QUESTION: Aloha David
I am a US citizen living and working as a real estate agent in Maui, HI. MANY Canadians own or are looking into owning condos here in South Maui and renting them out (when they are not here) to tourists to use for their vacation. Can you help me clarify what the legal and tax issues are for these Canadian buyers? Are they allowed to rent out their condos? Can they rent it themselves? Or MUST they use a US rental agent? Can they come and do repairs on THEIR property? It would seem from your answer in http://www.askanexpert.ca/answer.asp?id=7528 that they are not even allowed to come and change a light bulb! And if that is the case, just who is "not allowing" them to do this? - the US or CANADA? Thanks for your help on this. I want to make sure that all of the Canadian buyers are getting the correct information.
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david ingram replies:
I use to have a condo manager friend Howard ?? in Maui. He was a friend in Vancouver in 1965 when he managed CKLG-FM radio station. He then left and moved to Maui and got into the condo business. I am embarrased that I do not remember his last name but i have not seen him since 1979 when I rented a condo from him in Kihei.
Back to your question.
You have become a very powerful person. With your knowledge, you now
hold the ability to have a lot of Canadians arrested and deported. You
could even report them for something that they did two years
ago.
1. Canadians or Japanese or Koreans or Austalians can
buy a condo or $5,000,000 waterfront estate in Hawaii, New York or Palm Springs
and rent it out.
2. They can even show the property
themselves. They can NOT however, collect the rent themselves. They
can hand the person an envelope and instruct them to mail the chwques to Canda
or Australia or Japan or give them written instructions to direct deposit the
money into a Hawaii Bank Account. They just can NOT accept the money at
the same time they show the property.
If they want to accept the
money themselves, they can fly back to Canada and turn around and pick up the
money and return to Canada immediately. The Canadian, or, or, or just can't do
anything else while picking up the money. If the renter said they needed a
new refridgerator while the Canadian was picking up the check (or maybe a year's
supply), the Canadian could not go over to a Home Depot and order a new
fridge on the same trip.
On a trip that they do not pick up money, the
Canadian can hire a property manager, hire a repair crw, hire someone to change
the light bulb, shovel a sidewalk, cut the lawn, etc.
3. On
any trip, the Canadian himself or herself can NOT change a light bulb,cut the
lawn, fix a toilet, paint a bedroom, shovel a sidewalkor fix the doorebell on a
unit that they are renting or intending to rent in the future or that they have
bought to improve and sell.
4. It is US immigration law that
prevents the Canadian from working on his or her rental
property.
However, the Canadian can supervise the renovations or repairs
as long as he or she hires US residents to do the work.
If the Candian
wanted to start a business of renovating and flipping, he or she could get an E2
visa which would allow them to be there and work on their own or even
others houses.
If they wanted to spend $1,000,000 and hire ten
employees fotr two years, they could an instant green card by applying for and
getting an E-5 visa.
5. Every Canadian owner also needs to
collect Hawaii 4%GET (General Excise Tax) if they rent it on a long term and 6%
TAT (Transient Accomodation Tax) if rented for short term rentals of 180 days or
less to a person who has another home somewhere else, even if it is in
Hawaii. As you can see, every rental to a Canadian requires the TAT and
GET. The Canadian should collect 11.1111 % tax because taxes are levied on
each other which should cover both.
If they do not collect it and
Hawaii gets hold of them, the retroactive tax can be massive. I had one
that was over $87,000 for back GET and TAT against a Candian who collected all
of her rents in Canada. Even though she had a legitimate rental loss on a very
expensive property when Hawaii caught up to her, they issued her a retroactive
bill plus large penalties and interest.
So, 'If' the
Canadian wants to collect rent "in" Canada from Canadians for seasonal rentals,
that is fine. However, they also have to collect the TAT and GET taxes in
Canada on their transient rentals or end up in trouble later on.
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When Can the Canadian do the work.
If the
Canadian or, or, or wanted to buy a piece of vacant land, they could build a
whole house themselves including foundation, framing, drywall, roofing electric,
plumbing, heat pump and landscaping IF it was just for their own use.
If they own a condo, they can do any remodelling to their own condo or
their own mobile home or their own
However, their Canadian adult
children, Canadian Friends or Canadian trades can NOT come down and work on the
weekend. They can NOT let a Canadian friend who just happens to be a
remodeller, go down and stay in the unit while they change the kitchen.
I first had this explained to me on a 72 Foot converted minesweeper
named Montagnais in Ketchikan, Alaska in May 1975. I was changing over a
hot water tank on this boat (which i was a guest on from Vancouver to Ketchikan)
and when the customs and immigration people came on board to clear the boat and
personnel through customs, I was chastised by them for working on the
boat. Today, it would be arrest and imprisonment.
Several
months later, the same thing happened at Mount Baker when the INS threw a bunch
of guys I knew out of the US for working on a friend's ski cabin.
Thirty-three years later I have heard the story 1,000 times and they get
progressivley worse.
The Canadian, of course has to file both a Federal
1040NR return with a schedule E and 4562 to report the rental income
federally. In addition, they have to File a hawaii N-15 Non-resident
return and the Hawaii GET and TAT return