Ownership Structure of US Real Estate -

WOW. Overwhelming amount of information here. I will keep looking but will ask. My wife and I bought a piece of dirt in MT three yrs ago free and clear. The title reads with both our names on it. We have since built a house on it. I am close to getting a deal done on another piece of bare land. I have been poking around and notice all shorts of different ways peopple own there land there. Trusts, Living Trusts, Profit Share Plans, Revocable Trusts, Companies structures of all sorts. What is the ideal way to own real property in the US. OR just owning it our names the way to do it and we are wasting time structuring any other way.

david ingram replies:

I should tell someone in who chairs an international symposium onXXXXXXXXXXXX how to register his property? Hmmm! Session Chair:xxxxxxx xxxxxxx, xxxxxxxxxxxxx xxxxxxxxxx International
In my opinion, you and your wife should buy the property in your ownnames in joint trenancy with right of survivorship. It is the easiestto do and by far the easiest to manage. If one of you passes, theother gets it. There can be an estate problem but there is an estateproblem if it is in a corporation, LLC, LLP, or living trust.

Canada does not recognize most of the other methods anyway.

Save lawyer and accountant bills by buying it yourself. Just remember,if it is for your own use, you can do anything to the property. Ifthere is any intent to rent it or to fix it up to sell to others (i.e.buy, fix up and sell), 'you' an NOT do any work whatsoever on theproperty. In yor position, you can NOT chance
being banned from the US because you were cutting the grass at a rentalhouse in Whitefish. The USCIS or Homeland Security officer does notusually catch you. You get turned in by a irate tenant or adisgruntled neighbour or a local handyman who did not get the job.

Good Luck!

My_question_is: Applicable to both US and Canada
Subject: Canadian buying US Property
Expert: taxman@centa.com
Date: Thursday January 31, 2008
Time: 09:56 PM -0000




Any past articles or advice on a canadian buying in Palm Springs, CA.

Going to buying for investment purposes with hopefully rental incomeform vacation/tenant options.

Concerned about tax implications, property taxes, IRS, estate fees andanything else you can think of.


david ingram replies:

For others, the writer is referring to Ozzie Jurock's excellent RealEstate Investment Groups. Find out more at www.jurock.com

To the questioner
You likely need to buy an hours consultation. It is too bad that youmissed Ozzie's Jan 6 seminar.

I am just answering with a series of old questions -

Sent: Wednesday, January30, 2008 12:36 PM
Subject: buying land inTexas

Hi Sir/Madam,

I am a Canadian citizen and I want to buy property in somewhere inTexas. Do I have to pay any different tax?

Thank you
david ingram replies:
This older Q & A shouldassist you.
davidingram@shaw.ca:Please see bottom of message if you wish to unsubscribe.

Hello David,
As per our conversation earlier,my dad is a Canadian Citizen and has very good credit. He wants to buyhome in US , but just to rent it later. What would be the requirementsfor this, and what papers he would need? He has no intentions to liveor work in US.


There are no restrictions. He can buy anything he can afford but canNOT do any work on it if it is a rental properety.

He does not need anything but a Canadian Passport to go to the US tobuy the property.

And, if going by land, he only needs a valid Canadian Governemtndriver's licence with a picture on it AND a birrth certificate or aCanadian Helath Card.

My_question_is: Applicableto both US and Canada
Subject: Filing tax on New Rental Property Texas
Expert: taxman@centa.com
Date: Saturday January 19, 2008
Time: 05:23 PM -0000


We are Canadians and acquired a residential property in Texas in Dec2007. We have a property manager and sent in applications for ITINs.

Our intention is to rent the property out for a number of years andthen reside in it seasonally.

We will have to seek representation for future tax filings but have anumber of questions:

1. Well we haven't rented out the property yet, we incurred expenses in2007(legal, renovations, interest, property management).
Can we carryforward these expenses to filing in both juristictions in2008 ?

2. We did two trips in 2007 for searching for
properties in the location before we bought. Are the costs associatedwith these trips, deductible in both Canada and US filings?

