Below is the result of your feedback form. It was submitted by XXXXXX on Thursday, January 14, 2010 at 12:25:58 --------------------------------------------------------------------------- My_question_is: Canadian-specific question: Hi David, I spoke to you on Jan 13th on your television show at www.david-ingram.com, and you asked me to send you an email. I appreciate your advice. I am a renter in XXXXXXXX who is not able to afford investing money in a home here as it is too expensive. I have a money to invest and am looking for a large gain that I could be involved with and would like to hang onto it for at least 5 years until there is major growth. I have a real estate agent, and can get a loan for the remaining amount in Canada. I have at least 60% downpayment. I am willing to wait to see if there is another crash cycle. I would be renting out the home with a PMC, and have a trustworthy relative in the xxxxxxxxxxx area in California. i would be able to handle having it unoccupied for a few months a year, if necessary. Besides changing over my money to the US, acquiring a bank account, and understanding that I will be paying property taxes on my home? What kind of taxes will I pay from the renters income? I am currently reading the book "The Border Guide," and don't want to miss out on this opportunity. ---------------------------------------------------------------------------
david ingram replies:
If you buy, remember that my guest on the show at the time, Dan Walkow at (866) 541-9952 is a good place to get your Canadian money changed to US dollars (www.seabankcapital.com).
And remember the Ozzie Jurock book I referred you to on the show. I have a chapter in it about the US / Canadian taxation when you buy in the USA as a Canadian but more importantly, the book has 54 other experts who have written a chapter about what to do and what to watch for when you buy real estate in general.
You can purchase "REAL ESTATE ACTION" for $24.97 Cdn at http://www.realestateactionbook.com/
Back to your question - there is a lot here and I have included several older answers as reference material for you.
You will be filing a California 540 NR with a CA(NR) statement. The California 540(NR) must include your world income so any wages or other Canadian income you have MUST be taken into account on the California schedule CA(NR) - The main US return will be a 1040NR with a schedule E and a schedule 4562 for the depreciation factor.
THEN - all the figures from the 1040NR schedule E are converted to Canadian dollars and entered on a schedule T776 for the Canadian return.
If you have made a profit and paid taxes on the California or Federal Returns, you will convert the taxes to Canadian dollars and claim them as a foreign tax credit on Canadian Fed form T2209 and Provincial form T2036 (both on the same return).
You can print out and read the excellent CRA guide on rental Income at http://www.cra-arc.gc.ca/E/pub/tg/t4036/t4036-e.html
You can read my own rental guide at http://www.centa.com/staticpages/index.php/TaxGuideRentalIncome
You can see the T776 form at - http://www.cra-arc.gc.ca/E/pbg/tf/t776/t776-fill-09e.pdf
You can see the US IRS Schedule E at http://www.irs.gov/pub/irs-pdf/f1040se.pdf
You can see the instructions for Schedule E at - http://www.irs.gov/instructions/i1040se/ar01.html
Because you do not have any US status other than visitor. You can not work on this unit at all. You can not paint, clean, hang drapes or collect rent as an example.
Your California relative can perform any of these chores for you but don't feel guilty and start 'helping' out if you are there and the place needs painting.
Husbands and wives of twenty years with 2 or 3 children end up in divorce court and end up doing and saying things that they usually (not always to be sure) regret.
A big deal in these cases is turning their husband or wife into the tax authorities, etc.
If you paint the sun deck with your trustworthy relative and have a fight five years from now, he or she can turn you in to Homeland Security. If a next door neighbour sees it happening and you have a disagreement with them because they don;t like your tenant, the next door neighbour can turn you in just as if you had robbed a bank. If a tenant sees you doing something and you have a disagreement with your tenant, he or she can turn you in.
Read the following and of course, when you need your US / Canada returns done, you know where to send them. That is what we do and have done for 46 years now. In fact, I have been sitting off and on at the same desk for 40 years, one month and 5 days and have had the same two phone numbers. How is that for continuity. Whatever you "do" do, have the same person do them all and make sure in advance that they KNOW how to do them all. Do NOT make the mistake of getting the US return done in the states and the Canadian one done here.
