Dual citizen (USA resident) owning condo/townhouse in Canada

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Gilgamesh
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Dual citizen (USA resident) owning condo/townhouse in Canada

Post by Gilgamesh » Tue Apr 02, 2019 5:59 pm

I did a search and could not find an answer to this question. I am future planning.

If I purchase a condo or a town home in Canada and rent it out, as I understand I initially file formNR6 and then to pay any taxes owed I file t1159.

I also understand expenses can be deducted from the rental income prior to paying the 25% taxes. My question is, is mortgage payments considered expenses?

Say, I paid $12,000 in mortgage, condo fee $250, parking $250 for a total of $12,500 per year. I received $12,500 in rent. Also, assume out of the $12,000 mortgage payment $2,000 was interest.

I am hearing many saying, I’m this scenario I will not pay any taxes. This does not make sense to me. Then I should pay the minimum down payment and call my mortgage expense. I am thinking my income is $12,500 with expenses of $500 (condo fee, parking) and be paying 25% of $12,000 in taxes (as mortgage interest is not tax deductible in Canada).

Can some please explain how this works...

P.S: I’ve been visiting this forum for years to learn about various retirement topics. I’ve learned a lot about what to do with various types of retirement funds, taxable/brokerage accounts etc....so a big thank you to the contributors, especially nelsona.

nelsona
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Re: Dual citizen (USA resident) owning condo/townhouse in Canada

Post by nelsona » Tue Apr 02, 2019 6:21 pm

You first need approval of the NR6 before you can reduce the withholding to 25% net, rather than 25% gross. And you must submit the withholding monthly to CRA.

Then at the end of the year you file the 216 return (T1159) which will settle up what your final tax bill will be, submitting your final accounting at that time.

Rental expenses are pretty straightforward. Of course, only the mortgage interest is an expense, not the principal portion.

It is quite possible that you are not making a profit, in which case you owe no tax, and will get your withholding refunded.

Note that in US you MUST depreciate this property, you are not obliged to in Canada, but it may be wise to do the same in Canada, if you have profit for CRA, but a loss for IRS, after depreciation.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

Gilgamesh
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Re: Dual citizen (USA resident) owning condo/townhouse in Canada

Post by Gilgamesh » Wed Apr 03, 2019 7:11 am

Thank you!...never thought about depreciation, so that’s great info.

Mlaoun
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Re: Dual citizen (USA resident) owning condo/townhouse in Canada

Post by Mlaoun » Mon Jul 06, 2020 3:29 pm

Hi Nelsona - I had a follow up question on this topic and found this link which is helpful. I am a U.S. resident (Canadian citizen living in US with green card) and going to take possession of a condo in BC which i intend to rent out. I am being advised that I should set up a BC based holding company to own this condo so I can get around the withholding rules in Canada as the holdco will be a resident. Is this advisable from a U.S. perspective as I file taxes in the U.S. and not in Canada (for now). I read that there are some complexities with foreign holdco tax obligations under some of the Trump tax law changes. What would you suggest? Thank you in advance.

nelsona
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Re: Dual citizen (USA resident) owning condo/townhouse in Canada

Post by nelsona » Tue Jul 07, 2020 7:41 am

I have no opinion, but getting around withholding rules doesn't seem to be a very important reason. CRA allows withholding reduction as soon as you present your numbers to them, and any overwithholding will be returned to you.

There my be good reasons for corp set up, but keep in mind that those advising this are not taking into account anything US-related.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

Mlaoun
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Re: Dual citizen (USA resident) owning condo/townhouse in Canada

Post by Mlaoun » Tue Jul 07, 2020 3:02 pm

Thank you for your reply. Are there accounting issues for me as a U.S. resident controlling a foreign corporation in BC that would be the owner of the condo? It is somewhat easier from an administrative and reporting perspective in Canada to do the transaction this way and I am also limiting my personal liability but as you rightly say, this structure does not address the U.S. side of the equation. Thanks again.

nelsona
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Re: Dual citizen (USA resident) owning condo/townhouse in Canada

Post by nelsona » Tue Jul 07, 2020 4:07 pm

I would venture that the complexity incurred in US for doing this, would far outweigh the "simplicity" of owning it with a corporation. 1000's of regular Cdns living in US own Cdn property as a simple ownership or partnership without much trouble.

Sounds like someone might be feeding you some info to get you as a client.
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CASAMARROM
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Re: Dual citizen (USA resident) owning condo/townhouse in Canada

Post by CASAMARROM » Thu Jul 09, 2020 8:00 am

Hi,

As a non resident in Canada you can pay CRA 25% of your net rental monthly but you need to hire a person to be responsible for the remittances and accounting.
OR
You can Obtain an NRK number calling CRA and use this NRK number to pay online 25% on the gross rental monthly during the whole year.
By the end of the year, you send to CRA a proforma letter requesting them to mail you an NR4 statement of all the payments you made during the year.

Wait few weeks until you receive your NR4 in the mail:

1) File "Statement of Real Estate Rentals" form T776. Do your calculations of your year expenses/deductions and depreciation and obtain the Net Portion.
and
2) File "Income Tax Return for Electing Under Section 216" form T1159. Enter the net amounts from T776.

Mail form T776, form T1159 and NR4 Statement to CRA
CRA will return to you the money of the difference Gross minus Net.

Do everything yourself online and mail. Not necessary to hire an agent.

Mlaoun
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Re: Dual citizen (USA resident) owning condo/townhouse in Canada

Post by Mlaoun » Fri Jul 10, 2020 9:14 am

Thank you for your reply. Helpful context. The Canadian advice I received is to hold the condo in a Canadian holdco which will avoid this administrative burden as the holdco will be a resident for tax purposes. Doing it personally feels like a lot of time and administrative headache that I would rather avoid if I can. The part that I am trying to better understand is the U.S. implications of being a U.S. resident and controlling a Canadian holdco from a U.S. tax reporting perspective. Trying not to trade one headache for another...

nelsona
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Re: Dual citizen (USA resident) owning condo/townhouse in Canada

Post by nelsona » Mon Jul 13, 2020 6:56 am

I would not bother with the Canco. On top of the complexities, This can cause foreign tax credit issues, sicne you could be denied credit for the CDn tax paid by the corporation on your personal US tax return.

Paying non-resident withholding is not a complex issue.
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robust
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Re: Dual citizen (USA resident) owning condo/townhouse in Canada

Post by robust » Wed Jul 15, 2020 8:42 pm

If I am a co-owner of a condo in Canada and my Canadian partner is taking full responsibility of rental income and expenses, do I need to report this in my US taxes? I'm a US resident with a green card, but purchased the condo when I was living in Canada.

nelsona
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Re: Dual citizen (USA resident) owning condo/townhouse in Canada

Post by nelsona » Fri Jul 17, 2020 6:32 pm

What does "full resposibility" mean? You are co-owner and thus co-owner of the income, no?
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robust
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Re: Dual citizen (USA resident) owning condo/townhouse in Canada

Post by robust » Fri Jul 17, 2020 9:22 pm

"Full responsibility" as in my Canadian partner will be collecting and reporting ALL the rental income and expenses to the CRA. I'm simply a co-owner by name of the condo in Canada. If that is the case, do I still report the rental income to the IRS?

nelsona
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Re: Dual citizen (USA resident) owning condo/townhouse in Canada

Post by nelsona » Mon Jul 20, 2020 12:28 pm

In both canada an US you are reposnsible for renatl income to the extent that you own the property. You own 1/2, you report anf pay tax on half.
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