Cross border tax & estate planning: tread cautiously before taking the plunge

The Ritcey Report

November 22, 2016

One of the inevitable consequences of living in a country with exceptionally cold winters is that, those of us who can afford it, contemplate spending a few months of every year south of the border. And that means, potentially, acquiring a U.S. vacation property.

The big concern is estate taxes. Even if you’re a resident in Canada and not a U.S. citizen, you could be liable for U.S. estate tax on any U.S. assets you own at the time of your death – and U.S. real estate is a notable problem because the U.S. estate tax liability can be significant without proper planning.

Please consult your tax professional for guidance on how this will impact your unique situation.

  • Using a Corporation – For Canadian tax purposes, it may no longer be permitted for corporations to exist without assessing a taxable benefit on the shareholder for personal use of the property.
  • Joint Ownership – When holding U.S. real estate jointly with your spouse to split the U.S. estate tax bill, when the first spouse dies, the U.S. estate tax would apply the full value of the property. Estate tax will be levied a second time on the full value of the property when the second spouse dies.
  • Partnerships – some individuals may use using a Canadian partnership to own your U.S. real estate. Does your proposed vacation property meet this definition? Talk to a tax pro about the risks.
  • Trust Ownership – If a trust is established prior to acquiring property and acquire the property through the trust, this may impact the applicable tax filing obligations.

Though the acquisition of a U.S. property appears to be – especially to those of you who may be anticipating an inheritance and are looking for an attractive real estate opportunity in which to invest some or all of the funds – this should be done with proper guidance from a tax professional and consult an expert before taking the plunge.

The Internal Revenue Service (IRS) has an acute ability to unearth a tax liability in the most unlikely places. Be warned, and consult an expert before taking the plunge.