----- Original Message -----
Sent: Wednesday, October 16, 2002 9:14 PM
Subject: US citizen living in Canada buys an Arizona condo - spousal
RRSP's
Name: L
My question is: Applicable to
both US and Canada
QUESTION: My dual US/Cdn husband (living full-time in Canada - I am Cdn) has
spousal RRSPs in large amount and we had no idea he had to file a special form
for this. He has filed world-wide income with the IRS/CCRA for the 10
yrs he has been a US citizen and used the 2555-EZ/1040 forms for full
exemption of ($70k US).
Now we would like to buy a recreational property (under $90k) in AZ and would
like to know any pitfalls we should look for. Should the property be
only in his name, and can we register a condo in the RRSP (I thought some
could be).
Is it difficult to get a US mortgage rather than taking money from the RRSP
for downpayment? Thanks.
INGRAM REPLIES
In my opinion, no one should use the 2555 EZ1040 in your
husband's position. The EZ means that all sorts of lines have been left
off the return and those lines are mostly deduction lines like extra exemption
amounts for housing, etc.
SPOUSAL RRSP's
I am presuming that he is using HIS income to buy YOU
Spousal RRSP's in your name. If this is the case, he does NOT need to
file any special form because he has no signing authority or economic interest
in the accounts. the accounts are yours - pure and simple.
However, if HE has a total of over $10,000 American ($15,000 or so Canadian),
HE must report each and every individual account and his financial interest in
it to the Department of Treasury on a Form TDF-90. The penalty for
failure to report is up to 5 years in jail PLUS up to $500,000 fine.
This would include a joint account with you, any accounts he has signing
authority over in Canada such as your childrens' accounts, your mother's
account, a cub pack account, a church account, his employer's company account
and includes EVERY CANADIAN VISA, Mastercard, Amex and other credit cards.
Remember that penalty.
ARIZONA PROPERTY
You can buy the property in Arizona in both names or
either name. It does not matter at all if you are not going to rent it
out. If you are planning on renting it out occassionally (or full time),
each owner must file an Arizona 140NR Income Tax return and a Federal 1040
(your husband) and a 1040NR for you.
Of course, your husband can elect to file a 1040 joint
return with you as well in which case you would file a joint Arizona 140NR and
a joint Federal 1040.
The same rental amounts would have to be converted to
Canadian dollars and a Canadian T776 Rental statement filed with each of your
Canadian T1 returns.
You can NOT register the Arizona Condo in your Canadian
RRSP and you cannot take money out of hte RRSP to buy an ARIZONA Condo if you
already own another home in which you live.
The best way to get the down payment is likely to borrow
as much as you can on your personal house in Canada and use it for anything
from a $20,000 down payment to the full $90,000 purchase price.
That way, your loan was in Canadian dollars and you will
repay the whole thing back in Canadian Dollars. A good example here is
that if you had done the same thing in 1991 when the exchange rate was
1.1458691, you needed to earn $114,586.91 Canadian to repay $100,000 US.
In other words, if your payment was $1000 a month US, you
needed $1,145.87 Canadian to pay the monthly payment.
The next year in 1992, the exchange rate went to 1.2003
and you needed $1,200.30 Canadian to pay the $1,000 US.
In 1993 the exchange rate was 1.2800 and you needed
$1,280.00 to pay the $1,000 a month and today, in 2002 with an exchange rate
in the 1.54 range, you need about $1,540 Canadian to make the $1,000 a month
payment.
Far better to borrow 100% of the money in Canada "unless:
you think the Canadian Dollar is going to rise in which case, borrow it in the
US.
You could take th middle road and borrow half in Canada
and half in the USA. ( I think the Canadian Dollar is going to go up again to
1.20 but I am in the minority on that one).
david ingram -
www.centa.com
108-100 Park Royal South
West Vancouver, BC, CANADA, V7T 1A2
(604) 913-9133 - Fax (604) 913-9123
cell (604) 657-8451 (10 AM to 10 PM 7 days)
US / CANADA Income Tax and Working Visa Matters
