To: taxman@centa.com

Sent: Tuesday, November 05, 2002 1:35 PM

Subject: Canadian Property ownership by US citizen

 HI
My husband and I are contemplating on buying a waterfront property inCanada as investment , but were not sure what tax consequences that would entail, or if this is even a good idea. We are  U.S citizens, living in California. We will not live in Canada

Questions:
Taxes when we buy
Taxes annually
Taxes when we sell

I d appreciate your helpE???? L????? 

 

David Ingram replies: 1.    Taxes when you Buy in BC  

When buying real estate in British Columbia, the government imposes a Property Purchase Tax based on the greater of the purchase price or the fair market value of the property. The tax is calculated at 1% of the first $200,000 and 2% of the balance of the value/purchase price.  Property Purchase Tax Exemption You may qualify for a tax exemption if you, and the property you are purchasing, meet the following guidelines:  Your down payment can not exceed 30% of the purchase price  The maximum purchase price to qualify for the exemption in Vancouver, Victoria, Squamish, Whistler, and the Fraser Valley is $275,000. In all other areas of the province, the maximum qualifying purchase price is $225,000.  You may never have previously owned an interest in your principal residence (anywhere in the world).  If you pay more than $11,000 towards the principal of your mortgage within the first year, or if your outstanding mortgage amount is less than 70% at the end of the first year, you will lose your property purchase tax exemption ($9,000 in some parts of the province).  You must be a Canadian Citizen or Landed Immigrant and have been a resident of British Columbia for at least 12 consecutive months immediately prior to the purchase.  The purchaser must occupy the property as their principal residence within 92 days of completion.  Under certain circumstances, the purchase of raw land or a building lot may qualify.  Other conditions apply.

There are no other property purchase taxes in the rest of Canada although Prince Edward island does have some limitations to foreign ownership. 2.    Taxes while you own it. Every municipality or corporation has an annual tax on the real estate.  If it qualifies as a working farm, it is much lower.  In addition, if you rent the property out, you must both file an annual tax return to Canada and pay tax if there is a profit after expenses which would include mortgage interest, property tax, repairs, depreciation (we call it cca), etc.  Yoou can get most of the details on a 1040 Schedule E. 3.    Taxes when you sell. Canada has a Capital Gains tax which is paid on 50% of the profit. Depending upon which province the property is in, the tax rate would be 22% on the first $30,000 Canadian ($20,000 US), 37% on the next $30,000 Canadian, and 46% on the balance. If you owned the property jointly, you would split the income which means that a profit of $200,000 would be cut in half to $100,000 each.  You would then be taxable on $50,000 each and you would each pay: $ 4,400 on the first $30,000 plus$ 7,400 on the next $20,000 for a total of about$11,800 of tax on your $100,000 profit. You would then report the sale on Schedule D of your US 1040 and claim credit for the taxes on a form 1116. YOU DO NEED HELP WITH THIS FROM SOMEONE LIKE US. DAVID INGRAM    david ingram - www.centa.com
108-100 Park Royal South
West Vancouver, BC, CANADA, V7T 1A2
(604) 913-9133 - Fax (604) 913-9123
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US / CANADA Income Tax and Working Visa Matters