3. Depreciation - our intention after renting out the property for anumber of years is to use it as a secondary residence. What are theconsiderations concerning deducting depreciation with any futuredisposition?
david ingram replies:

1. Any expenses for the purchase and gettung ready for rent are NOTdeductible agaisnt current income.

They CAN be added to the principal and deducted in the future againstany capital gains when you sell it And be depreciatred int eh meantime.

As an example:

You buy a unit for $194,000. and spend $2,000 legal expenses and$4,000 travel (to buy) for a total of $200,000

The municipal appraisal is for $150,000 and says the land is worth$75,000 and the improvements (bldg) are worth $75,000

You would set up the opening depreciation schedule in the US (schedule4562) as Land $100,000 - Blding $100,000 as a proration of the $200,000you paid.

You would do the same in the CCA spot on Canada's T776.

The Improvements and any carrying costs would then be added tio thecost of the building.

So if you spent $18,000 on improvements and another $2,000 in interestfor December, you would then add $20,000 to the cost of the bldg inboth countries and the depreciation schedule would show land $100,000,Building $120,000.

That presumes that the property was not available to rent at the timebecause of the remodelling.

2. After purchase, trips to Texas to look at the property or dealwith matters are not deductible even though there are lines on thereturn for auto. Auto expense is to use your car, etc for repairs orto carry your lawn mower and is not designed for you to drive 2,000miles.

In addition, since you can NOT do any repairs or improvements or evencollect the rent for the Texas unit, there can NOT be a claim for goingto Teax for you to physically paint or clean.
But even if the unit was in Nova Scotia where you can paint and clean,that travel expense is not deductible although the CRA and IRS tend tooverlook the claim if made.

If you had bought it in September and the unit was available on Oct 1amnd did not rent for Oct, Nov and December, than you would do as abovewith expenses up tio day it was available and be able to deduct condofees, taxes, interest, utilities, advertising, long distance phonecalls, management, etc on US schedule E on form 1040NR (one of each ofyou if in joint tenancy) AND scheule T776 in Canada.

3. Note that depreciation 'has to be' claimed on schedules E and4562 under US law even if it vcreates a loss.

In Canada CCA (depreciation) can NOT be claimed unless it is used toreduce a profit. CCA in Canada can NOT be used to increase or create aloss for rental property wheter it is a jet engine, a motorhome, skicabin in Whistler or condo in Florida.

If and when you sell the property, both countries tax the recapture ofdepreciation or CCA. So unless you tear the old building down (norecaptuire) any tax you save in the interim has to be repaid, in bothcountries. I prepared a Hawaii tax return today where the depreciationclaimed over the last 20 years resulted in a $32,000 tax bill today.

In addition, under sections 45(4) of the CANADIAN Income Tax Act, ifyou have depreciated the unit and then convert it to a personal unit inthe future, you must pay any capital gains tax and any recapture taxwhen you move into it as your own. If you rent it out withOUT claimingCanadian depreciation, section 45(3) allows you to delay paying anycapital gains ta xuntil the actual sale when you convert the rentalunit to personal use.

Because your property is in Texas, there is no state return to prepareas there would be in Vermont, California, Arizona, and another 40states.
The following was given out at a recent seminar for Ozzie Jurock's RealEstate Action Group (REAG) which you can find out about at www.jurock.com.

On February 11, 2008, DavidIngram wrote:

