Non-resident taxes process and taxes in Montreal
QUESTION:
Hi,
I am a US citizen living in New York, who purchased an investment home in Montreal in 2002. The home has been rented out, but has never made a profit any year (due to mortgage, depreciation, expenses, etc.). I am just being notified of the new non-resident tax situation (form NR6) that I need to abide by.
I understand I need to find an agent to help handle pass years non-resident income taxes and current/future non-resident income taxes. If the property has never realized a profit, how would recommend I procede. Should i secure an accountant to act as my agent to handle all past/current/future non-resident taxes?
--------------------------------
david ingram replies:
There is nothing new about the NR-6. I do not know when it was brought into play but iIhave been filling them in since the late 70's and the following was printed in my 1989 book.
More important perhaps is the problem with rental properties in Canada. When owned by a non-resident, they are subject to a 25% withholding (or 15% if living in Bangladesh) tax. If the renter does not pay this tax, the government can come along two or three or 15 years later and demand the tax.
Imagine the consternation of a tenant of a house in the British Properties in West Vancouver, or Rosedale in Toronto. Assume the tenant has been paying $2,000 a month for a $500,000 house owned by a Hong Kong resident. After three years of paying $24,000 a year to the `non-resident', they finally buy a house and move. Two months later, there is a knock on the door and a National Revenue representative is standing there demanding 25% of $72,000 for NON-RESIDENT withholding tax (this is a true story by the way, only the owner was in London).
There is a way around this problem. The tenant can ask to see, or rather DEMAND to see a copy of the landlord's filed and accepted NR6 form. (See forms in back of book). This form allows the tenant or agent of the landlord to deduct a lesser amount (or nil if a loss) than 25% of the gross rent. It allows for expenses to be taken off and the tax can then be withheld at 25% of the net, rather than the gross. The property management division of david ingram & Associates Realty Inc. files about 300 of these NR6 forms a year. (This is only necessary if you are paying directly to a landlord whom you KNOW to be a non-resident of Canada. If you are paying to an agent or Canadian Resident, you are okay.)
Please note, the NR6 MUST BE FILED BEFORE the first rent cheque is received or 25% of the gross rent must be remitted. For years, we were in the habit of filing `this years' NR6 late with last years tax return. In 1989, National Revenue stopped accepting this sloppy practice and demanded them on time.
IF YOU SIGN THIS FORM AS AN AGENT, AND THE OWNER DOES NOT FILE HIS OR HER RETURN BY JUNE 30TH OF THE FOLLOWING YEAR, YOU, THE AGENT, ARE RESPONSIBLE FOR THE 30% OF THE GROSS RENT WITH NO REFUND PROVISIONS FOR ANYONE.
If paying 25% of the GROSS rent to Canada sounds bad, cheer up. The United States taxes the Canadian 30% in the same situation. To avoid this, the Canadian needs to notify the U.S. Government that he wishes to be taxed as a business rental house on the "net income" received. But if you do not notify the IRS in advance, the IRS CAN tax you at the 30% of gross rate.
-------------------------------------
What you have to do is get the 2002 to 2006 returns in as soon as possible or be prepared to pay 25% of your gross rent as tax plus penalties and interest if the CRA catches you (remember the US IRS charges 30% in the same circumstances).
Get someone to prepare the returns. If you would like us to do them for you, that is what we do. Then get your NR-6 in with a Canadian resident signing as an agent. You might even try making your tenant the agent. Remember, if you file the NR-6, you can claim your rental expenses and 25% is only withheld on a profit if any. Therefore, if the gross rent was $1,000 and the expenses were $900, the agent only has to remit $25.00 a month.
If there is a loss on a monthly basis, no tax has to be remitted.
Just remember, it is NOT the amount of the mortgage payment that is deductible. Only the interest portion is dedcutible so it is possible to be out of pocket each month becasue of the principal portion of the rental payments, but stillowe tax.
When the actual return is prepared, you can use depreciation to reduce any profit to zero and you will get baxck any tax that was dedcuted.
Also remember, that the figures have to be converted to US dollars and put on a schedule E of your 1040. This will usually result in a refund on your US and New York 201 returns.
