Canadian resident- How to buy a home in USA?

[stinkerb]

Great thread. Steven, I have a question that maybe you (or anyone else) can answer.
I have not seen much information about selling the property. Buying yes, but selling no. Mainly regarding taxes and such for resident aliens.
My situation is this: My wife and I are both capable of working in the US under a TN Visa, so we were thinking of going down for 6 months, renting an apartment, and if we decide to move there and get jobs we would likely buy a place.
1) I *think* this makes me a resident alien in the US. Buying does not seem to be the issue after reading this thread, but I'm curious about the selling. I've heard that there is a 10% withholding tax, etc? How does that work? Anything else?

2) Also, one of the books I've been reading suggests that its a good idea to cash in your RRSPs because you will get taxed on them somehow. This book is written by a "transition planner" who creates transition plans for people moving to the US starting at $10k. That seems like a crapload to me. Anyone have exp. with this?

3) Would it be better to become a resident of the US, or is it possible to retain Canadian residency under a TN Visa (while having a US house, US drivers lic, etc). Anyone have exp. with the TN visa side, or does this even come into play?

[Steven]

1) If you're a resident of the US for tax purposes, you're treated like anyone else selling a house there. If you buy a house there and you're there in some sort of category that allows you to stay for a lengthy period, legally it's quite difficult not to be resident in the US for tax purposes because you've established residential ties. Not impossible though, I know I did it, until I got a nasty letter from the IRS asking for proof of residential ties abroad. The question is whether capital gains tax kicks in, which is hard to work out. Obviously if you have a home in Canada and you pay taxes in Canada, clearly your second home is subject to capital gains tax. If you are non-resident for US tax purposes and your only home is in the US, then mmm it does get more interesting, the legal advice I got at the time (many years ago now) was that I was not subject to CGT. Looking back on it now I'm not sure, because how can your principal residence be in a country that you are not resident in for tax purposes? Don't know, ask the IRS.

2) This is a bit of an iffy question because of the 2008 tax treaty and the IRS has yet to issue much guidance on it and none of the tax publications have caught up yet. Essentially they're treated as IRAs in the US, you declare them on Form 8891 but you also have to bear in mind Part XIII tax on the disposal of an RRSP while a tax resident of the US. I'd be very cautious about what you read on the web and elsewhere, the only people with definitive answers to this question are the CRA and the IRS. Also depends on whether you plan on coming back.

3) Depends on your circumstances, best advice is to read IRS publication 519. Usually what I say to people is to only move your tax home to the US if you're staying for more than one full calendar year because of all the paperwork and the fact it's difficult to prove a permanent move for less than a year. The only real way to know though is to sit down with all the forms and work out what your tax burden would be as a US tax resident v. a Canadian tax resident and that depends also on which Province you live in now and which State you will live in there. You need to work out for example what taxes you would pay in Canada and what the foreign tax credit would be.

Usually you're better off being a tax resident of the US but it depends on your circumstances. If you have a dozen kids for example then you can't claim the US child tax credit as a non-immigrant alien but you can claim the Canadian one.

[stinkerb]

Thanks so much Steve!
I'll let you know if I find out any more information!

[Steven]

Just a bit more info on RRSPs because this I think this is how it works having read through some info yesterday, but like I said, really talk to the relevant tax authorities to be sure:

If you have an RRSP and you intend to use it for the prescribed purpose, i.e. as retirement funds, it doesn't make sense to get rid of it if you move to the US because of all the tax you will pay, plus the US under the 2008 tax treaty now assesses the cost base from the date of immigration, not the date you bought it, so there is no point in selling and re-buying as a lot of advice you will read tells you to. You can withdraw from it under similar rules as apply to IRAs in the US when you retire, however this is a very grey area because I don't think anyone has actually done this yet.

If you have an RRSP and you plan on withdrawing from it before you retire, then it's a bit more murky as to whether you should keep it, because the withdrawal will be subject to US income taxes and Part XIII non-resident tax (if in fact it applies not sure if it does under the treaty). Which will be a lot of tax. So even though Canadian income taxes are higher, might be a better idea to get rid of it before you leave.

But like I said, pretty much everyone at this point is surmising things because of the 2008 tax treaty and the tories messing around with Part XIII tax and the US may mess around with IRAs too because of the financial mess there, getting it in writing from the CRA and/or the IRS is the only way to be certain.

