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Saturday, April 11, 2015

The Scoop on Canadians Reporting U.S. Real Estate Assets

QUESTION: I am a Canadian citizen and full time resident of Canada. I recently bought a condo in the United States as a vacation home where I plan to live for around 4 months of the winter. The price was about $150,000. Of course I would like to rent it out here and there to other Canadians to help pay the condo fees and expenses, but I will be using it personally for the most part. I've heard that you need to report foreign property over $100K CDN on the T1 tax return, does this apply to me?

ANSWER: Many Canadians have real estate in the United States or other foreign countries around the world. On the Canadian Income Tax form T1 General, you are asked if you owned or held foreign property at anytime during the tax year with a basis of more than $100,000 once converted to Canadian dollars. If you answer yes to this question, you will need to fill out form T1135 Foreign Income Verification Statement.

How to Calculate the $100,000

Take all your foreign assets (i.e. everything outside of Canada): bank accounts, shares in foreign companies, foreign trust interests, foreign government bonds or debentures, foreign mutual funds, foreign real estate not for personal use, ROTH IRAs.. Add them up and convert them to Canadian dollars. If the total is more than $100,000 you will need to report these assets on form

Is Personal Use Foreign Property Included?

If your U.S. property is primarily for personal use, it is exempt from the requirement to report the asset on form. CRA defines "Primarily for personal use" as personal use for more than 50% of the tax year. In your situation, I would not include your condo in the foreign personal property. However, i would caution you to be careful when renting your condo out.    If you rent your condo out for 15 days or more, you have an obligation to either have the renter withhold 30% of the gross income or file a U.S. income tax return. If    you use a property manager to rent the property out, they will send you a for 1042-S (foreign person's U.S. source income subject to withholding). Use the net income on this form on a schedule-E and you will be able to deduct further rental expenses.

If you file a U.S. 1040NR, there should be no federal tax withheld in most situations. Please give Borders Bookkeeping a call for both Canadian and U.S. income tax preparation in this situation.

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