It is very unlikely that blind or unexpected email to me will beanswered. I receive anywhere from 100 to 700 unsolicited emails a dayand usually answer anywhere from 2 to 20 if they are not from existingclients. Existing clients are advised to put their 'name and PAYING CUSTOMER' in the subject lineand get answered first. I also refuse to be a slave to email and donot look at it every day and have never ever looked at it when I am outof town.
e bankruptcy expert US Canada Canadian American Mexican Income Tax service and help
However, I regularly search for the words"PAYINGCUSTOMER" and always answer them first if they did not get spammed out.For the last two weeks, I have just found out that my own email notesto myself have been spammed out and as an example, as I wrote this onDec 25, 2007 since June 16th, my 'spammed out' box has47,941 unread messages, my deleted box has 16645 I have actually lookedat and deleted and I have actually answered 1234 email questions forclients and strangers without sending a bill. I have also put aside847 messages that I am maybe going to try and answer because they lookinteresting. -e bankruptcy expert US Canada Canadian American Mexican Income Tax service and help
Therefore, if an email is not answered in 24 to48 hours, it is likely lost in space. You can try and resend it but if important AND YOU TRULY WANT OR NEEDAN ANSWER from 'me', you will have to phone to make an appointment. Gillian Bryan generally accepts appointment requests for me between10:30 AM and 4:00 PM Monday to Friday VANCOUVER (Seattle, Portland, LosAngeles) time at (604) 980-0321. david ingram expert US Canada Canadian American Mexican Income Tax service and help.
david ingram's US / Canada Services
US / Canada / Mexico tax, Immigration and working Visa Specialists
US / Canada Real Estate Specialists
My Home office is at:
4466 Prospect Road
North Vancouver, BC, CANADA, V7N 3L7
Cell (604) 657-8451 -
(604) 980-0321 Fax (604)980-0325

Calls welcomed from 10 AM to 9 PM 7 days a week Vancouver (LA) time - (please do not fax orphone outside of those hours as this is a home office) expert US Canada Canadian American Mexican Income Tax service help.
Disclaimer: This question has been answered without detailed information orconsultation and is to be regarded only as general comment. Nothingin this message is or should be construed as advice in any particularcircumstances. No contract exists between the reader and the author andany and all non-contractual duties are expressly denied. All readersshould obtain formal advice from a competent andappropriately qualified legal practitioner or tax specialist for experthelp, assistance, preparation, or consultation in connection withpersonal or business affairs such as at www.centa.com. If you forward this message, this disclaimer must beincluded." e bankruptcy expert US Canada Canadian American Mexican Income Tax service and help.
David Ingramgives expert income tax service & immigration help to non-residentAmericans & Canadians from New York to California to Mexico family, estate, income trust trusts Cross border, dual citizen - out ofcountry investments are all handled with competence & authority.
Phone consultationsare $450 for 15 minutes to 50 minutes (professional hour). Please notethat GST is added if product remains in Canada or is to be returned toCanada or a phone consultation is in Canada. ($472.50 with GST if inCanada) expert US Canada Canadian American MexicanIncome Tax service and help.
This is not intended to be definitivebut in general I am quoting $900 to $3,000 for a dual country taxreturn.
$900 would be one T4 slip one W2 slipone or two interest slips and you lived in one country only (but werefiling both countries) - no self employment or rentals or capital gains- you did not move into or out of the country in this year.
$1,200 would be the same with onerental
$1,300 would be the same with onebusiness no rental
$1,300 would be the minimum with amove in or out of the country. These are complicated because of theback and forth foreign tax credits. - The IRS says a foreign tax credittakes 1 hour and 53 minutes.
$1,600 would be the minimum with arental or two in the country you do not live in or a rental and abusiness and foreign tax credits no move in or out

$1,700 would be for two people with income from two countries

$3,000 would be all of the above andyou 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 andno capital gains, etc. for $200.00 up.
With a Rental for $400, two or threerentals for $550 to $700 (i.e. $150 per rental) First year Rental -plus $250.
A Business for $400 - Rental andbusiness likely $550 to $700
And an American only (lives in the USwith no Canadian income or filing period) with about the same things inthe same range with a little bit more if there is a state return.
Moving in or out of the country orpart year earnings in the US will ALWAYS be $900 and up.
TDF 90-22.1 forms are $50 for thefirst 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 - (maybeamalgamate a couple)
Capital gains *sales) are likely$50.00 for the first and $20.00 each after that.

