Buying Empty Lot in Canada

Jenn · Post by **Jenn** » Wed Oct 27, 2004 1:56 pm

Hi, I've been living in the US for 4 years and plan on staying for quite a while longer but probably not forever. I am thinking of buying empty property in Canada with no plans to build anytime soon. I only rent in SF, but since there will be no home built I'm assuming this won't affect my residency status. Also, the interest on this won't be US tax deductible, right? Thanks.

Nelson · Post by **Nelson** » Wed Oct 27, 2004 1:57 pm

Since it is not a possible residence, you are not in danger of establishing a residential tie.
As to tax deductibility of the loan interest, of course the interest is tax-deductible in US, as an investment expense on Schedule A, as is the real estate taxes and all other normal expenses associated with the investment.

The fact that it is in Canada is not relevant, nor the fact that it is undeveloped.

ETA · Post by **ETA** » Thu Oct 28, 2004 3:43 pm

<blockquote id="quote">quote:<hr height="1" noshade id="quote">Originally posted by Nelson

Since it is not a possible residence, you are not in danger of establishing a residential tie.<hr height="1" noshade id="quote"></blockquote id="quote">

We've been thinking (dreaming?) of getting a cottage in Ontario some day. I'm guessing (perhaps incorrectly) that a cottage that might be used / rented for part of the year wouldn't be a problem but what type of property could be considered possible a residence and affect one's residency status?

ETA

nelsona · Post by **nelsona** » Thu Oct 28, 2004 4:08 pm

A winterized cottage is indeed a problem with respect to Cdn residency, especially if you (a) are a Cdn citizen, (b) have other ties as well and (c) don't rent out the cottage a vast majoroty of the year. If it is not rented out year-round (save a couple of weeks) then it is available to you as a residence

It does not necessarily mean paying cdn tax on world income, but it likely means being a 'deemed non-resident', meaning that you report all world income and then deduct the US portion.

Your status would be determined by Article IV of the treaty, whereby your centre of vital interests would be US because that is where you LIVE, thus allowing you to deduct US income.

nelsona non grata

Thu Oct 28, 2004 4:09 pm

Residency is normally a question of fact for Canadian tax purposes, and although no definitive definition exists, CCRA looks at the number of ties you have to Canada to develop an idea of your residency.

The best way to look at the situation is through common sense. If your job, family, school, banking and other close business and personal ties are in the U.S., you likely will not be deemed to be a resident of Canada for tax purposes if you buy property.... even property in which you could reside when visiting Canada.

Treaty Article IV contains a number of "tie breaker" rules in determining residence, which can also exclude you from Canadian residence.

If it is a good investment, buy the property in Canada.

Regards,

Mark T. Serbinski, CA, CPA

ETA · Post by **ETA** » Fri Oct 29, 2004 12:37 am

Thanks for the replies! Now we just need to scrape together, oh, half a million dollars or so (unless we want to buy near James Bay [:p]).

ETA

Fri Oct 29, 2004 12:44 am

I hear Newfoundland is beautiful. A friend of mine visited recently, and purchased a house on the ocean for $20,000.

Regards,

Mark T. Serbinski, CA, CPA