Oh yes, if and when you sell, you will owe income tax to California, the US federal government and Canada - However, even though all off the tax you will pay to the US on rental income is a credit in Canada, because Canada only taxes 50% of a capital gain only 50% of the tax you paid to the US is a foreign tax credit in Canada.
XXXXXX XXXXXX wrote:
david ingram replies:
Without a doubt - You can own any investment in the US as long as you hire an American resident to look after it and collect rent etc. This also applies to other countries and I am sending the entire older question out again because I have had two other calls about Thailand this week and can not issue enough warnings about investing or doing anything in Thailand. I have had two men i know arrested and imprisoned and had their lives ruined in Thailand for 'nothing'.
The reference in the following text and the link to the Thailand Story and Canadian Nixon who was imprisoned for serving on a condominium board where he owned five condos is a must read for anyone thinking of investing and or living in Thailand and a warning to those thinking of investing anywhere other than their home country.
On Sat, Sep 5, 2009 at 6:41 PM, US / Canada Income Tax Help - CEN-TAPEDE <[email protected]> wrote:
My question is: US-specific
QUESTION: I noticed that your website uses a lot of fear mongering when it comes to doing improvements on a USA Property. fact is that every Canadian that i know builds their own decks,paints,or any other work that needs to be done on their property. there is simply no agency that can investigate it , there are over 11 million illegal immigrants they cant even catch......please don't fear monger!
Ozzie Jurock replies:
As a Canadian:
1. If you own a holiday home in the US, you can renovate to your heart's content.
2. If you own an investment property, you have to hire someone to do it for you.
You can't renovate, can't collect rent etc.
That's not fear-mongering, that is the law.
david ingram replies:
Since I am the author of the warnings, I suppose that I should make the point further,.
If you, as a Canadian wish a summer or winter home in he US, you may buy a lot and dig a hole and lay a foundation and frame, roof, plumb, wire and finish the interior of your home. You can buy a bulldozer or rent one or hire an operator with one to dig that hole and finish off the driveway, and then you can spread the gravel or mix and pour your own concrete for the driveway and sidewalk and patio pad.
However, if you intend to rent it out of for even a day a year or provide it for your employees to use for their holidays, you can not do any of the above except buy the lot or the property and hire US citizens or US resident aliens to do any work on it or collect rent for you.
And, if it is for your own use, your brother, sister, next door neighbour or even adult children may not work on the project either. If they do, they are liable to arrest, fine, imprisonment, deportation and banishment from the USA as you are if you work on the unit which is intended for rent or business use or is already being used for business use.
You are also (I hate to say it) rather naive to think that Homeland Security does not have the facilities to catch you when they can not catch 11,000,000 illegal aliens.
Homeland Security has a multitude of informers who will and do report Canadians doing work on their own properties. I have seen or talked to dozens of people who have been arrested because a painter, dry waller, house cleaner, irate tenant or rental manager has reported them. What happens is that the owner asks for a quote to paint the rental suite and then does it himself. the painter sees the fellow painting his own suite and turns him or her into Homeland Security and Homeland security comes along and arrests you and puts you into an immigration holding cell with 84 other illegals who have been rounded up that week and you have to come up with $5,000 US bail to get out of jail and then suffer deportation and being banned from the US for 3, 5 or 10 years.
This can happen anywhere. You may want to read the following about a Canadian working on the council of his five rental condos in Thailand.
One strata council in Point Roberts had a problem with the president of the council being a Canadian and firing a maintenance worker in the complex. The maintenance worker complained to Homeland Security. I regularly advise Canadians to stay off the strata council when they own units in the USA.
For the Thailand story, see http://thaicrisis.wordpress.com/2009/03/31/condo-owner-arrested-for-working-illegally/
I wish I could go along with your wish to stop fear mongering. However, it is really tough when you are a nice Canadian and they arrest you for painting your condo five months AFTER the fact because the tenant you evicted phoned Homeland Security.
Remember. under US law, the penalty for painting a unit can be more serious and damaging to the perpetrator then the spontaneous holdup of a corner store.
So, if you are painting, cleaning and collecting rent for a piece of business real estate, stop now.
