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selling canadian Property while a resident of the US


My question is: Applicable to both US and Canada

QUESTION: My friend is selling one of her properties here in Canada. It is elected as her PPR and she will be exempt from any capital gains tax. However, she also currently resides in the US as is worried about any tax implications this sale may have.
Are her worries unwarranted? She is a Canadian and British citizen with landed immigrant status in the US. Thanks.

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david ingram replies:

Your friend can NOT have a tax free Principal residence in Canada if she is a resident of the United States unless she has continued to file a Canadian return as a resident and rep[orted her world income to Canada each year.

If she did that, and does not own and live in another home in the US, she may claim it as a tax free pricipal resident provided it has not been rented while she has been gone.

If she has become a US tax resident (automatic if she has a green card), then the house can be tax free (up to $250,000 US profit since she entered the US) IF she has occupied it as her residence for a full 24 months out of the last 60.

Obviously, you should not make any decisions based upon this email.

If she has moved to the US and has rentals in Canada, she should have filled out forms NR-6 with a Canadian tax agent for the rentals and that agent should be filing an NR4 by march 31st each year to report the rent collected in her name. Just as the HSBC or B of M, or Scotiabank would deduct 10% tax on any interest paid to a non-resident and send the non-resident an NR4 slip rather than a T-5 slip to report the interest.

When your friend left Canada, (assuming she has not been filing Canadian returns as a resident), she should have filed Canadian form T1135 to report the value of her assets when leaving.  This would include her personal residence, mutual funds, stock accounts, and any other real estate holdings.

If any perceived profits are calculated because of the deemed sale and reacquiistion of capital assets when leaving Canada (Departure Tax), she should have filed forms 1243 and 1244 to defer the tax.

The taxation in the US is determined by paragraphs Article XIII(6) and (7)


6. Where an individual (other than a citizen of the United States) who was a resident of Canada became a resident of the United States, in determining his liability to United States taxation in respect of any gain from the alienation of a principal residence in Canada owned by him at the time he ceased to be a resident of Canada, the adjusted basis of such property shall be no less than its fair market value at that time.

7.  Where at any time an individual is treated for the purposes of taxation by a Contracting State as having alienated a property and is taxed in that State by reason thereof and the domestic law of the other Contracting State at such time defers (but does not forgive) taxation, that individual may elect in his annual return of income for the year of such alienation to be liable to tax in the other Contracting State in that year as if he had, immediately before that time, sold and repurchased such property for an amount equal to its fair market value at that time.

Paragraph 6 deals with the principal residence which was tax free up to the date of departure.

Paragraph 7 refers to the taxable profits calculated and deferred on forms 1243 and 1244 and allows other properties to have their cost price adjusted for US tax purposes to the values on the date of emmigration/immigration.
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So, if she is treating herself as a resident of the US an dhas another house in the US, she will be taxable in Canda and the US on any profit or gain in valuse from the date she moved to the US.

If she is still taxing herself as a resident of Canada and does not own and live in a home in the US and lived in the Canadian house for 24 out of the 60 months before sale, the house is tax free in both couintries.

If she is taxing herself as a resident of Canada and has a home in the US, she has to decide which house she is going to claim as her tax free residence for Canadian tax purposes because she can only have one.  If she elects to claim the Canadian house tax free, then she will owe CANADIAN tax on the US house even if she bought it after moving to the US.

Your friend needs to talk to someone who knows what to ask and what to do and we do provide that service.   You can see charging details in the following pricing guidelines.
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New US rresident Installment payments for 2007

Hello David
 
It was nice seeing you again and thank you for taking the time out to see me.
 
I have a quick question, I recently received a letter from Revenue Canada to my Canadian address Re: Installment Payments ... They are asking for 11,000.00 for Sept 15 and December 15.  This I am assuming is based on my last years income tax.  (I had the sale of the house and other investments for which I had to pay taxes on) 
 
As I am not working this year and the only thing I have done is sold my stocks as I could not longer work with the company I was dealing with for obvious reasons. But I never took the money it was directly sent to another company that are licensed to deal with me and combined with existing investments at that company.
 
So my question is Do you think I should send in installments payments?  My mom was saying if I don't I will be charged interest on the amount they are asking for.
 