We can prepare the Canadian and US return amendments if necessary
Hi,
I am a US citizen living in New York, who purchased an investment home in Montreal in 2002. The home has been rented out, but has never made a profit any year (due to mortgage, depreciation, expenses, etc.). I am just being notified of the new non-resident tax situation (form NR6) that I need to abide by.
I understand I need to find an agent to help handle pass years non-resident income taxes and current/future non-resident income taxes. If the property has never realized a profit, how would recommend I procede. Should i secure an accountant to act as my agent to handle all past/current/future non-resident taxes?
--------------------------------
david ingram replies:
There is nothing new about the NR-6. I do not know when it was brought into play but iIhave been filling them in since the late 70's and the following was printed in my 1989 book.
RENTAL PROPERTIES - CANADA - OWNED BY U.S. RESIDENT
More important perhaps is the problem with rental properties in Canada. When owned by a non-resident, they are subject to a 25% withholding (or 15% if living in Bangladesh) tax. If the renter does not pay this tax, the government can come along two or three or 15 years later and demand the tax.
Imagine the consternation of a tenant of a house in the British Properties in West Vancouver, or Rosedale in Toronto. Assume the tenant has been paying $2,000 a month for a $500,000 house owned by a Hong Kong resident. After three years of paying $24,000 a year to the `non-resident', they finally buy a house and move. Two months later, there is a knock on the door and a National Revenue representative is standing there demanding 25% of $72,000 for NON-RESIDENT withholding tax (this is a true story by the way, only the owner was in London).
There is a way around this problem. The tenant can ask to see, or rather DEMAND to see a copy of the landlord's filed and accepted NR6 form. (See forms in back of book). This form allows the tenant or agent of the landlord to deduct a lesser amount (or nil if a loss) than 25% of the gross rent. It allows for expenses to be taken off and the tax can then be withheld at 25% of the net, rather than the gross. The property management division of david ingram & Associates Realty Inc. files about 300 of these NR6 forms a year. (This is only necessary if you are paying directly to a landlord whom you KNOW to be a non-resident of Canada. If you are paying to an agent or Canadian Resident, you are okay.)
Please note, the NR6 MUST BE FILED BEFORE the first rent cheque is received or 25% of the gross rent must be remitted. For years, we were in the habit of filing `this years' NR6 late with last years tax return. In 1989, National Revenue stopped accepting this sloppy practice and demanded them on time.
IF YOU SIGN THIS FORM AS AN AGENT, AND THE OWNER DOES NOT FILE HIS OR HER RETURN BY JUNE 30TH OF THE FOLLOWING YEAR, YOU, THE AGENT, ARE RESPONSIBLE FOR THE 30% OF THE GROSS RENT WITH NO REFUND PROVISIONS FOR ANYONE.
RENTAL PROPERTIES - UNITED STATES - OWNED BY A CANADIAN
If paying 25% of the GROSS rent to Canada sounds bad, cheer up. The United States taxes the Canadian 30% in the same situation. To avoid this, the Canadian needs to notify the U.S. Government that he wishes to be taxed as a business rental house on the "net income" received. But if you do not notify the IRS in advance, the IRS CAN tax you at the 30% of gross rate.
-------------------------------------
What you have to do is get the 2002 to 2006 returns in as soon as possible or be prepared to pay 25% of your gross rent as tax plus penalties and interest if the CRA catches you (remember the US IRS charges 30% in the same circumstances).
Get someone to prepare the returns. If you would like us to do them for you, that is what we do. Then get your NR-6 in with a Canadian resident signing as an agent. You might even try making your tenant the agent. Remember, if you file the NR-6, you can claim your rental expenses and 25% is only withheld on a profit if any. Therefore, if the gross rent was $1,000 and the expenses were $900, the agent only has to remit $25.00 a month.
If there is a loss on a monthly basis, no tax has to be remitted.
Just remember, it is NOT the amount of the mortgage payment that is deductible. Only the interest portion is dedcutible so it is possible to be out of pocket each month becasue of the principal portion of the rental payments, but stillowe tax.
When the actual return is prepared, you can use depreciation to reduce any profit to zero and you will get baxck any tax that was dedcuted.
Also remember, that the figures have to be converted to US dollars and put on a schedule E of your 1040. This will usually result in a refund on your US and New York 201 returns.
We can prepare the Canadian and US return amendments if necessary
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