Catch - up returns for the US where we use theCanadian return as a guide for seven years at a time will be from $150to$600.00 per year depending upon numbers of bank accounts, RRSP's,existence of rental houses, self employment, etc. Note that thesereturns tend to be informational rather than taxable. In fact, ifthere are children involved, we usually get refunds of $1,000 per childper year for 3 years. We have done several catch-ups where the clienthas recieved as much as $6,000 back for an $1,800 bill and one recentlywith 6 children is resulting in over $12,000 refund.

This is aguideline not etched in stone. If you doyour own TDF-90 forms, it is to your advantage. However, if we put themin the first year, the computer carries them forward beautifully.
This from "ask an income trusts tax service andimmigration expert" from www.centa.com or www.jurock.com or www.featureweb.com. David Ingram deals on a daily basis with expatriate taxreturns with multi jurisdictional cross and trans border expatriateproblems for the United States, Canada, Mexico, Great Britain, UnitedKingdom, 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, StVincent, Grenada,, Virgin Islands, US, UK, GB, and any of the 43 stateswith state tax returns, etc. Rockwall, Dallas, San Antonio Houston,Denmark, Finland, Sweden Norway Bulgaria Croatia Income Tax andImmigration Tips, Income Tax Immigration Wizard AntarcticaRwanda Guru Consultant Specialist Section 216(4) 216(1) NR6 NR-6 NR 6Non-Resident Real Estate tax specialist expert preparer expatriate antimoney laundering money seasoning FINTRAC E677 E667 105 106TDF-90 Reporting $10,000 cross border transactions Grand Cayman ArubaZimbabwe South Africa Namibia help USA US Income Tax Convention. Adviceon bankruptcy e bankruptcy expert US Canada Canadian American Mexican Income Tax service and help .

David Ingram expert income tax service and immigration help andpreparation of US Canada Mexiconon-resident and cross border returns with rental dividend wagesself-employed and royalty foreign tax credits family estate trust trusts
income tax convention treaty advice on bankruptcy

New York, Boston, Sacramento,Minneapolis, Salem, Wheeling, Philadelphia, Pittsburgh, Atlanta,Pensacola, Miami, St Petersburg, Naples, Fort Myers, Cape Coral,Orlando, Atlanta, Arlington, Washington, Hudson, Green Bay, Minot,Portland, Seattle, St John, St John's, Fredericton, Quebec, Moncton,Truro, Atlanta, Charleston, San Francisco, Los Angeles, San Diego,Sacramento, Taos, Grand Canyon, Reno, Las Vegas, Phoenix, Sun City,Tulsa, Monteray, Carmel, Morgantown, Bemidji, Sandpointe, Pocatello,Bellingham, Custer, Grand Forks, Lead, Rapid City, Mitchell, KansasCity, Lawrence, Houston, Albany, Framingham, Cambridge, London, Paris,Prince George, Prince Rupert, Whitehorse, Anchorage, Fairbanks,Frankfurt, The Hague, Lisbon, Madrid, Atlanta, Myrtle Beach, Key West,Cape Coral, Fort Meyers, Berlin, Hamburg, Warsaw, Auckland,Wellington, Honolulu, Maui, Kuwait, Molokai, Beijing, Shanghai, Tokyo,Manilla, Kent, Winnipeg, Saskatoon, Regina, Red Deer, Olds, MedicineHat, Lethbridge, Moose Jaw, Brandon, Portage La Prairie, Davidson,Craik, Edmonton, Calgary, Victoria, Vancouver, Burnaby, Surrey,Edinburgh, Dublin, Belfast, Glasgow, Copenhagen, Oslo, Munich, Sydney,Nanaimo, Brisbane, Melbourne, Darwin, Perth, Athens, Rome, Berne,Zurich, Kyoto, Nanking, Rio De Janeiro, Brasilia, Colombo, BuenosAries, Squamish, Churchill, Lima, Santiago, Abbotsford, Cologne,Yorkshire, Hope, Penticton, Kelowna, Vernon, Fort MacLeod, Deer Lodge,Springfield, St Louis, Centralia, Bradford, Stratford on Avon, NiagaraFalls, Atlin, Fort Nelson, Fort St James, Red Deer, Drumheller,Fortune, Red Bank, Marystown, Cape Spears, Truro, Charlottetown,Summerside, Niagara Falls, income trust, Income Tax Treaty Convention. - e bankruptcyexpert US Canada Canadian American Mexican Income Tax service andhelp.
davidingramInternational non-resident cross border expert income tax service &immigration help estate family trust assistance expert preparation& immigration consultant, income trusts experts on rentals mutualfunds RRSP RESP IRA 401(K) & divorce preparer preparersconsultants Income Tax Convention Treaty. adviceon bankruptcy expert US Canada Canadian American Mexican Income Taxhelp.
Be ALERT, the world needs more "lerts". bankruptcy expert US CanadaCanadian American Mexican Income Tax service help. -expert us Canada Canadian Mexico income taxservice and help help

