What tax rate on Canadian rental income while US resident?

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hotcheese
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Joined: Sat Apr 28, 2012 5:37 pm

What tax rate on Canadian rental income while US resident?

Post by hotcheese »

I'm considering buying a condo in Vancouver BC to rent out and was wondering what rate in tax there would be to pay in Canada on the income.

My wife and I are Canadian citizens but live in the US. I work and pay at a high tax bracket, my wife has no income.
If we jointly owned the Canadian condo, at what rate would we have to pay tax to Canada?
JGCA
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Post by JGCA »

AS a non resident it 25% of the income as witholding tax you then file tax return at end of the year and pay the tax owed you should get a refund if you paid it on Gross income then calim expenses at year end.
JG
nelsona
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Post by nelsona »

And there are strict rules on having rent tax withheldand submitted MONTHLY to CRA.

You can also apply (using NR5) to have that withholding reduced), but until then, as JG says, 25% must be withheld and sent to CRA, and a tax return for ONLY the rent must be filed yearly.
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hotcheese
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Joined: Sat Apr 28, 2012 5:37 pm

Post by hotcheese »

Thanks both.


When I file the Cdn tax return, as its for only the rental income, I presume the tax rate would be 22% (as I expect the gross and net income to be less than $42000 - point 14 in this link: http://seecac.com/22tips/266-22-owning-rentals).
And so I'd get a 3% refund.

I also presume I would have to declare the rental income on my US tax return, and if my current US tax rate is > 23% then pay the extra to IRA?

On my US tax return I already declare worldwide income (which is basically just bank interest), would I need an additional form to deal with the Cdn rental income and tax already paid to CRA?
nelsona
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Post by nelsona »

Yes, the income will be taxable in US (on 1040 you must depreciate).

Your tax software will take care of the forms you need to report the rental. Foreign tax credit is with fom 1116.

just so there a re no surprises, realize that while the rental income will be added to your US income at the marginal rate, the Cdn tax will only be credited at the effective (overall) rate. So expect to pay US tax on the rent, but not get full credit for the Cdn tax.

For this reason, since you must depreciate on 1040, you should alos consider using CCA ofn the property for Cdn tax purposes. Otherwise you will find that this property will be costing you quite a bite in tax, when you add the 2, compared to renting out a US property.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
hotcheese
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Joined: Sat Apr 28, 2012 5:37 pm

Post by hotcheese »

Thanks nelson.

I didn't fully understand the last two sentences, I'll go and read about deprecation and marginal and effective rates to understand what you wrote.

But what does "using CCA of the property" mean?
nelsona
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Post by nelsona »

CCA is the Cdn term for depreciation. In US you must ALWAYS depreciate renatl property (and pay back that depreciateion when you sell). In canada CCC is optional, year by year.

You don't want the situation where you are paying tax in canada and not in US (becuase of depreciation), so if this happens you should CCA in Canada.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
hotcheese
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Joined: Sat Apr 28, 2012 5:37 pm

Post by hotcheese »

Thanks for the info.

One final question - as I am a high rate taxpayer in the US, and my wife is a homeowner with no income, can that be leveraged somehow to advantageously reduce the tax rate in Cdn and the US? For example, if the rental property was purchased in her name alone rather than jointly and thus its her income.
nelsona
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Post by nelsona »

No. The Cdn tax will be the same for either or both of you.

In US, you file jointly to get the lowest tax rate.

If you filed separately, sure she would prooably not pay any US tax, but then YOUR taxrate would more than make up for that savings.

Try some scenarios in traxact asnd see, but I doubt if there is a MFS vs. MFJ play here.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
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