506c Investments and K-1s for Canadian Resident

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506c Investments and K-1s for Canadian Resident

Post by future_canuck »

My family and I are going to move to Canada this summer. We are US Citizens and residents. Permanent Residency in Canada isn't likely until 2023, but for tax-purposes, I believe Residency will be considered to start in 2022 (I need to dig into NAFTA agreements for this).

Anyway, I have recently started investing in 506c real estate syndications. As part of these investments, I am a Limited Partner (LP). The LP is basically only an investor and they have no say in operations, finances, or any other business related activity. LP's only provide equity.

Payments from these investments are classified as distributions via a K-1 form (I haven't yet received my first one, so I'm not 100% certain of the specifics).

There is a target hold period for each investment. As an example, one is projected to hold for 5 years with the following distributions:
Year 1: $300
Year 2: $2400
Year 3: $3000
Year 4: $4600
Year 5: $5200
End: $32000 (profit); $50000 return of invested capital

Normally, under US tax codes, there would be an accelerated depreciation that would effectively show a paper loss for all years invested, and then upon sale of the investment, depreciation recapture would occur.

How will this income be handled in Canada? How will depreciation be handled, if at all?

Most importantly, will the return of invested capital be taxed? If so, then I better stop investing in these since that would be a very painful double taxation.

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