I won't have anything on my income tax to claim as income for 2007 expect my Canadian Investments e.g. the stocks and other stuff? Also If I do send them some money does it have to be for that amount? Or could I send in a smaller amount?  Also If I am required to send them this amount how would be the best way to do it ?

 
Thank you for your time.
 
 --------------------------------------------- david ingram replies:

As a non-resident of Canada, the financial institution is supposed to withhold 10% of interest and 15% of dividends and remit it to the CRA as non-resident tax.

If you are pretending to still be a resident with the financial institution, then at the end of the year, you have to pay the CRA 10% of any interest and 15% of any dividends and then claim the amounts as a foreign tax credit on form 1116 of the US tax return.

If you do not pay the installments, the most that the CRA charges interest on is the amount of tax you end up owing, not the amount that they billed. �
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buying U S Tax sale properties

I am trying to buy homes owned by the bank in the US i was just wondering  if there is any thing I need to do like become a U S citizen? or is there just a form i have to fill out ? my plan is to just by them and rent them out .very seldom will I be going to the US

Thank You


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david ingram replies:

The fastest way to become a US citizen would be an E5 visa which would require an investment of $500,000 to $1,000,000 actual US dollars (not borroewed money) and rental property does not qualify.  The investment must be into an active business and hire ten full time employees not related to you.    Even then, you would only be given a green card and it would take about five more years to actually get US citizenship.

As a Canadian, 'You' do not need a paper visa to byuy rental houses. 

However, you can not do any repairs or cleanup on the properties you buy.

And be careful.  I presume yiou have taken a $5,000 course telling you how to do it and how easy it is but MOST PEOPLE LOSE MONEY. 

The following will give you some more info.

[email protected]: Please see bottom of message if you wish to unsubscribe.
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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 expensives 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.
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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 pklatre ende dwith 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, he can 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.
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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 onteh 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.

Good luck
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Inquiry for Services Provided - Form 211

Dear Sirs:

Do you file on behalf of whistleblower clients with the IRS under the "211 program" and/or for the "Special Agreements Program"?

I shall look forward to your response.  Thank you.

xxxxxxxxxxxx

Costa Rica
Tels: ofc. 011-
        cel: 011- ------------------------------------------------------------------------------------------------
david ingram replies:

I am not sure what the question means? 

If you are asking if we prepare tax returns for someone who has received an IRS reward, the answer is not for a long time but I have in the past done it three times that I can remember and know of. My offices will likely have done it more times without my knowledge. (I had over 150 offices in five countries at one time).

If the question is, "have you turned anyone in under the whistle blower program on form 211", the answer is no.  I have never once filled in a 211 form or made a report under a Special Agreements Program.

For the record, I do not know what the Special Agreements Program is.

Although i have not talked to him for at least ten years, I did have a client in my Beverly Hills office who told me he averaged over $200,000 a year in IRS rewards.  His preferred method was to hang at exclusive golf course and make up a foursome. He played a lot of golf and apparently perfect strangers tell their tales on golf courses. 

They would talk about their offshore accounts or under the table deals.  "Harry", who had a PI licence, would walk out to their cars with them and get their licence numbers, etc.  He told me he would get good info at least once a week. Harry always drove an exotic car and looked the part.  If he needed something special like a Corniche convertible or ferrari for the day, he would rent it at Budget Rent a Car in Beverly Hills which carried a fleet of exotics for rent.  They bought my 56 T-Bird and when I wanted to drive the old car, I would just go and rent it back for a day or two.

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Mortgage Intererst as a deduction

My question is: Canadian-specific

QUESTION: We have a rental property generating regular rental income and got enough equity to cover our outstanding principle residence's mortgage. Is there a way we can move this equity to pay off the principle residence's mortgage and still be able to legitimately claim interest payable as tax deductible?

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david ingram replies:

Had 91 people at a free seminar at the Holliday INN on Sunday August 12th.

The following is the handout at that seminar. 

Hope it helps.

