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David,
I got your name from C XXXXXXXXX LXXXXXX I wanted to ask you a
few
questions.
My wife and I are US citizens, and we live in San Francisco. We
want to buy
a condo in Vancouver, furnish it and rent it out. This way we can
also use
it for a week or so a year ourselves. I've already found out
about the
differences in the mortgage systems, but I want to know how the
taxes on
the rental income would work. I plan to deduct the interest and
depreciate
the property on my US tax returns.
1)I think I would have to claim the rental income and pay
Canadian taxes on
that, correct ?
2)If so, will I have to also claim the income on my US taxes or
do I just
claim that I paid the taxes up there ?
3)Do I have to pay twice on the same income ?
4)Also, if I am claiming income, can I depreciate the property on
Canadian
taxes ?
5)What is the tax rate I would have to pay on the income with no
deductions
and no other Canadian income ?
Let's say for instance that my property rented for $600 per week
and was
rented out for 45 weeks of the year for a total of $27,000.
Can I deduct the cost of my management company and any repairs
that may
have to be made ?
Any help you can give me in this area would be appreciated,
Thanks,
S XXXXXX XXXXXX
----------------------------------------------------
david ingram replies:
I presume from your question that you are talking about buying an
apartment hotel unit
to rent out rather than a straight condominium. I get this from
your comment about
using it for a week or so yourself.
The previous email I sent with the NR-6 Attached tells you about
getting a property manager, etc.., and having them sign as your
agent with the CCRA (Canada Customs and Revenue Agency).
Because this is a hotel unit as opposed to an annual rental, you
will need a GST (Goods and Services Tax) number as well and your
agent will be charging 7% GST on room rentals.
You would then prepare a Canadian return under Section 216(4) and
report your gross income on a T776 rental form which is analogous
to a 1040 Schedule E.
>From the rent you would deduct accounting and legal, advertising,
business licence, repairs, strata fees, mortgage interest,
utility bills, insurance, etc.
If there was a profit you could also claim CCA (capital cost
allowance - like depreciation) of "up to" 4% on the diminishing
balance of the worth of the building (not the land).
When I say up to 4%, I am referring to the fact that Canada will
not let you claim depreciation past zero income. In other words,
you cannot use depreciation to create a paper loss on the
property as opposed to the US where you are presumed and even
"must" take depreciation which creates a loss which may or may
not be used against other income.
Also, watch out on your US return. If you use the Vancouver Unit
more than 30 days or 10 percent of the rental days (whichever is
less), you may not use the loss to offset other income.
Assuming that you make a profit in Canada, the tax on the first
$30,000 or so would be around 24%. After you had paid Canada,
you would then report the income again on your 1040 Schedule E
and claim credit for the tax paid to Canada on your 1040 Schedule
1116.
You can find more Canadian Rental information by going to
www.centa.com clicking on tax guide and then on the rental
chapter which although written 20 years ago and not updated for
10 years is still relevant today.
We, of course can look after all of this for you, even to making
your offer for you. I am a licenced realtor.
For your mortgage, make sure that you deal with Joan Marsh at
(604) 535-8891 - I guarantee that she understands cross border
mortgage issues.
And for the benefit of the Chicago buyer of the condo in
Abbotsford, My old business partner Ross McDonald sent me the
following:
Hi david,
Gee David, this letter writer sounds like they could benefit from
a property management referral to your old friends in
Abbotsford - someone who is familiar with NR6's and can send you
the NR4's on time - what do you think?
Ross & Betty
Ross and Betty are LIGHTHOUSE REALTY which used to be CEN-TA
LIGHTHOUSE REALTY. They provide a superb property management
service in Abbotsford, North Van, Vancouver, etc. You can get
Ross at [email protected]. His phone number is
(604) 855-7393
They will rent the condo, be the agent by signing the NR-6, AND
give you an excellent statement for the tax return. They can
also prepare the Canadian return although, of course, you should
send it here so that we can check up on them.
david ingram - [email protected]
108-100 Park Royal South
West Vancouver, BC, CANADA, V7T 1A2
(604) 913-9133 - (604) 913-9123 www.centa.com
Cell is (604) 657-8451 (10 AM to 10 PM seven days a week)
US / CANADA REAL ESTATE SPECIALISTS
US / CANADA / MEXICO
Working Visa and Income Tax Specialists
Be ALERT, the world needs more "lerts"
.
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