Dual Citizen, future Canadian resident rental investment?

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dualblues
Posts: 27
Joined: Tue Mar 16, 2021 1:50 am

Dual Citizen, future Canadian resident rental investment?

Post by dualblues »

Thanks for your consideration.

I am a dual citizen returning to Canada. I am looking for some information/advice/experience with respect to tax treatment of a rental property. The idea is to purchase a house/condo in order to diversify my portfolio (get modest income or capital gains and give to kids in 20 years or so).

I have done some reading around this topic (capital gains exemptions in Canada/US and differences in rules for determining primary residence). But, I am wondering if others have done it? If so, were the taxes on the rental income prohibitively high? I believe rental properties are often kept in LLC's to limit liability. If so, would this prohibit it from being claimed as a primary residence (capital gains exemption) in future. Would this result in treatment as a PFIC? Is this a "don't even think of it..." proposition?

Finally, is there a good book or site that covers this topic well?

Cheers
Numbersman61
Posts: 7
Joined: Wed Sep 09, 2020 1:02 pm

Re: Dual Citizen, future Canadian resident rental investment?

Post by Numbersman61 »

For Canadian tax purposes, rental properties do not qualify for the principal residence exemption. Since you are a dual citizen, you will be required to continue to file a 1040 in addition to the Canadian tax return (T1). Each country has different rules regarding computing rental income for tax purposes. In the US you are required to deduct depreciation; in Canada you cannot create a rental loss by deducting depreciation (capital cost allowance). I suggest getting advice from a cross border tax specialist who may recommend the use of an LLC.
dualblues
Posts: 27
Joined: Tue Mar 16, 2021 1:50 am

Re: Dual Citizen, future Canadian resident rental investment?

Post by dualblues »

Thanks Numbersman61,

Wouldn't an LLC that holds a rental property be considered a PFIC? In this case, it would mean a quick stop to this strategy.

Are there other common strategies that could be used? For example, occupying the property for several years prior to selling it - in order for it to qualify as primary residence for both Canada and US?

It is not uncommon for people to own 2 homes (with 1 for rental income/appreciation). So, I wondered if there were other dual citizens residing in Canada that have done this? If so, what considerations come into play.

Thanks for your thoughts!
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