david ingram replies:

I actually spoke to 113 people at Ozzie Jurock's Seminar at SFU onMonday Night, Jan 7 2008.

The trips are not a writeoff against other income. If you buysomething they can be addded to the cost of the property you did buy.

i.e., if you spejnt $5,000 on trips and paid $200,000, the cost of theunit for future depreciation purposes would be $205,000 less any landvalue.

It would also affect any future taxable capital gains when you sold theproperty.

Remember if you do a piece of real estate for investment, you can NOTdo any work on it whatsoever. If you do, you risk jail, fines andbeing banned from the US for 3, 5, 10 year or even forever.

The following two pieces plus a sample US rental tax return were handedout at the seminar.

ONE dealt with the working issue and what forms to fill out.

David Ingram's US/CanadaServices
US/Canada/MexicoTax Immigration & working Visa Specialists
US / Canada Real Estate Specialists
4466 Prospect Road
North Vancouver, BC, CANADA, V7N 3L7
Calls accepted from 10 AM to 10 PM 7 days a week
Res (604) 980-3578 Cell (604) 657-8451
Bus (604) 980-0321 Fax (604) 980-0325

Jan 6, 2008.

Rentals inthe USA.

QUESTION that came to me from ASK ANEXPERT at www.jurock.com

We just purchased property in Spokane Washington( a 4 plex apartments)
We plan on renting out 3 of the units and keeping one. I was told bythe border crossing inspector,
that I have to hire a rental agency in order to rent out the apartments.
and I also have to have a property manger full time..
We will be at our apartment approx 2 times a month..
So we do not need a property manager.
Do you know if this true,, or please direct me to the correct personthat would be able to help me.
Thanks for your time.

david ingram replies:

You need a property manager if you do not want the strong possibilityof going to jail for a few days before being deported and then notallowed back in the USA. For a story about US Immigrations hell for aHoliday Inn Manager, try
or how about a married woman's ordealin Georgia for a traffic violation at

Crossing the border when you have anad running to show the premises and saying you are going down to spendthe weekend in your holiday home (i.e lying to the HOMELAND Securityofficial) could result in seizure of your vehicle and a ban for up to10 years under their ER (Expedited Removal) process. In other words,it is more serious to lie to the guard at the border than it is to dothe work.

You 'could' actually show the property for rent, but you can NOT writeout a contract for rent or collect a single rent cheque (check) or cashfor rent in the United States. There is nothing new about this. Thefirst time I ran into it was in 1972 or 1973.

If you are physically there, you can NOT cut the grass, shovel thesidewalk, paint or decorate or repair or fix or remodel or improve ortake out the garbage for any part of the rental property.

You can paint and clean your own unit if it is NEVER rented or intendedto be rented. You can not paint and clean up getting the property readyfor rent so DO NOT make the mistake of thinking you can live in one,clean it up and remodel it and then rent it out and do the same foranother one and then another one and another one. If you do this andone of your tenants (who maybe doesn't like you because you evictedthem or told them to turn their strereo down when you happen to be intown or for any other reason) read my website, (or the uscis website)he or she would find out that you can NOT do this stuff and could phonethe Homeland Security office or write an anonymous letter and you couldbe arrested in November 2008 for something you did in December 2007.