Audrianna Bereczki wrote: We recently bought a 4plex in Kitimat as a rental investment. We used a Scotia home equity loan for the down payment and a TD mortgage for the other 75%. We have a mortgage on our principal residence in Langley of $244,000. Our monthly payments on the 4plex will total about $1,300 , and the rents will be about $2,000. What would be the smartest method for paying this mortgage? What do we do with the excess cash flow? Is it possible to deduct the interest on our primary residence mortgage? Thanks. Al Wood. 604-530-3430. �
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U.S. Real Property rentals

QUESTION:

If a Canadian citizen purchases real property in the U.S. are they required to have a U.S. Social Security Number?  Am I correct that my tax liability will be to the U.S., whilst reporting my income to the CRA but with offsetting foreign tax credits due to paying U.S. income tax?  For liability purposes, would it be more beneficial tax-wise to hold the U.S. properties under a Canadian or U.S. corporation?  Thank you.


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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, becasue the mind and control of the coproration is in teh 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 assesed 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.
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Can you help?

Hi-

I am an American citizen married to a Canadian citizen with a permanent residence in the US (green card). We live in Vermont and I work here. He works on a ship on the Great Lakes for a Canadian Shipping company ( has worked there since before we were married). We own 3 properties in New York State, none in Canada. We have been filing US and Canadian taxes for 8 years (since marriage). He is divorced from his first wife who lives in Canada with their 2 children and pays child support and alimony (never missed a payment). They have joint custody of their children although they only reside with her in Canada. I have many questions about our taxes. He claims a world income from our rental properties in New York even though we have been losing money for the two years we have had all three because of repairs. His only source of income is Canadian employment. Does he have to claim world income? Can we claim any of the child support since they have joint custody? Is there anyone near us that can help with our situation? (perhaps Buffalo, NY?) I really feel we pay more than we need to but the tax offices in Canada are no help and the US tax people seem lost about the situation. Help!


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david ingram replies:

1.   He is taxable on his great lakes shipping income for the time he spends in Canadian waters.  If he is doing Toronto - Chicago for instance, half of his income is not taxable in Canada.  As a Green card holder married to and living  with an American in the US, he is taxble on his world income  in the US. 

Under Article IV of the US / Canada Income Tax Convention, he is only taxalbe on world income in his country of residence. 

Child support is not deductible in either country most of the time.  The exception would be if support agreement was signed prior to May, 1987 and has not been amended since. In that case, child support would be deductible in Caanda but not the USA.Any agreement since May, 1987 does not allow child support to be deducted in either country.

His alimony is deductible in both countries if the agreement is drawn up properly.

I do not know of anyone who deals with these matters in your area.  

The following are good.  I do not know their figures but about half of my major clients do not live in Canada and send in their material to us by fax, email, snbail mail or courier.

Hi – I came across your fine website. I’m looking for similar services in Montreal, QC and wondered if you could recommend someone out here.  Regards,

 R -------

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david ingram replies:

I have no recommendation for Montreal.  My old office in Ottawa had a marvellous US/Canada Tax consultant, Gary Gauvin,  but he has moved to Texas and I no longer have any ownership or anything else to do with the Ottawa office which bears my name.  If you type - income tax expert - into Google, Gary and I usually come up in the top three or four. (www.garygauvin.com)

Steve Peters with KPMG in Halifax knows his stuff.  (902) 492-6011

Brad Howland in Victoria is good.  (250) 598-6258


Steve Katz in Vancouver is really good with pension matters. (604) 732-1515


In Toronto, Kevin Nightingale is one of the best that exists.  The National Post's Jonathon Chevreau regularly recognizes Kevin and I in his columns.

The following from an older Q & A sort of states my position

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Sent: Tuesday, January 03, 2006 6:02 AM
To: [email protected]
Subject: accountant in Toronto


Hello-
A friend of mine suggested that I contact you. I am an American who
moved to Canada in 2005 and am looking for an accountant in Toronto
who can help me with my U.S. and Canadian individual tax returns, and
who can provide me with advice about what to do with my 403(b)
retirement account. Thank you for your help.
-XXXXXXXXXXXXXXXXX
=====================================================
david ingram replies:

I will start off by saying that you should mail or courier it to us as half
of our clients do.

However, although I have never met him, Kevyn Nightingale and I have been
quoted in many articles in the National Post.

