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My question is: Applicable to both US and Canada
QUESTION:
I'm looking at buying a property in the Pemberton (Whistler) area 50/50% with a Canadian citizen (I'm a US citizen).
What are the tax ramifications on how we decide to hold title? i.e. incorporate-Canadian, incorporate-US, hold in his name, my name or joint ownership? Can you give me a recomendation?
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David Ingram replies:
I have answered this question four or five times this year but with the excitement of Vancouver and Whistler winning the 2010 Olympic Bid, Answering it again seems worthwhile.
DO NOT buy it as a Canadian Corporation. If you do, you will have to file a US form 5471 and a Canadian form NR6. Failure to file the US 5471 means a penalty of $10,000 for the first 90 days and a penalty of $10,000 EVERY 30 days thereafter. Thankfully, it is topped at $250,000 but it is a real penalty to stop US residents hiding their money in an offshore corporation.
As a partnership, you and your partner still have to file a Canadian Form NR6 which you can find and print out at:
http://www.ccra-adrc.gc.ca/E/pbg/tf/nr6/nr6-00e.pdf.
He will have to deduct 25% tax on any expected profit and send it off to the CCRA.
After you file your Canadian Section 216(4) Income Tax return by June 30th of the following year, you will report the same information (converted to US $$) on Schedule E of your 1040 Income tax return.
In practical terms, you woiuld file a US automatic extension to Aug 15th to give you time to get the Canadian figures together for the US return.
If you made a profit and had to pay Canada tax, you will claim the tax credit on a Schedule 1116.
Because of different depreciation rates, it is possible that you could make a profit in Canada and lose money in the states. If this is the case, fill in the 1116 anyway because the foreign tax credit deferral generated can carry forward for five years and be used against future profits.
You can find out more about Canadian Income tax for Americans *(whether in San Diego or Boston) by clicking on www.centa.com and clicking on US/Canada taxation. After reading that click on Tax Guide and then Rental income.
This office can help you with all of these forms and procedures of course.
We are a licenced Real Estate company as well.
David Ingram of the CEN-TA Group
US/Canada Real Estate taxation specialists
US / Canada / Mexico tax and working Visa Specialists
108-100 Park Royal South
West Vancouver, BC, CANADA, V7T 1A2
(604) 913-9133 - Fax 913-9123 [email protected]
www.centa.com www.david-ingram.com
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