This may seem unreal, but in US terms, working without a visa is justas serious in law as the spontaneous robbing of a convenience store andthe penalties can be worse. Think of those nightly news shows with 28illegal Mexican or Guatamelan citizens being stuffed into Paddy wagonson the Arizona border. This is not a racist comment but with theMexican illegal immigrants, bing rounded up and shipped back across theborder is a way of life with no social stigma. For a nice clean livingCanadian, being thown into an immigration detention cell for takingmoney for rent is a devestating experience. In one case, a mother andher son were thrown into jail for 5 days in Phoenix when she went toPhoenix from White Rock BC. Her husband owned 18 units and HAD aproperty manager. Unfortunately, he also died in the arms of thatfemale property manager and his widow then fired the property managerand she and her 20 year old son went to Phoenix to collect the rent andhire another property manager.

The property manager (who knew the law as everyone in Arizona does)phoned Homeland Security who showed up and arrested mother and son andthrew them into the notorious Phoenix Immigration hell with some 300other illegals. To rub salt into the widow's wounds, the propertymanager ended up with the property because she was a second mortgageholder on the property and the property fell into default because ofthe widow's cash flow troubles, largely because she could not go toPhoenix to hire another property manager.

For instance, for 'you', this kind of arrest could result inimprisonment for a usual five days in a US immigration jail until youposted $5,000 bail each and then being banished from the US for five toten years.

It does not stop there. This type of conviction would stop you gettingon an airplane which stopped in the USA on the way to Mexico. AND, under new US laws that have been proposed but not yet actually put inplace, the arrest and banning would stop your Nov 6 trip to Cancunbecause people in this position will not even be allowed on commercialairliners that are flying over any part of the US. To get to Cancun,you would have to fly from Calgary or Vancouver to London England andthen back to Mexico City and 'then' to Cancun and reverse it to gethome.

This may be overkill but 'You' are / were lucky that the inspector gaveyou the correct advice BEFORE you put your foot in it.

By the way, for income tax You ALSO HAVE TO FILE A 1040NR US TAX RETURNWITH A SCHEDULE E AND A SCHEDULE 4562 EACH. Then the same income getsput on Schedule T776 of your Canadian return. If you have paid tax tothe US, you will claim it as a credit on Canadian forms T2209 and T2036.

David Ingram's US/CanadaServices
US/Canada/MexicoTax Immigration & working Visa Specialists
US / Canada Real Estate Specialists
4466 Prospect Road
North Vancouver, BC, CANADA, V7N 3L7
Calls accepted from 10 AM to 10 PM 7 days a week
Res (604) 980-3578 Cell (604) 657-8451
Bus (604) 980-0321 Fax (604) 980-0325

The second dealt with making your personal mortgage interest in Canadadeductible and the Overs, Evans, Lipson and Singleton tax cases and GAAR

David Ingram's US/CanadaServices

MortgageInterest as a Deduction in 2008 =96 dealing with GAAR

I firstconceived of this method in 1975/76 when a client of mine had a rentalduplex and had a tenant who was injured in a car accident. Itwas at the time of the changeover from private insurance to ICBC andthe injured single mother tenant was waiting for an insurancesettlement.

My clientallowed his tenant to stay in the half duplex for more than a year andto stay afloat him self, he borrowed money to pay the duplex bills.When doing his 1975 tax return, we deducted the interest paid on theloan because the purpose of the loan was clearly to fund the rentalduplex.

When hefinally got his cheque for more than $5,000 from the tenant, it wouldhave been all over if he had just paid the loan off and we had notthought about it. But my client, bless his soul, phoned and asked if hehad to pay off the loan (which was deductible) or could he use themoney for another non-deductible purpose.