Kevyn Nightingale,
Suite 302 - 5001 Yonge Street
North York, Ontario, M2N 6P6
Tel: 416-733-9595 / Fax: 416-733-4725

And it was a good question.  I just looked at his fee structure and think I
will raise mine.
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Canadian living in Scotland

QUESTION:

How does taxation work if I live in Scotland? I'm moving there next year on a UK Ancestry Visa and may stay up to 5 years. Do I do taxes in both countries? What are my exemptions, if any?


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david ingram replies:

You will need to file a departing Canada income tax return.  This will involve showing the date of departure on the front of your T1 and pro-rating your exemptions on schedule 1 and 428.  You will file form T1161 and maybe 1243 and 1244  with that return.  If you have nothing to report on the T1161, you  should file it and say so.

Great Britain has a tax return but most people do not fill it in unless they have investment or self-employed income.  Otherwise, the tax is calculated by your employer's HR people and deducted from your wages.

If you have Canadian dividends or interest or rents,  you will pay tax to Canada first an dthe UK second and claim a Foreign tax credit on the UK form.

ARTICLE IV of the UK / Canda Tax Convention governs where you pay your tax and gores as follows:

Article 4

Fiscal Domicile

1. For the purposes of this Convention, the term "resident of a Contracting State" means any person who, under the law of that State, is liable to taxation therein by reason of his domicile, residence, place of management or any other criterion of a similar nature. But this term does not include any person who is liable to tax in that Contracting State in respect only of income from sources therein.

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.


3. 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.


If you have left money on deposit in Canada, interest is taxed in Canada as follows in Article XI


Article 11

Interest

1. Interest arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.

2. However, such interest may be taxed in the Contracting State in which it arises, and according to the law of that State; but if the recipient is the beneficial owner of the interest, the tax so charged shall not exceed 10 per cent of the gross amount of the interest.

3. Notwithstanding the provisions of paragraph 2 of this Article:

    (a) interest arising in the United Kingdom and paid to a resident of Canada shall be taxable only in Canada if it is paid in respect of a loan made, guaranteed or insured, or a credit extended, guaranteed or insured by the Export Development Corporation; and

    (b) interest arising in Canada and paid to a resident of the United Kingdom shall be taxable only in the United Kingdom if it is paid in respect of a loan made, guaranteed or insured, or a credit extended, guaranteed or insured by the United Kingdom Export Credits Guarantee Department.

    4. (a) Notwithstanding the provisions of paragraph 2 of this Article, interest arising in Canada and paid in respect of a bond, debenture or other similar obligation of the Government of Canada or of a political subdivision or local authority thereof shall, provided that the interest is beneficially owned by a resident of the United Kingdom, be taxable only in the United Kingdom;

    (b) Notwithstanding the provisions of Article 29 Canada may, on or before the thirtieth day of June in any calendar year give to the United Kingdom notice of termination of this paragraph and in such event this paragraph shall cease to have effect in respect of interest paid on obligations issued after 31 December of the calendar year in which the notice is given.


5. The term "interest" as used in this Article means income from debt-claims of every kind, whether or not secured by mortgage, and whether or not carrying a right to participate in the debtor's profits, and in particular, income from government securities and income from bonds or debentures, including premiums and prizes attaching to bonds or debentures, as well as income assimilated to income from money lent by the taxation law of the State in which the income arises. However, the term "interest" does not include income dealt with in Article 10.

6. The provisions of paragraphs 1, 2 and 4 of this Article shall not apply if the recipient of the interest, being a resident of a Contracting State, carries on business in the other Contracting State in which the interest arises through a permanent establishment situated therein, or performs in that other State professional services from a fixed base situated therein, and the debt-claim in respect of which the interest is paid is effectively connected with such permanent establishment or fixed base. In such a case, the provisions of Article 7 or Article 14, as the case may be, shall apply.

7. Interest shall be deemed to arise in a Contracting State when the payer is that State itself, a political subdivision, a local authority or a resident of that State. Where, however, the person paying the interest, whether he is a resident of a Contracting State or not, has in a Contracting State a permanent establishment in connection with which the indebtedness on which the interest is paid was incurred, and that interest is borne by that permanent establishment, then such interest shall be deemed to arise in the Contracting State in which the permanent establishment is situated.

8. Where, owing to a special relationship between the payer and the person deriving the interest or between both of them and some other person, the amount of interest paid exceeds for whatever reason the amount which would have been paid in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount. In that case, the excess part of the payments shall remain taxable according to the law of each Contracting State, due regard being had to the other provisions of this Convention.

