Any cross-border transactions are inherently complex and require professional advice. There are potential traps and pitfalls that could result in large unnecessary taxes being assessed. They involve taxes on rents received, sale of properties, investments and estate taxes which are treated differently than in Canada. In the United States, there are rules with respect to citizenship and residency which affect taxes and filing requirements. The US/Canada Tax Treaty has provisions to ensure there is no double tax on citizens of either country in most areas. In order to take advantage of these provisions, proper planning must be done.
For real estate, the tax issues are different depending upon if you plan on using the property for your own use versus renting the property for income purposes.
If you purchase a condominium for your own personal use for vacations or as a snowbird, you have no annual requirement to file an income tax return. If you meet the US residency tests however, you may be required to file a US income tax return. This is of particular concern to snowbirds and those who visit the US often for business purposes. Upon sale of your real estate however, there may be US withholding tax. You may be able to get some or all of the tax refunded, by filing a US tax return. You may also receive a credit on your Canadian tax return for US tax paid. There are potential ways to reduce your US tax, but require filings to the IRS prior to sale or a sale to a person who plans on personally residing in the condominium.
In addition to a sale, there are potential US estate taxes if you are to die owning US property. The taxes on the estate depend on the value of the property, the entire estate and who the estate is left to.
There are annual filing requirements if you rent out your condominium. A 30% withholding rate on gross rent received is standard. In order to get a refund of this tax, a return must be filed. Once a return is filed, one must be filed every year. In addition to US federal tax requirements, many states and even cities have separate requirements. It is best to consult a professional advisor prior to purchasing a property south of the border.
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