My answer,after thinking about it for a day or so, was that he could us e the$5,000+ for any purpose he could think of. At the sametime, I said this, I was also writing something for the North ShoreCredit Union and put my =91new=92 method of making the mortgage interestdeductible in this report which they then published as part of anadvertisement in the North shore News in (I think) November, 1976.

I expandedit and it was next published by Hancock House Publishers in myInvestment Guide in 1979, 1980 and 1985 and 1991 and BC Businessmagazine in 1979. Sometime in there, the Ontario Dental Associationalso ran it in their magazine. It then became part of the internet andcan be found in the March 1997 and November 2001 newsletters.

I was prettyheavily involved in the Federal Conservative Party (ranfor the North Shore Nomination in 19780 and am proud to say that we gotmortgage interest as a tax deduction on the 1979 federal Income taxreturn.

Unfortunately,Joe Clark, the Prime Minister at the time, did not count thenumber of yes votes and lost a non-confidence motion on Dec 12, 1979,and on Feb 18, 1980, Pierre Trudeau was re-elected as Prime Ministerand even though there was a 4-page form and a line on the T-1 Generalthat year, the deduction was killed retroactively by the liberalgovernment and we no longer had this benefit for all withoutmanipulating the paperwork.

In 1981, FredSnyder was running a series of seminars and teaching my methodto a lot of different groups. In one seminar, he taughtit to Realtors, McCauley, Nicolls, Maitland and Company and the managerFraser Smith wrote Fred a letter thanking him forexplaining the methods. In 1985, Fraser Smith thanpublished the SMITH MANOUVRE which explains the method in great detailand at the time, VANCITY Savings Credit Union was featured in the bookand was very good at setting up the method.

Then on Oct27, 1988 John Singleton had approximately $300,000 in his lawyer=92scapital account. He got permission to take the $300,000out (it was his but was being used as security in his law practice). He used it to buy a house and then used the house as security toborrow $300,000 which he then put into his capital account; this wasall done in one day. Of course, since the money in theaccount was now borrowed for business purposes, he deducted theinterest on his 1988 and 1989 returns and the Tax Department turned himdown. He appealed and lost in the Tax Court of Canadabut won in the Federal court of Appeals. The CRAappealed to the Supreme Court and in October 2001, the Supreme Court ofCanada found in favour of John Singleton in a 5 to 2 decision.

This casehas now been quoted and cited in many other cases. InOVERS 2006 TCC 26, Mr Overs paid back a shareholder-loan,which would have been included in his income. By doingwhat he did, co-incidentally, the interest expense was made deductible.

Mrs Overs borrowed funds to purchaseshares of his holding company at their fair market value. However,Mr Overs did NOT use a 73(1) rollover as Lipson did. Therefore,no capital gain was realized but the attribution rules in section 74(1)worked to transfer the interest expense on the wife=92s borrowed funds --back to him.

Judge Little turned down the CRA=92sclaim that tax benefits arose from this series of transactions. Thetaxpayer followed the Income Tax Act in repaying his loan andtransferring the shares to his wife. Justice Little ruled that thetransactions were NOT avoidance transactions and therefore GAAR did notapply. Judge Little ruled that none of the transactions could beconsidered =93abusive tax avoidance=94.

And JudgeBowman ruled in favour of Evans (2005 TCC684). Judge Bowman found there were no avoidancetransactions in what could only be described as a super complicated andvery sophisticated series of business restructurings that ended up witha former shareholder receiving cash by using specificrules in the Act, including sections 85

(rollovers), 110.6 (capital gainsexemption), 112 (tax free inter-corporate dividends), 74.5(attribution) and ss. 84(3) (deemed dividends).

Judge Bowman assumed that there =91were=92avoidance transactions. He then dealt with them on anindividual basis to decide whether the avoidance transactions were=91abusive=92. His final decision was that provisions of theIncome Tax Act operated as intended and there could not be any abuse.

