renting out condo while living out of the country - international non-resident cross border expert income tax & immigration

 
David Ingram wrote:  This may be a duplicate due to email problems

My question is: Canadian-specific

QUESTION: We are Canadian. We have a condo (currently rent out) in Duncan. 
Now, we are moving out of the country. 
My question is: how we do the tax on our rental income?
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david ingram replies:

You will need a tax  agent who will sign a form NR6 for you.  The rental agent is responsible for remitting 25% of the Gross rent (or 25% of the net rent if you file a NR6) each month and remitting it to the CRA. The Agent must then prepare a form NR4 by March 31st of the next year (for the current year) and you will use the NR 4 slip when yuo file your Canadian tax return(s) by June 30th of the year after the rental. 

i.e. if you were going to rent for the first time on Nov 1, the NR6 needs to be filed by Nov 1, 2007.

The NR 4 needs to be filed by March 31st 2008

The 2007 Canadian tax return for your departing Caanda needs to be filed by April 30th with a T1, 1161, 1243 and 1244

The 2007 Rental return needs to be filed by June 30th with forms T1159 and T776. Of course, this one can be filed with the opther one as well.

If the condo is already rented, you will ned two T776 forms.  One from Jan 1, 2007 to the date of departure and one from the date of departure till Dec 31, 2007.

This older question will help a bit as well.

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?

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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.

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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 - see  below.

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David Ingram wrote:
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It is very unlikely that blind or unexpected email to me will be answered.  I receive anywhere from 100 to 700  unsolicited emails a day and usually answer anywhere from 2 to 20 if they are not from existing clients.  Existing clients are advised to put their 'name and PAYING CUSTOMER' in the subject and get answered first.  I also refuse to be a slave to email and do not look at it every day and have never ever looked at it when i am out of town. 

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Therefore, if an email is not answered in 24 to 36 hours, it is lost in space.  You can try and resend it but if important, you will have to phone to make an appointment.  Gillian Bryan generally accepts appointment requests for me between 10:30 AM and 4:00 PM Monday to Friday VANCOUVER (Seattle, Portland, Los Angeles) time at (604) 980-0321

David Ingram's US / Canada Services
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David Ingram gives expert income tax & immigration help to non-resident Americans & Canadians from New York to California to Mexico  family, estate, income trust trusts Cross border, dual citizen - out of country investments are all handled with competence & authority.
 
Phone consultations are $400 for 15 minutes to 50 minutes (professional hour). Please note that GST is added if product remains in Canada or is to be returned to Canada or a phone consultation is in Canada.
 
This is not intended to be definitive but in general I am quoting $800 to $2,800 for a dual country tax return.
 
$800 would be one T4 slip one W2 slip one or two interest slips and you lived in one country only - no self employment or rentals or capital gains - you did not move into or out of the country in this year.
 
$1,000 would be the same with one rental
 
$1,200 would be the same with one business no rental
 
$1,200 would be the minimum with a move in or out of the country. These are complicated because of the back and forth foreign tax credits. - The IRS says a foreign tax credit takes 1 hour and 53 minutes.
 
$1,500 would be the minimum with a rental or two in the country you do not live in or a rental and a business and foreign tax credits  no move in or out

$1,600 would be for two people with income from two countries

$2,800 would be all of the above and you moved in and out of the country.
 
This is just a guideline for US / Canadian returns
 
We will still prepare Canadian only (lives in Canada, no US connection period) with two or three slips and no capital gains, etc. for $150.00 up.
 
With a Rental for $350
 
A Business for $350 - Rental and business likely $450
And an American only (lives in the US with no Canadian income or filing period) with about the same things in the same range with a little bit more if there is a state return.
 
Moving in or out of the country or part year earnings in the US will ALWAYS be $800 and up.
 
TDF 90-22.1 forms are $50 for the first and $25.00 each after that when part of a tax return.
 
8891 forms are generally $50.00 to $100.00 each.
 
18 RRSPs would be $900.00 - (maybe amalgamate a couple)
 
Capital gains *sales)  are likely $50.00 for the first and $20.00 each after that.
 
Just a guideline not etched in stone. 
 
This from "ask an income trusts tax and immigration expert" from www.centa.com or www.jurock.com or www.featureweb.com. David Ingram deals on a daily basis with expatriate tax returns with multi jurisdictional cross and trans border expatriate problems  for the United States, Canada, Mexico, Great Britain, United Kingdom, Kuwait, Dubai, Saudi Arabia, Thailand, Indonesia, Japan, China, New Zealand, France, Germany, Spain, Italy, Russia, Georgia, Brazil, Peru, Ecuador, Bolivia, Scotland, Ireland, Hawaii, Florida, Montana, Morocco, Israel, Iraq, Iran, India, Pakistan, Afghanistan, Mali, Bangkok, Greenland, Iceland, Cuba, Bahamas, Bermuda, Barbados, St Vincent, Grenada,, Virgin Islands, US, UK, GB, and any of the 43 states with state tax returns, etc. Rockwall, Dallas, San Antonio Houston, Denmark, Finland, Sweden Norway Bulgaria Croatia Income Tax and Immigration Tips, Income Tax  Immigration Wizard Antarctica Rwanda Guru  Consultant Specialist Section 216(4) 216(1) NR6 NR-6 NR 6 Non-Resident Real Estate tax specialist expert preparer expatriate anti money laundering money seasoning FINTRAC E677 E667 105 106 TDF-90 Reporting $10,000 cross border transactions Grand Cayman Aruba Zimbabwe South Africa Namibia help USA US Income Tax Convention

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