9. Any provision in the law of a Contracting State relating only to interest paid to a non-resident company shall not operate so as to require such interest paid to a company which is a resident of the other Contracting State to be treated as a distribution of the company paying such interest. The preceding sentence shall not apply to interest paid to a company which is a resident of a Contracting State in which more than 50 per cent of the voting power is controlled, directly or indirectly, by a person or persons resident in the other Contracting State.

10. The provisions of paragraph 2 of this Article shall not apply to interest where the beneficial owner of the interest-

    (a) does not bear tax in respect thereof in Canada; and

    (b) sells (or makes a contract to sell) the holding from which the interest is derived within three months of the date on which such beneficial owner acquired that holding.


If you have left dividend bearing stock or mutual funds in Canada, the dividends are taxed as follows in Article X



Article 10

Dividends

1. Dividends paid by a company which is a resident of Canada to a resident of the United Kingdom may be taxed in the United Kingdom. Such dividends may also be taxed in Canada, and according to the laws of Canada, but provided that the beneficial owner of the dividends is a resident of the United Kingdom the tax so charged shall not exceed:

    (a) 10 per cent of the gross amount of the dividends if the recipient is a company which controls, directly or indirectly, at least 10 per cent of the voting power in the company paying the dividends;

    (b) 15 per cent of the gross amount of the dividends in all other cases.


2. Dividends paid by a company which is a resident of the United Kingdom to a resident of Canada may be taxed in Canada. Such dividends may also be taxed in the United Kingdom, and according to the laws of the United Kingdom, but provided that the beneficial owner of the dividends is a resident of Canada the tax so charged shall not exceed 15 per cent of the gross amount of the dividends.

3. However, as long as an individual resident in the United Kingdom is entitled to a tax credit in respect of dividends paid by a company resident in the United Kingdom, the following provisions of this paragraph shall apply instead of the provisions of paragraph 2 of this Article:

      (a) (i) Dividends paid by a company which is a resident of the United Kingdom to a resident of Canada may be taxed in Canada.

      (ii) Where a resident of Canada is entitled to a tax credit in respect of such a dividend under sub-paragraph (b) of this paragraph, tax may also be charged in the United Kingdom and according to the laws of the United Kingdom, on the aggregate of the amount or value of that dividend and the amount of that tax credit at a rate not exceeding 15 per cent.

      (iii) Where a resident of Canada is entitled to a tax credit in respect of such a dividend under sub-paragraph (c) of this paragraph, tax may also be charged in the United Kingdom and according to the laws of the United Kingdom, on the aggregate of the amount or value of that dividend and the amount of that tax credit at a rate not exceeding 10 per cent.

      (iv) Except as provided in sub-paragraphs (a)(ii) and (a)(iii) of this paragraph, dividends paid by a company which is a resident of the United Kingdom to a resident of Canada who is the beneficial owner of those dividends shall be exempt from any tax which is chargeable in the United Kingdom on dividends.


    (b) A resident of Canada who receives a dividend from a company which is a resident of the United Kingdom shall, subject to the provisions of sub-paragraph (c) of this paragraph and provided he is the beneficial owner of the dividend, be entitled to the tax credit in respect thereof to which an individual resident in the United Kingdom would have been entitled had he received that dividend, and to the payment of any excess of such credit over his liability to United Kingdom tax.

    (c) The provisions of sub-paragraph (b) of this paragraph shall not apply where the beneficial owner of the dividend is, or is associated with, a company which, either alone or together with one or more associated companies, controls, directly or indirectly, at least 10 per cent of the voting power in the company paying the dividend. In these circumstances a company which is a resident of Canada and receives a dividend from a company which is a resident of the United Kingdom shall, provided it is the beneficial owner of the dividend, be entitled to a tax credit equal to one-half of the tax credit to which an individual resident in the United Kingdom would have been entitled had he received that dividend, and to the payment of any excess of such credit over its liability to United Kingdom tax. For the purposes of this sub-paragraph, two companies shall be deemed to be associated if one controls, directly or indirectly, more than 50 per cent of the voting power in the other company, or a third company controls more than 50 per cent of the voting power in both of them.