However, he was not of the sameopinion with the LIPSON Family who lost in Lipsonv. The Queen, 2006 TCC 148

Mr Lipson owned a profitable businessand:

  1. The Lipsonscontracted to buy a home in Forest Hills in Toronto
  2. Mrs Lipson tookout a demand loan to buy share in the family business from her husband.
  3. The shares weretransferred to Mrs Lipson as a section 73(1) rollover
  4. Mr Lipson usedthe funds to buy the house
  5. They =93both=94 tookout a mortgage on the house to repay the demand loan

Judge Bowman used the Section 245 GAARprovisions to rule that the Lipson family was guilty of Gross Abuse ofthe Tax system. Perhaps, if they had a business reasonfor the loan or had not used the Section 73(1) tax free rollover, hewould have found in their favour as he did with the EVANS 2005 DTC 1762case. In the LIPSON case the wife=92s borrowing did notput income in her hands and it was unclear who had paid the interest.


This older answer about PALMSPRINGS might also help.



1. Can a Canadian citizen with business in Canada buy vacation house inUSA.
2. What are complications associated with tax and getting mortgagefor such property.

david ingram replies:

1. Providing you do not have a criminal record which would stop yourgoing to the USA, there is no reason why you can not buy a vacationhome in California, Arizona, Texas, Florida, Alaska or any other USdestination if you can afford it.

2. I usually recommend that you borrow half in Canada and half in theUS. That will always qualify you for the US mortgage and you aremoderately protected from foreign exchange which can be devestating.Use your Canadian house as security for the half down in the US. And,of course, the same thing is true in reverse.

When you go to sell, you will pay tax first in the US (and maybe astate tax in California, Arizona, South Carolina, Vermoont, etc.)

This older question may help




My wife and I are looking at possibly purchasing a condo in PalmSprings for our retirement. We are both 50 years old and plan onworking for the next 7 or 8 years. Our plan is to purchase and use it afew times a year and rent/lease it out for the remainder of the yearuntil we reach retirement at which time we would spend 4 or 5 months ayears there. Looking for some advice on what we should be looking outfor and what would be a better choice mortgage wise, U.S. or Canadianfunding. Or is it a good idea at all to purchase U.S. real estate as aCanadian? Any advice or literature that's out there that you coulddirect us to would be greatly appreciated. Thanks!

xxxxx xxxxxxxx
david ingram replies:

If your intention is to start spending significant time there, buyingnow is extemely sensible because you are buying it at today's pricewhich will logically go up in the futre. You 'are' of course, alsodealing with exchange.

Since your earnings are in Canadian dollars, borrowing the money inCanada and paying cash in palm Springs means that you wil be paying ina known currency.

To explain that statement, persons who bought in 1991 with a USmortgage paymnet of $1,000 needed $1,145.87 Canadian dollars to makethe payment. By 2001, they needed $1,548.62 to stay even.

However, in reverse, if you bought in 2002, you needed 1,570.36 andonly need about $1,060 to stay even today.

Currency exchange does go both ways.

You might want to borrow half in Canada and take out a mortgage forhalf in Palm Springs.

If you are renting the property, you will both need to file a USFederal 1040NR with Shedule E and California 540NR return and thenchange the currency to Canadian and file form T776 with your CanadianT1 returns. Failure to file the form 1040NR can have penalties of$1,000 to $10,000 per year per return per person even if you losemoney. A very real problem is that all sorts of Canadians approach aUS accountant and ask about filing and are told they do not need tofile a return because they are losing money. Not so. When it comestime to file, hunt down a specialist in dual country tax returns likeGary Gauvin in Dallas,, Steve Peters in Halifax, Kevyn Nightingale inToronto, Brad Howland in Victoria or myself in Good Olde NorthVancouver.

Whatever you do, do NOT buy it in a corporate name. You will not saveanything and end up with another $2 or $3,000 of accounting fees.

You will also need to file personal US tax returns if you are theremore than an average of 120 days a year.

The following is from my April 1994 newsletter which you can find at
www.centa.com in the top left handbox. Note that it was written in 1994 and still appropos today.

- my system would not allow this to be included - some permissionsetting. - you will have to go to the web site www.centa.comto read it but you should if in this position -