If you are merely fixing up a place that you use exclusively for pleasure and your own family, paint away, but do not help a neighbor, even if the American neighbor helped you first.
A lady at my house today, a US Canadian dual citizen who paints and decorates and cleans the eves on her rental units had to use the police to evict a 16 year tenant who threatened her with a knife.
You never know when the tenant or a neighbour will become an enemy. Think of a divorce. The combatants used to sleep together and may have produced half a dozen children. My understanding is that the IRS and CRA gets half their tips from ex spouses.
The nice thing is that the Canadian can be bailed out quickly in the USA. In Thailand, you can rot in the jail for months. When you do read the Thailand one (and be sure you do) read the whole thing. Do not just dismiss it because the rules are very similar to the US rules. BEWARE!
copied to Ozzie
david ingram replies:
You need a property manager if you do not want the strong possibility of going to jail for a few days before being deported and then not allowed back in the USA. For a story about US Immigrations hell for a Holiday Inn Manager, try
or how about a married woman's ordeal in Georgia for a traffic violation at
Crossing the border when you have an ad running to show the premises and saying you are going down to spend the weekend in your holiday home (i.e lying to the HOMELAND Security official) could result in seizure of your vehicle and a ban for up to 10 years under their ER (Expedited Removal) process. In other words, it is more serious to lie to the guard at the border than it is to do the work.
You 'could' actually show the property for rent, but you can NOT write out a contract for rent or collect a single rent cheque (check) or cash for rent in the United States. There is nothing new about this. The first time I ran into it was in 1972 or 1973.
If you are physically there, you can NOT cut the grass, shovel the sidewalk, paint or decorate or repair or fix or remodel or improve or take out the garbage for any part of the rental property.
You can paint and clean your own unit if it is NEVER rented or intended to be rented. You can not paint and clean up getting the property ready for rent so DO NOT make the mistake of thinking you can live in one, clean it up and remodel it and then rent it out and do the same for another one and then another one and another one. If you do this and one of your tenants (who maybe doesn't like you because you evicted them or told them to turn their stereo down when you happen to be in town or for any other reason) read my website, (or the uscis website) he or she would find out that you can NOT do this stuff and could phone the Homeland Security office or write an anonymous letter and you could be arrested in November 2008 for something you did in December 2007.
This may seem unreal, but in US terms, working without a visa is just as serious in law as the spontaneous robbing of a convenience store and the penalties can be worse. Think of those nightly news shows with 28 illegal Mexican or Guatemalan citizens being stuffed into Paddy wagons on the Arizona border. This is not a racist comment but with the Mexican illegal immigrants, bing rounded up and shipped back across the border is a way of life with no social stigma. For a nice clean living Canadian, being thrown into an immigration detention cell for taking money for rent is a devastating experience. In one case, a mother and her son were thrown into jail for 5 days in Phoenix when she went to Phoenix from White Rock BC. Her husband owned 18 units and HAD a property manager. Unfortunately, he also died in the arms of that female property manager and his widow then fired the property manager and she and her 20 year old son went to Phoenix to collect the rent and hire another property manager.
The property manager (who knew the law as everyone in Arizona does) phoned Homeland Security who showed up and arrested mother and son and threw them into the notorious Phoenix Immigration hell with some 300 other illegals. To rub salt into the widow's wounds, the property manager ended up with the property because she was a second mortgage holder on the property and the property fell into default because of the widow's cash flow troubles, largely because she could not go to Phoenix to hire another property manager.
For instance, for 'you', this kind of arrest could result in imprisonment for a usual five days in a US immigration jail until you posted $5,000 bail each and then being banished from the US for five to ten years.
It does not stop there. This type of conviction would stop you getting on an airplane which stopped in the USA on the way to Mexico. AND, under new US laws that have been proposed but not yet actually put in place, the arrest and banning would stop your Nov 6 trip to Cancun because people in this position will not even be allowed on commercial airliners that are flying over any part of the US. To get to Cancun, you would have to fly from Calgary or Vancouver to London England and then back to Mexico City and 'then' to Cancun and reverse it to get home.
This may be overkill but 'You' are / were lucky that the inspector gave you the correct advice BEFORE you put your foot in it.
