If you own a home abroad or are considering buying one, it’s important to take this into account when managing your financial affairs and to be aware of the tax implications for both you and your heirs.
For the purposes of this article, we will focus primarily on property held in the United States, especially in Florida, a very popular option for Quebec professionals.
Don’t let your dream turn into a nightmare!
Canadians who buy a condo or a house in the Sunshine State must be sure to comply with both Canadian and U.S. laws. Here are some of the key provisions you should be aware of.
U.S. residence and taxation
Canadians who reside 183 days or more in the United States over a three-year span may be considered a U.S. resident and thus be subject to U.S. income tax. However, if they did not receive any dividends, rental income or annuities in the U.S., they may not have to file a U.S. tax return, provided they complete a form establishing that they have closer ties with Canada than with the United States.
U.S. laws stipulate that when a Canadian owner of a U.S. residence dies, the will they made in Canada must be probated by the U.S. authorities as part of the settlement of the estate. This legal procedure may cost from 3% to 5% of the value of the estate, for a property located in Florida, and take 12 months or longer.
Establishing a revocable or irrevocable cross-border trust can help you avoid the inconvenience of the probate procedure.
U.S. protection mandate: an essential document
A Quebec protection mandate is not recognized by the U.S. legal authorities. You must therefore obtain a guardianship document from the American courts. It’s possible to avoid these costly legal procedures by creating a trust.
Sale and capital gain
If you sell your residence in Florida, you will have to pay the U.S. authorities a withholding tax of 10% of the selling price. However, this withholding will not apply if the property is sold for less than $300,000 and if the buyer declares that this property will be their primary residence.
As the seller, you will also have to declare the capital gain realized:
- To the American government, by filing a U.S. federal tax return. The capital gain will be taxed at a maximum rate of 15%.
- As a resident of Canada, by including the capital gain on your federal and provincial tax returns. Note that you will be entitled to a foreign tax credit for the amount of tax payable in the United States.
Holding foreign assets requires planning!
Whether you own foreign real estate, shares or any other type of investment, it all starts with sound planning and informed decision making. There are many solutions to simplify things and to help you get the most out of your assets held in the United States and elsewhere in the world from a financial, tax and estate standpoint.
To learn more about the roadmap that will take you where you want to go, place your trust in one of our experts.