American/Canadian dual citizen with Canadian wife

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My question is: Applicable to both US and Canada
QUESTION: Have a client who has dual citizenship,wife is canadian,lives in u.s. and payes taxes their.Would like to build 4-6 plex,keep one unit and sell the balance,would he be taxed as a canadian upon sale of units? any problems with selling to family?
HE will build in canada,he will own it in a ltd. trust ,he is a professional hockey player in XXXXXXXXXXXXX. at the moment,his unit will be for holiday use and will not be rented the others he plans to sell.    Thanks
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david ingram replies:
He is a Canadian citizen and his wife is a Canadian citizen and presumably has a green card for the USA.
With no property in Canada, it is difficult for the US to tax him on world income but he is taxable already on any income earned in Canada for games played in Canada even if paid from New York or Philadelphia or Los Angeles or Phoenix. It is just paperwork and does not usually result in any excess taxation because of foreign tax credits IF FILED ON TIME.  The problem develops where Canada catches up (we are doing one former hockey player right now where Canada is going back to 1989 and the Canadian Bill is over $400,000) and asks for multi years back.  They have the legal right to their tax dollars but the US will only allow the foreign tax credit back three years.  
You are going to tell me that "no one" files them and I am going to tell you that when people are killed in a car accident, it is usually the first time.  We have six returns in the office right now where tax returns are being asked for back to 1990.
The rule is that when you have filed the tax returns in good faith to the best of your ability, Canada and the US are restricted by law to only going back three years although they can go back eight in Canada if they can prove fraud or willful evasion was involved and forever if the returns have never been filed.  
I do not remember the section, but the US can go back to 1967 when returns have not been filed and it is not unusual for them to go back ten. I regularly look at $180,000 US assessments levied against Canadian residents who did something in the US 8 or 8 years ago and did not file the US returns.
I hope that you are preparing the Canadian return for your hockey players.  If not, I would be glad to catch them up for you.
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Back to the builder question.
If he comes to Canada and builds, it will be a business proposition and the company, trust, proprietorship or other legal entity he builds under will be taxable in Canada on the profits from the sale.  
It sounds to me like family will be involved and if they own other units in the same complex and he keeps one "available" for himself and his wife on a full time basis, under Article IV of the US / CANADA Income Tax Treaty, he will be opening himself up to Canada's taxing him on his world income.
This will not happen if he is only here "two" months a year.  However, if this is a family complex and his wife starts spending a lot of time in Canada with her relatives while he is on the road, "her" presence in Canada can expose him to Canadian tax on his world income under Article IV which I will reproduce here.  
You (and he and his wife) should all go to www.centa.com and read the whole 27 pages on US/Canada Taxation.This section has been published in over 150,000 books and gets downloaded 100 times a day from the web site.  (for the last ten years, another 300,000 times).  I have no idea how many people have read it but NOT ONE person has ever suggested that any part of it is in error so I will assume that it is correct.
Following is the relative part of Article IV(2) of the US / Canada Tax Treaty - As I said you should read the whole section later at: http://www.centa.com/U.S.Cdntaxation.htm
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. 
1980 to 95. Where by reason of the provisions of paragraph 1 a person other than an individual is a resident of both Contracting States, the competent authorities of the Contracting States shall by mutual agreement endeavour to settle the question and to determine the mode of application of the Convention to such person. 
1996 on. Where by reason of the provisions of paragraph 1 a person other than an individual is a resident of both Contracting States, the competent authorities of the Contracting States shall by mutual agreement endeavour to settle the question and to determine the mode of application of the Convention to such person. Notwithstanding the preceding sentence, a company that was created in a Contracting State, that is a resident of both Contracting States and that is continued at any time in the other Contracting state in accordance with the corporate law in that other Contracting State shall be deemed while it is so continued, to be a resident of that other State. 
You can see that the countries themselves have set it up so that they will get tax. It is up to you to arrange your affairs to pay the least tax possible. 
Both Canada and the U.S. will tax you on any money you earn within the country. The BIG question is: 
WHEN ARE THEY GOING TO TAX YOU ON THE REST OF YOUR WORLD INCOME? 
Canada taxes on RESIDENCY, not citizenship. Basically, if you have been in Canada for more than 183 days (counting the hours - one hour is only one hour, not one day as in the States), you are taxable on your world income, no matter where it is located and under whose name you have your assets stashed away. That is why Howard Hughes left Canada when he did back in the 70's. If he had stayed in Canada (even as a visitor) two more days, he would have been taxable on his world wide holdings. 
Note that in March, 1999 Denise Rondpre of  Revenue Canada Customs Excise and Income Tax issued a policy letter to Foreign Air Crew flying for Canadian Airlines and Air Canada. This directive stated that it was Revenue Canada's opinion that one hour in Canada constituted a full day in spite of the fact that the courts have ruled against them and the law, itself, has not changed. I do not think that this is enforceable, but you must be aware of it. 
If you are in Canada for any period and earn more than $10,000, you must pay tax on the total amount to Canada,  or vice versa if a Canadian is in the U.S. Entertainers and sports figures are exempt for up to $15,000 but they are to have 15% tax withheld from their gross salaries or remuneration (including hotel rooms, plane tickets, car rentals, meals, etc.). Remember that even though the first $10,000 or $15,000 above is not "taxable", you must file a return and quote the treaty article number specifically to claim the exemption.  The U.S. has a minimum $1,000 fine for failure to report the treaty number to claim the exemption, even if there is no tax owing. In practical terms, this means you only get fined if not taxable.  (Although this was always here, Revenue Canada rarely enforced the rule.  In this case the enforcement laws DID change in March, 1998 and the US resident MUST file if working in Canada.) 
Remember also, this refers to "where" the work is performed, not where the money comes from.  Therefore, if you worked in San Francisco for one month for your Canadian employer and were paid $6,000 U.S. by Bell Telephone in Ontario, you would have to file a California return reporting your world income and exempting the amount earned in Canada and would have some tax to pay to California on the $6,000.  On the Federal return, you would file for an exemption under Article XV of the U.S. / CANADA Tax Treaty and pay no federal tax to the U.S.  You would then claim a credit for the California tax paid on your Canadian income tax return.  You should also get BELL to agree to pay the $400 to $1,000 accountant's bill to prepare these complicated tax returns. 
David Ingram's US/Canada Services
US / Canada / Mexico tax and working Visa Specialists
US / Canada Real Estate Specialists
4466 Prospect Road
North Vancouver,  BC, CANADA, V7N 3L7
Res (604) 980-3578 Cell (604) 657-8451
(604) 980-0321 
New email to [email protected]
www.centa.com www.david-ingram.com
Disclaimer:  This question has been answered without detailed information or consultation and is to be regarded only as general comment.   Nothing in this message is or should be construed as advice in any particular circumstances. No contract exists between the reader & the author and any and all non-contractual duties are expressly denied. All readers should obtain formal advice from a competent financial, or real estate planner or advisor & appropriately qualified legal practitioner, tax or immigration specialist in connection with personal or business affairs such as at www.centa.com. If you forward this message, this disclaimer must be included."
Be ALERT,  the world needs more "lerts"
This from "ask an income tax and immigration expert" from www.centa.com or www.jurock.com or www.featureweb.com. Canadian David Ingram deals daily with tax returns dealing with expatriate:
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another similar question will be as we lump them.
You may find more answers at www.centa.com
David Ingram of the CEN-TA REALTY  Group
US / Canada / Mexico tax and working Visa Specialists
US / Canada Real Estate Specialists
(604) 980-0321 - Fax 913-9123 [email protected]
www.centa.com www.david-ingram.com
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