By the way, for income tax You ALSO HAVE TO FILE A 1040NR US TAX RETURN WITH A SCHEDULE E AND A SCHEDULE 4562 EACH. Then the same income gets put on Schedule T776 of your Canadian return. If you have paid tax to the US, you will claim it as a credit on Canadian forms T2209 and T2036.
These older questions will help you AS WELL.
QUESTION: Hello David,
I'm living in Vancouver, finally paid off the student debt but don't see myself getting into
the expensive Vancouver market. I do however like to ski and was thinking of buying an
inexpensive trailer (25k Cdn) in Maple Falls Washington.
However I'm not sure what other expenses I should expect given that it's in the US.
I'm not trying to make this an investment with a high return, but I would like to do some
handy work to it to increase the value. If I add about 10k worth of value, how would that
affect my taxes in the long term?
Thanks for the advice.
david ingram replies:
One of my favourite weekends ever was in 1973 at the Chandelier (think it has a different name now) when marooned at SnowLine because of the gas shortage when one could only buy gas on odd days if your licence plate ended with an odd number and even days when it was an even number.
Strangely, it was that weekend 34 years ago that lets me answer you question now.
The cabin I was staying in was not a rental but was built by the fellow who owned it. When he was building it, buddies would come down and help him and one weekend, the INS raided the spot and deported a bunch of his friends for working in the US .
He was fine building it because he owned it but no one else can hammer a nail, paint a board, install a sink, or carry a shingle if they are not either an owner or a legal US citizen or US resident with a green card.
If your buddy is working and living in the US with a TN, H1, O1, P1, L1 or any other visa but a green card, they cam NOT help you either.
And, if you are intending to rent the trailer out 'EVER', 'you' can NOT hammer a nail, sweep the front steps or clean the toilet.
Assuming you are buying this trailer on its own lot, when you go to sell, you will owe the US income tax on the profit.
If it is your only piece of real estate at that time, you will not owe Canada any tax because you can claim it as your personal residence if you have not bought another place.
However, I would far prefer that you stretched your resources to buy something in Canada to live in and combine your present rent and the payments you would have to make for the trailer to buy your home in Canada. If you can't afford a one bedroom, buy a studio. Go down to Ikea on the Lougheed highway and look at how much they can put into a small space.
Interestingly, I read the other day that Ikea has now sold enough furniture in North America that 10% of all children are conceived in an Ikea Bed. Now that is information worth knowing.
david ingram replies:
Assuming that you are going to rent the property out, you will need an ITIN (Individual Taxpayer Identification Number). Fill in a W-7 and submit it with your first tax return or try and get it at the bank where you get your mortgage.
I do not suggest a corporation in either country unless you want to spend a couple of thousand dollars a year extra on accounting. As a foreigner with a US corporation, you will need to fill in form 5472 with your 1120 corporation tax return. Then, because the mind and control of the corporation is in the hands of a Canadian resident, you will need to file again in Canada.
This older Q & A may help
My wife and I are Canadian citizens and own a rental property (house) in Arizona.
Do I need to file income tax in the USA? Can we deduct the mortgage interest
and any expenses associated with the rental on our Canadian income tax return?
Thanks and regards,
david ingram replies
If you do not file a US 1040NR with Schedule E and Arizona 140PY or 140NR return, you face the likely Federal penalties of a $1,000 to $10,000 fine each per year for failure to report rental income as a non-resident plus 30% of the gross rent with no expenses allowed.
That is for each of you if you both own the property. And, I have never seen a $10,000 penalty.
Then, you will EACH be assessed 30% of the gross rent with no expenses allowed.
(Canada's penalty of just 25% of the gross rent with no expenses in reverse seems mild in comparison.)
FILE the US returns for every year you have missed.
THEN - There is NO responsibility for you to claim any rental expenses on your Canadian return. You can claim them if you wish on form T776. HOWEVER, you MUST report the gross rent on line 126 of your T1 if you do not claim expenses and the net rent if you do,.If there is a legitimate rental loss which has not been created by your using the unit personally, you can use the loss to reduce your other taxable income.
