue laws do allow owners of U.S. real estate who are not citizens or residents of the United States to elect to be treated as engaged in a U.S. trade or business.

“The election creates an annual obligation to file a U.S. income tax return but allows the non-U.S. investor to compute his or her U.S. income tax liability on a net basis,” says Ward, “reducing gross rental income by deductible expenses including depreciation.”

Tomorrow:  Death and taxes – they are unavoidable in the U.S. too

Do you have questions?  Would further assistance be helpful?  Consultations regarding U.S. tax planning for real estate investments typically are C$1,200.  However, through special arrangement with Canadian Real Estate Wealth you can benefit from a one-hour consultation with one of Ward Chisholm’s experienced tax lawyers for only C$600.  Please call 301-986-2200 and let the receptionist know that you saw this special offer on the CREW website and would like to arrange a consultation.


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Ward Chisholm, P.C. is a firm of tax lawyers with offices in Bethesda, Maryland, McLean, Virginia, and Vancouver, British Columbia. We have a broad-based U.S. domestic and foreign tax practice, which focuses on Canada-U.S. cross border planning.  While the firm is small enough that our lawyers practice in a collegial setting, the practice of each lawyer in the firm varies. Our senior lawyers have primarily transactional practices, focusing on tax planning for individuals and businesses. Primary practice areas of other lawyers include FATCA compliance, estate planning, estate administration, and tax controversy representation before the U.S. Internal Revenue Service