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QUESTION:
Hi there
We hear much talk of how US residents are buying up 1/2 of Old Montreal and Old Quebec but there seems to be a dearth of resources to service their US/Canada & property managmeent needs!
1. If we buy vacation home in Quebec, does that make us residents there even tho' we will only use for 2 or 3 weeks a year at most? Revenue Canada website states to be non-resident you must BOTH have no residential ties AND be physically present less than 183 days. I know many non-residents own vacation homes in Quebec - how do they avoid being hit for worldwide income by Quebec authorities?
2. Also, when we are not using the property, we may rent out the home occasionally as a furnished vacation rental. I understand we need not charge GST (if yearly income therefrom is below CA$12,000). But what about income tax? Is there a threshhold below which Canadian income tax need not be reported?
(Of course, in any event, such rental income will need to be reported and tax paid on it at top rate on my US tax return.)
We understand US tax tests for deducting expenses (personal use to be less than greater of 14 days or 10% of days actually rented out) but want to see if we can avoid having to get caught up in Canadian system given that rental income would be pretty low (certainly below CA$12,000).
3. Assuming this is achievable, I trust short term tenants (basically other tourists) are not obliged to withhold part of payment for furnished accommodation but I wonder am I right.
You provide an important service here at least on the tax advice side (I still need to find a good vacation property manager). If we go ahead with purchase, please advise if your company can prepare our Canadian (if needed) & US tax returns to take account of Quebec rental income.
Best regards.
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david ingram replies:
Buying a vacation home in Quebec or any other place in Canada does NOT make you a resident for Canadian Tax purposes unless you are here for more than 183 days and that would apply with or without a vacation property.
Even then, Article IV of the US Canada Income Tax Convention (Treaty) kicks in and it is possible that you would still be considered a US resident for tax purposes if your closer connections were clearly with the USA.
In either case, you will always be taxable in Quebec and Canada on the first $ of rent received. Of course, if you take in $100 and spend $1,000 you would have a tax loss but you still have to file the Canadian and Quebec tax returns.
I am repeating the answer to a similar question from a San Francisco resident here.
My wife and I are US citizens, and we live in San Francisco. We want to buy
a condo in Vancouver, furnish it and rent it out. This way we can also use
it for a week or so a year ourselves. I've already found out about the
differences in the mortgage systems, but I want to know how the taxes on
the rental income would work. I plan to deduct the interest and depreciate
the property on my US tax returns.
1)I think I would have to claim the rental income and pay Canadian taxes on
that, correct ?
2)If so, will I have to also claim the income on my US taxes or do I just
claim that I paid the taxes up there ?
3)Do I have to pay twice on the same income ?
4)Also, if I am claiming income, can I depreciate the property on Canadian
taxes ?
5)What is the tax rate I would have to pay on the income with no deductions
and no other Canadian income ?
Let's say for instance that my property rented for $600 per week and was
rented out for 45 weeks of the year for a total of $27,000.
Can I deduct the cost of my management company and any repairs that may
have to be made ?
Any help you can give me in this area would be appreciated,
Thanks,
S XXXXXX XXXXXX
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david ingram replies:
I presume from your question that you are talking about buying an apartment hotel unit
to rent out rather than a straight condominium. I get this from your comment about
using it for a week or so yourself.
The previous email I sent with the NR-6 Attached tells you about getting a property manager, etc.., and having them sign as your agent with the CCRA (Canada Customs and Revenue Agency).
http://www.ccra-adrc.gc.ca/E/pbg/tf/nr6/nr6-00e.pdf
Because this is a hotel unit as opposed to an annual rental, you will need a GST (Goods and Services Tax) number as well and your agent will be charging 7% GST on room rentals.
You would then prepare a Canadian return under Section 216(4) and report your gross income on a T776 rental form which is analogous to a 1040 Schedule E.
>From the rent you would deduct accounting and legal, advertising, business licence, repairs, strata fees, mortgage interest, utility bills, insurance, etc.
If there was a profit you could also claim CCA (capital cost allowance - like depreciation) of "up to" 4% on the diminishing balance of the worth of the building (not the land).
When I say up to 4%, I am referring to the fact that Canada will not let you claim depreciation past zero income. In other words, you cannot use depreciation to create a paper loss on the property as opposed to the US where you are presumed and even "must" take depreciation which creates a loss which may or may not be used against other income.
Also, watch out on your US return. If you use the Vancouver Unit more than 30 days or 10 percent of the rental days (whichever is less), you may not use the loss to offset other income.
Assuming that you make a profit in Canada, the tax on the first $30,000 or so would be around 24%. After you had paid Canada, you would then report the income again on your 1040 Schedule E and claim credit for the tax paid to Canada on your 1040 Schedule 1116.
You can find more Canadian Rental information by going to www.centa.com clicking on tax guide and then on the rental chapter which although written 20 years ago and not updated for 10 years is still relevant today.
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We can look after your tax returns for Canada, Quebec, the US 1040 and whatever state that you live in.
GST does not click in with your Quebec home because it is not a hotel unit and you are not going to be grossing over $30,000 a year which is the threshold where GST clicks in. I do not know where the $12,000 figure you used came from.
Income tax does click in with the first dollar of rent.
Hope this helps
David Ingram
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