Hi David, I've been reading everything on the website for some time
now and think it's terrific!
Now some questions hopefully you can answer for me.
1. My wife and I plan to purchase a home in Ontario. We are US
citizens and
currently reside in the US. We have no CDN citizenship. Initially we
plan to use the home as simply a getaway/vacation/etc place (not
investment property). There is a possibility of moving there fulltime
in a couple of years. Are we better off getting the loan in the US or
Canada
based on the current exchange rates? I'm approved for a CDN mortgage
at HSBC
and if we funded it thru the US we'd borrow against our current home
using
a home equity loan. (rate is 5.125 for 15yrs but loan origination fees
are
almost $4000 USD.) My understanding is CDN banks don't charge all the
ridiculous fees US banks do.
If you think you are going to move to Canada, figure out the end
figure over "x" number of years.
The US rate is fixed, the Canadian rate will change every few years.
Your largest danger is the exchange rate. If we go to a dollar close
to par, you will wish you had borrowed the money in the USA. If the
rate reverts to the 1993 > 2003 exchange rates, you will wish it was
in Canada. Split the difference - Borrow half in the US and the other
half in Canada. NO ONE CAN tell you what will be the best any better
than that.
2. If we sell our home in the US some day, I can write off against the
purchase price the improvements I have made, correct? I spent
thousands finishing the
basement (built 2BR, 1BA, heating, etc). I also built a 30'x40' garage
on the property.
The improvements become part of the ACB (Adjusted Cost Base)
3. Here's where it gets a bit murkier. I built the garage for an Ebay
business I run as a sole proprieter. I use the garage STRICTLY for my
business. I have never claimed any deductions for it though as my
understanding is I'd have to amortize it over a certain period and
then
once we sold the property I'd have to payback the deduction I
received..?
The sale of the property wouldnt generate more than a $125k (or is it
$250K.. I cant remember)
gain so there would be no gains tax (so I woudn't necessarily need
the cost of the garage
to help bring up the adjusted purchase price of the home). Do you
recommend
taking the write off each year against the business income and what
rate is
it amortized? I spent about $10000 building it. I started it in 2003
and was
done building in 2004.
There is no tax on your home if you do not deduct any expenses up to
$250,000 each in profit. If there are two of you and you sell it,
there can not be any tax on a house sold for less than $500,000 as a
couple or $250,000 for an individual.
You can run the eBay business from Canada with no problems although
you will want a warehouse on the US side because taking things back
and forth across the border is a nightmare for an eBayer.
4. The CDN home has an unfinished basement. If I spent the money to
have
it completed, according to the website that is in deductible in Canada
(adjusted purchase price). Any chance of magically carrying those
deductions
over to a US 1040 too?
There is NO deduction in Canada for finishing the basement unless it
is a rental. Then it is still only added to the ACB and depreciated
and the depreciation can only be deducted if there is a rental profit.
5. If we eventually move, and I keep the Ebay business, can I run it
out
of the US? I purchase and resell all my goods in the USA with a couple
of
sales per month going to CDN citizens. Where would my tax liability
lie?
I'm assuming that if I purchase goods in Canada and resell them
anywhere
that income generated from those sales would be taxable in Canada. Is
that
a safe assumption?
As a resident of Canada, you are taxable on your world income. As a
US citizen, you are taxable on your world income although there is an
up to $80,000 earned income exemption for foreign income earned
outside of the United States. See form 2555 and instructions.
6. Taxes and interest paid on any home loan (whether US, Canada or
Timbuktu) is
deductible on my 1040 sch A? What currency&value does the IRS use?
i.e. if we
paid $2400 CDN in property taxes, do we file it as $2400 USD or do we
need to
convert the currency at the going rate? When is this rate determined?
It can
fluctuate through the year. Or do they simply take the rate at the end
of
the year?
You need to convert the Canadian figures to US and the US figures to
Canadian.
7. Is there anything like the Manulife One account in the USA? It
sounds like a heck of a deal!
There are accounts like them in Australia. I have not heard of such
an arrangement offered on a general basis in the United States and
Manulife Bank is the only one offering it in Canada.
Thank you!
-------------------------------------------
Answers to this and other similar questions can be obtained free on
Air every Sunday morning.
Every Sunday at 9:00 AM on 600AM in Vancouver, Fred Snyder of Dundee
Wealth Management and I, David Ingram host a LIVE talk show called
"ITS YOUR MONEY"
Those outside of the Lower Mainland will be able to listen on the
internet at
www.600AM.com
Local calls are taken at (604) 280-0600 and Long Distance calls are
taken at 1( 866) 778-0600
Callers to the show are invited to attend free seminars on financial
planning with such specialities as deductible mortgage interest. They
are held at Fred Snyder's Office at 1764 West 7th in Vancouver - (604)
731-8900 for more information.
=========================================
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US / Canada / Mexico tax, Immigration and working Visa Specialists
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Res (604) 980-3578 Cell (604) 657-8451
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