A Warning. There is ample evidence that the IRS and CRA are pro-actively sharing information about these. And, if you are in a complex and using the unit personally NEVER talk about the fact you have not filed a US tax return and don't ask a local. I personally know of two people who make their living turning in Canadians who are not filing their US returns. There is a 10% to 30% reward for turning you in by filing US form 211. See it at www.irs.gov - click on forms, etc.
If you need help with this, you now know where we are.
We have a rental property in the US. Can I claim the property taxes paid on my condominium as a rental expense deduction on my Canadian taxes? Form T776 mentions only Canadian property taxes however, the general guide states that all expenses can be deducted.
david ingram replies:
that can be claimed on schedule E of the US return can be claimed on form
You need to do your Schedule E 1040NR first and then convert the US
figures to the T776 on your Canadian return. If the condo is in
Arizona, you would do a 140NR or if in California, a 540NR.
There is no
state tax in Florida, Texas or Nevada, the other three popular places for a
Canadian to have a rental US condo.
The difference between the two
counties is the method of claiming depreciation. In the US, you MUST
calculate the depreciation and include it even if it creates a loss. The
good news is that the operating loss caries forward as a future deduction
against rent OR Capital Gains as opposed to non-resident losses in Canada which
unfairly disappear into the ether.
In Canada, you do NOT have to claim it
and if you do, can only claim enough to create a zero rental. Depreciation or
CCA (capital cost allowance) as we call it can NOT be used to create or increase
Make sure that you do the US returns, particularly if you are
losing money. The penalty can be a minimum of $1,000 to $10,000 PLUS 30%
of the gross rent for failure to file a US rental return by a
We, of course, are ideally suited to look after these for
you by fax, snail mail, email or courier.
david ingram replies:
If your intention is to start spending significant time there, buying now is extremely sensible because you are buying it at today's price which will logically go up in the future. You 'are' of course, also dealing with exchange.
Since your earnings are in Canadian dollars, borrowing the money in Canada and paying cash in palm Springs means that you will be paying in a known currency.
To explain that statement, persons who bought in 1991 with a US mortgage payment of $1,000 needed $1,145.87 Canadian dollars to make the payment. By 2001, they needed $1,548.62 to stay even.
However, in reverse, if you bought in 2002, you needed 1,570.36 and only need about $1,060 to stay even today.
Currency exchange does go both ways.
You might want to borrow half in Canada and take out a mortgage for half in Palm Springs.
If you are renting the property, you will both need to file a US Federal 1040NR with Schedule E and California 540NR return and then change the currency to Canadian and file form T776 with your Canadian T1 returns. Failure to file the form 1040NR can have penalties of $1,000 to $10,000 per year per return per person even if you lose money. A very real problem is that all sorts of Canadians approach a US accountant and ask about filing and are told they do not need to file a return because they are losing money. Not so. When it comes time to file, hunt down a specialist in dual country tax returns like Gary Gauvin in Dallas,, Steve Peters in Halifax, Kevyn Nightingale in Toronto, Brad Howland in Victoria or myself in Good Olde North Vancouver.
Whatever you do, do NOT buy it in a corporate name. You will not save anything and end up with another $2 or $3,000 of accounting fees.
You will also need to file personal US tax returns if you are there more than an average of 120 days a year. See the April 1994 newsletter in the top left hand box at www.centa.com
Please also note that we prepare Canadian, US, Australian, UK and New Zealand returns on a mail in, email, fax, snail mail or couriered basis. At any time, our clients are in 40 countries or more. They have every occupation from nuclear Submarine captains to FedEx pilots to Major Bank officers to Politicians, Diplomats and border patrol officers. My favourite, however, is a penguin catcher in Antarctica among others there..
If you 'really' only have a single question requiring a 'couple' of minutes, you can try phoning me for free as part of the following.
- For a quick free question
Most Wednesday evenings, from 6 to 9 PM Vancouver (Pacific - LA, Seattle) time, I interview others and answer short US Canada, Great Britain, Spain, Indonesia, Mexico, etc. tax and immigration questions. GOTO www.david-ingram.com - the North American phone number is (866) 980-0499 - the local number in the lower mainland is (604) 980-0321.
CEN-TA Cross Border Services - Tax, Visas, Immigration