4. The term "dividends" as used in this Article means income from shares, "jouissance" shares or "jouissance" rights, mining shares, founders' shares or other rights, not being debt-claims, participating in profits, as well as income assimilated to or treated in the same way as income from shares by the taxation law of the State of which the company making the payment is a resident.

5. The provisions of paragraphs 1, 2 and 3 shall not apply if the recipient of the dividends, being a resident of a Contracting State, carries on business in the other Contracting State of which the company paying the dividends is a resident, through a permanent establishment situated therein, or performs in that other State professional services from a fixed base situated therein, and the holding in respect of which the dividends are paid is effectively connected with such permanent establishment or fixed base. In such a case, the provisions of Article 7 or Article 14, as the case may be, shall apply.

6. Where a company is a resident of only one Contracting State, the other Contracting State may not impose any tax on the dividends paid by the company, except insofar as such dividends are paid to a resident of that other State or insofar as the holding in respect of which the dividends are paid is effectively connected with a permanent establishment or a fixed base situated in that other State, nor subject the company's undistributed profits to a tax on undistributed profits, even if the dividends paid or the undistributed profits consist wholly or partly of profits or income arising in such other State.

7. If a resident of Canada does not bear Canadian tax on dividends derived from a company which is a resident of the United Kingdom and owns 10 per cent or more of the class of shares in respect of which the dividends are paid, then neither paragraph 2 nor 3 shall apply to the dividends to the extent that they can have been paid only out of profits which the company paying the dividends earned or other income which it received in a period ending twelve months or more before the relevant date. For the purposes of this paragraph the term "relevant date" means the date on which the beneficial owner of the dividends became the owner of 10 per cent or more of the class of shares referred to above.

Provided that this paragraph shall not apply if the shares were acquired for bona fide commercial reasons and not primarily for the purpose of securing the benefit of this Article.

Rents are taxed in Canada by filling in form T1159 and 776 which is a Tax return filed under Section 216(4).

So, Canada taxes:
*  interest is taxed at 10%
*   dividends at 15%
*   rents at 23 to 44% - most likley 23%

The UK will tax you at their marginal rates and give credit for the tax paid to Canada. �
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flipping houses

QUESTION:

HI, I am interested in flipping a house.  Is the real estate fees tax deductable.  Also the 4% capital allowance on property if I buy in Sept and sell in April is that 6 months CA or would it be two years because purchased in one year and sold in another.  Also all the interest and reno costs do these amounts come right of the profit that I have to claim for capital gains.    Thanks 
xxxxxx  ----------------------------
david ingram replies:

Hopefully, this old answer will solve your problem
My question is: Canadian-specific

QUESTION: Hi,
If we buy a fixer-upper to renovate and flip without renting it out what are the allowable expenses for deductions?
Thanks

____________________________________________________________________ david ingram replies:   In general anything you spend to do the fixing is a deduction from the final sale profit.  This would include but is not limited to:   materials, subcontractors, legal, accounting, real estate commissions, surveyors, appraisals, interest on the mortgage, interest on a building loan, interest on material loans (maybe because you used a credit card to buy), truck expenses to get supplies and transport tools, afvertising, utilities, photography, landscaping, trash removal, dumping fees, building permits, architects fees, engineering fees, home inspection fees, insurance, helpers, etc.   Remember that any profit is taxable at straight income rates on line 135.  Flipping or renovating does NOT create capital gains tax.  The following older Questions will explain that a bit.   ______________________________________________________________________ DAVID   A "friend" who is a BC realtor and has the flipping  question presented to her
from time to time  recently attended a seminar that was related to this
subject.  As a result she was able to provide me with some interesting
thoughts to ponder concerning "intent" and "professional background" when it comes to "flipping houses"
and tax in Canada.  You may possibly be looked at as a Developer all the
subsequent implications.

Read the full article at <http://tax.centa.com/comment.php?mode=view&cid=8>

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david ingram replies:

In Canada, the purchase and sale of any piece of real estate with or without
renovations is considered a sale and subject to straight income tax unless:

1. It was bought for and clearly used as your personal residence and was
intended to be used for an indefinite period of time which is usually in the
five to ten year range.

