1. Canadian Owned US Property
The final blog on Canadians owning US property covers taxable gains upon sale and estate tax.
Capital Gains
Typically there is a 10% withholding tax on gross real estate sale price. However that can be reduced,
avoided or reclaimed through exercising one of the following: (1) submit an IRS Withholding Certificate,
obtain an individual taxpayer ID number and filing IRS form 1040NR non-resident income tax return; (2)
the gross real estate price is less than $300,000; (3) the buyer intends to use it as primary residence.
Your tax practitioner should guide you through this maze since on top of the above there may also be
applicable state tax.
...And Then Back in Canada
Gains on non-principal residence are reportable on your T1 return and a credit equal to US taxes paid is
credited against Canadian liability.
Estate Tax
Canada does not have estate taxes but the US does and it applies to Canadians if they own US situs
assets (including real estate). It is based on the fair market value on the date of death and it does not
matter if the value is less than cost. I will not go into detail about exemptions, thresholds and tax ranges
as there are changes expected in 2013 and this is an area best discussed with your accountant. I will say
that there may be state implications too and US estate tax paid can be used to reduce Canadian taxes
associated with US source income in the year of death.
Reducing Estate Taxes
If you determine that your estate is susceptible to estate taxes, what can you do?
Well, it’s better to own property as tenants in common rather joint tenancy as it divides property value
in half. Giving US real estate to a registered charity (in US) through your will may work, while giving
away US real estate when alive may simply trigger US Gift Tax. There may also be some “Trust”
solutions...talk to legal counsel.
Funding taxes at death
Aside from setting up a fund tagged for this purpose or selling the property in question to raise funds,
often the best solution is life insurance.
There is a lot to consider when owning that place under the palms but it need not be a nightmare for
you or your heirs if attention is given to it...now.
-Cam