QUESTION:
Hi there - I am a Canadian citizen, living here in the US. I am looking at
purchasing a home in Canada. How will this affect my taxes? Will I get a
tax break here in California, with this purchase in Canada? I a
non-resident of Canada.
Thanks!
Roxanne
=======================================
david ingram replies:
If you only use the home in Canada a few days a year, it should not be a
problem as far as Canada is concerned.
You may use the interest and taxes on your Canadian home as an itemized
deduction on Schedule A of your US 1040 and California 540 tax rerturns.
However, if you are in the home too much, Canada may decide to try and tax
you on your world income - See Article IV(2)(c) of the US/Canada Income Tax
Convention (1980) which follows
Article IV - Fiscal Domicile - (it is the same number in most treaties)
1980 to 1995. For the purposes of this Convention, the term "resident of a
Contracting State" means any person who, under the law of that State, is
liable to taxation therein by reason of his domicile, residence, place of
management, or any other criterion of a similar nature. But this term does
not include any person who is liable to tax in that Contracting State in
respect only of income from sources therein.
1996, 1997, 1998 & 1999. For the purposes of this Convention, the term
"resident of a Contracting State" means any person who, under the law of
that State, is liable to taxation therein by reason of that person's
domicile, residence, citizenship, place of management, place of
incorporation or any other criterion of a similar nature, but in the case of
an estate or trust, only to the extent that income derived by the estate or
trust is liable to tax in that State, either in its hands or in the hands of
its beneficiaries. For the purposes of this paragraph, a person who is not a
resident of Canada under this paragraph and who is a United States citizen
or alien admitted to the United States for permanent residence (a "green
card" holder) is a resident of the United States only if the individual has
a substantial presence, permanent home or habitual abode in the United
states and that individual's personal and economic relations are closer to
the United states than any other third State. The term "resident" of a
Contracting State is understood to include:
(a) the Government of that State or a political subdivision or local
authority thereof or any agency or instrumentality of any such government,
subdivision or authority, and
(b) (i) A trust, organization or other arrangement that is operated
exclusively to administer or provide pension, retirement or employee
benefits, and
(ii) A not-for-profit organization that was constituted in that State,
and that is, by reason of its nature as such, generally exempt from income
taxation in that State.
2. Where by reason of the provisions of paragraph 1 an individual is a
resident of both Contracting States, then his status shall be determined as
follows:
(a) he shall be deemed to be a resident of the Contracting State in which he
has a permanent home available to him. If he has a permanent home available
to him in both Contracting States, he shall be deemed to be a resident of
the Contracting State with which his personal and economic relations are
closer (centre of vital interests);
(b) if the Contracting State in which he has his centre of vital interests
cannot be determined, or if he has not a permanent home available to him in
either Contracting State, he shall be deemed to be a resident of the
Contracting State in which he has an habitual abode;
(c) if he has an habitual abode in both Contracting States or in neither of
them, he shall be deemed to be a resident of the Contracting State of which
he is a national;
(d) if he is a national of both Contracting States or of neither of them,
the competent authorities of the Contracting States shall settle the
question by mutual agreement.
==============================================
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