2. It was bought as and used as a recreational property

3. It was bought for the purposes of earning long term rental income.

In the case number 1, there is no tax.

In the case of numbers 2 and 3, the sale is treated as a capital gain and
only fifty per cent of the profit is taxed at your regular tax rates.

Lots of / many (anyone caught) are taxed full tax rates when they buy a
house, move in, fix it up and sell it a year or two later and then do
another one.

Of course, most are NOT caught in these circumstances.

However, "any" flip is going to be straight income unless the person can
prove that they bought it to live in and then:

* married a person with three children and it is not big enough (had to sell
and bought bigger)

* were transferred to another city (had to sell to buy in new city)

* lost their job, were injured, etc. and can no longer afford to move in. In
this case, they would have to show that they had the finances to have paid
for it when they bought it. (Not only can they not afford it but they have
moved into their parents' basement (boomeranged).

* Inherited a house from their parents and do not need it any more. (are
living in the new house)

You can read more by going to www.centa.com - click on tax guide in the top
left hand corner and then click on the "capital gain" section.

david

This older q & A also gives an idea

My daughter is closing on a presale Yaletown condominium this summer.  She
is working until Christmas in Alberta.  She returns to Vancouver from Jan to
May and if the job becomes a full time position, then she may return to
Alberta to live.  At the time of presale, February 2004, we thought that the
suite would be assigned to her and that she would live in the suite.

I was hoping that she could declare the suite as her permanent residence
since she is only renting in Alberta and the work is not permanent.    In
May 2007, she could decide to keep or sell the suite.

What does she need to do in order to qualify the suite as her permanent
residence?

  -----------------------------------------

david ingram replies:

There is no absolute answer because you can call a toad a frog all day long
but it is still a toad.

To be a principal residence and tax free for income tax purposes, the
property must have been bought by her to live in and she HAS TO move into
it. - No exceptions that I know of.

You can expect that the CRA will be looking at "every" quick resale in EVERY
downtown building.

In deciding if it is a capital gain or a flip, the CRA will be looking at
the suitability of the unit as a residence, the ability to pay for the unit
and past and even future performance.

In other words if she claimed this one as a principal residence and then did
it again a year later, the CRA would have every right to go back and
reclassify the first one.

david ingram 
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Dual Citizenship

David, my son is resident of Los Angeles - has lived in the USA for past 20 years or so - holds a valid green card is self employed and holds a valid Canadian passport    He is wishing to secure US citizenship and continue to hold his Canadian citizenship   Can this be done - how and where would he apply and are there any current tax issues he should be aware - all of his present income is earned in the US   Would appreciate your comment    Thanks -----------------------------------
david ingram replies:

There is no restriction on his having dual citizenship.  goto www.centa.com and read my 12 pages on dual citizenship in the October 1993 newsletter in the top left hand box.

He can find all the applications for US citizenship etc at:

http://www.uscis.gov/portal/site/uscis/menuitem.5af9bb95919f35e66f614176543f6d1a/?vgnextoid=ce2b2cd1f7e9e010VgnVCM1000000ecd190aRCRD&vgnextchannel=96719c7755cb9010VgnVCM10000045f3d6a1RCRD

There are no more tax issues as a citizen than with a green card.

However, if he did decide to leave the US and come back to Canada for a few years and then return to the US, his re-entry is guaranteed as a citiane and he could lose the green card if away too long without filling in an !-131 each year to try and keep the green card alive.

The only disadvantage would be that he will have to file a US tax return for the rest of his life, even if he returns to Canada full time.

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He has a big decision to make. 

I made a similar one this evening. I am giving back a major tax return because it is not the kind of return that I like doing.  Even though I have the time, etc., to finish it 'now', I do not want to do it or any like it next year so I would be doing the client a disservice to finish it this year.  She should be dealing with someone who wants to do this tyoe of return year after year. Thew return by the way involved a US / Canadian citizen with two Canadian companies and involved the preparation of two 5471 forms.  These forms require the US citizen to report the intrernal figures for a foreign tax return on their personal return.  The penalty for failure to file is $10,000 for the first 90 days and $10,000 every 30 days thereafter to a max of $50,000 per shareholder per year.

It was an epiphinal moment and I think it is the same kind of realization that a lot of people come to when deciding to become a US or a Canadian citizen.