Cross Border Tax and Regulatory Reporting for financial transactions redulting from a legal settlement

[vijar]

My wife and I were plaintiffs in a civil lawsuit in Toronto Canada to evict a couple of family member (the defendants) from our townhouse located in Toronto, Canada. The defendants purchased the townhouse for $635,262 CAD in August 2016 with funds they were holding in trust for us to pay us for some previous financial obligations (i.e., financial assistance we provided over several years). Initial the property title was in the name of the defendants and it was transferred to us in November 2017 because the defendants couldn’t secure a mortgage to pay us for the townhouse. We are the current title holder. We were letting the family member live rent free at our townhouse. We were forced initiated a legal action in July 2019 to evict them when they refused to vacate the property and fraudulently claimed legal and equitable ownership without providing any proof.
A settlement agreement was reached earlier this year to end the lawsuit. The main terms of the settlement agreement are:

1. The settlement agreement calls for us to be paid $900,000 CAD as repayment of
a. The loans
b. Any and all costs incurred by us with respect to the agreement including but not limited to, the cost of demolition, construction and renovation; and
c. Any and all costs and expenses incurred by us from 2019 to date.

2. The parties executed a Trust Agreement, whereby they agreed, in part, that the townhouse is, and was historically, held in trust by us for the defendants. This Trust Agreement is held in escrow pending the payment of the Settlement Funds as contemplated above.

3. Upon receipt of the Settlement Funds in their entirety, we will transfer title to the townhouse to the defendants for natural love and affection and for $1.00 CAD.

4. The settlement also requires the other party to reimburse us any and all carrying costs including property taxes, insurance, utilities, maintenance, repairs and any and all expenses associated with and/or related to the townhouse since the date of the settlement.

The financial details pertinent to item 1 above (were disputed by the defendants without any proof):
a. The loans - Financial assistance we provided to them over several years totaling $152,391 CAD (included 3% currency exchange fee/cost),
b. Any and all costs incurred by us with respect to the agreement including but not limited to, the cost of demolition, construction and renovation - funds we provided for the demolition and construction of the defendants’ property and associated currency exchange cost/fee and travel costs totaling $644,018 CAD; and
c. Any and all costs and expenses incurred by us from 2019 to date - legal expenses + 3% currency exchange cost totaling $207,657 CAD and our carrying cost for the townhome plus currency exchange cost totaling $3,678 CAD.

Please note the sum of the above amounts ($1,041,201 CAD) exceed the settlement amount $900,000 CAD. We were told by the opposing party that townhouse was valued roughly $780,000 CAD when the title was transferred to us in November 2017. Therefore, this title transfer was largely settled all their prior financial obligations.

The payment of the agreement settlement amount is expected in a couple of instalments in the next 4 months of so. I would like to understand our cross-border tax and regulatory reporting obligations due to these pending transactions and how you can assist us in this regard.

Thank you!

[olivew211]

Hey vijar,

Too complex of a situation, sounds like? Make sure the trust agreement records it properly (this may affect how things are reported), and in Canada and the U.S., you’ll want to keep track of how the settlement affects your taxes. You should be careful because the payments come in installments, so you should document each one. Even a tax pro with cross-border experience could really help you clarify things. Good luck!

[yuaeiu]

the other party must pay back all of our carrying costs, including property taxes, as well as any expenses that have been incurred following the settlement date.

[ND]

"and how you can assist us in this regard', we readers can all assist be reading your blog comments. This is a blog