[Zingerintl]

I am a canadian, in Arizona, taking advantage of the RE market. I use an LLC for every house, the LLC is owned by my canadian corp that I transferred to USA. I maintain both, which worries me for next years taxes. If all income is in USA LLC, which is in a USA inc. there should be no dbl taxes, right? Just have the LLC pay all the taxes, report no profit to the CORPS?

Also I found this company is the only one left that does CDN mortgages with less than 50% down.

Nova home loans
480 430 6911
Canadian mortgages (20 - 30% down. 30 year fixed)
I believe they do any $ amount

[agnelson]

I just wanted to correct a couple of things that have been said about IRS treatment of RRSps.

1. Nothing has changed in the way IRS treats RRSP income in the new treaty protocol. Since about 1985, the IRS has allowed RRSP-holders to defer taxation on their annual internal earnings, and has allowed that taxation on distributions out of RRSPs is calculated based on the pre-immigration value being considered 'investemnt' in the account and thus not subject to future tax.

Rev Proc 89-45, Rev Proc 2002-23 and other IRS rulings have consistent held this, and the resulting Form 8891 has now been in use for several years, and is working just fine.

What did change with the protocol was the treatment of RRSP contributions made thru employer-sponsored plans, which in 2009 became tax deductible on 1040 for the first time.

I have written extensively on this topic at forums.serbinski.com and invite any to read/post there on specific cross-border tax matters.

2. Part XIII tax on RRSP for US residents is not 'murky'. It is 25% for non-periodic withdrawals, and 15% for periodic (the 15% is by treaty, so CRA cannot change this).

-- Fri Aug 28, 2009 10:09 am --

steven is not quite accurate when he states that one does not have to 'bump-up' the value of ones RRSP before leaving Canada to raise its cost basis.

The treaty article which changed the way investments are valued when immigrating from Canada to US applies only to investments subject to deemed disposition rules. RRSPs, since they are tax sheltered in canada, ere not subject to deemed disposition, and thus it is still advisable to crystalize any gains in RRSP investments before entering US.

Article XXIII.7: "Where at any time an individual is treated for the purposes of taxation by a Contracting State as having alienated a property and is taxed in that State by reason thereof, the individual may elect to be treated for the purposes of taxation in the other Contracting State, in the year that includes that time and all subsequent years, as if the individual had, immediately before that time, sold and repurchased the property for an amount equal to its fair market value at that time"
There is no being treated as having alienated any investments in an RRSP, this the article does not apply.

[Steven]

The treaty article which changed the way investments are valued when immigrating from Canada to US applies only to investments subject to deemed disposition rules. RRSPs, since they are tax sheltered in canada, ere not subject to deemed disposition, and thus it is still advisable to crystalize any gains in RRSP investments before entering US.

That's a useful bit of information because the IRS and the CRA gave me fluffy answers when I asked and they seemed to be saying what I posted, which is why I said contact them because they're the only definitive source. That's clearly something that needs to be changed in the treaty because it's stupid to be forced to crystalize gains in an RRSP when the treaty makes changes to treat RRSPs and departure tax more advantageously.

Article XXIII.7: "Where at any time an individual is treated for the purposes of taxation by a Contracting State as having alienated a property and is taxed in that State by reason thereof

Where at any time an individual is taxed by Canada for moving their tax home abroad. Sheesh.

-- Fri Aug 28, 2009 1:11 pm --

I am a canadian, in Arizona, taking advantage of the RE market. I use an LLC for every house, the LLC is owned by my canadian corp that I transferred to USA. I maintain both, which worries me for next years taxes.

Not clear on what your situation is here. You've immigrated your Canadian corporation? It may be subject to departure tax. Are you resident in the US or Canada? What is the income exactly to these corporations, are you renting out these properties or is it all capital gains? Are you paying out all the income?

Anyway, you claim a foreign tax credit for a corporation on schedule 21. Also depends on the structure of the corporations, whether you're using an S-corporation or a CCPC in Canada or whatever because the CCPC rate is lower than the US corporate tax rate. But essentially corporation taxes are based on profits, so if the holding corporation realizes a profit based on the operation of the corporations it owns there will be tax.

[agnelson]

I would disagree that contacting CRA and especially IRS is of any value in any instance.

IRS telephlunkies are notorious for giving different answers to the same question.

And remember, deemed disposition is not a result of moving the asset abroad, it is a result of moving oneself abroad.