Who has never dreamed one day to become owner of a condo in Florida? The rate of exchange being much more favorable than a few years ago, the price of the houses having also fallen in a spectacular way in the United States, it seems that one Canadian out of five would like to acquire a property in this country, according to a survey done by Léger Marketing for the account of BMO. The American economy will eventually recover and so will the capital held in the United States too; it is thus in first instance a situation favorable to the purchases outside Canada. Dreams which could thus become reality, it seems.
Although income tax and your will are the last things which you think of when you leave to benefit from the sun, remember that, as Benjamin Franklin said, “in this world one cannot say that anything is certain, except for death and taxes”. It is important to know that when you cross the Canadian border (and even the Quebec border), you also enter into another entity as much on the legal level as on the fiscal one. In particular, the financing for this purchase in the United States would be subject to different rules.
Inter alia, all depends on how you intend to use this residence: live there part of the year, rent it out the other part? If you gain an income from renting on the other side of the border, it could be well that this income, as interesting as it might be, must be declared in Canada as well as in the United States. If you buy a revenue-generating building you will need a person to manage it, without knowing that you do not have the right to do the restorations yourself, unless you obtain a visa to this end.
If you spend much time in the United States, you may be regarded as a resident of it! Our laws allow indeed at the tax level to be resident of two countries. Being a resident in two places, also implies double taxation, whether you rent your housing or not. The new American rules on this subject give a right of maximum 183 days of staying during the year and the two preceding ones, by counting one part only of the days of staying of these two last years, before being considered as a resident. If the total exceeds these 183 days, you could have to pay an income tax on your revenue to the American tax department. There are conventions between our two countries to reduce this double taxation, but it remains that it is penalizing.
Also, the capital gains resulting from the resale of the residence will still have to be declared in the two countries, whether you are considered as a resident or not, it will thus result in penalties which will reduce your real profit.
Finally, think of the impacts that cross-border goods can cause at the time of your death. The treatment of your succession can become delayed and much more expensive for the members of your family. If you buy the building with two persons, the laws are different in several states of the United States: there is a form of co-ownership, commonly called the “joint tenancy” which prevents you from bequeathing the good by will as you wish it. Your share in the residence will thus automatically devolve to the longest living of the co-owners, it does not matter if you want to bequeath it or not to him. It is about a rule which enters into contradiction with the principles of freedom of testing of Quebec and it would be necessary then, to derogate from it, to have a judgment rendered in Quebec which one should have recognized in the United States or, as far as possible, a division which would consequently rectify the shares of each one in the succession.
While being conscious of these problems, it is always possible to benefit from a residence in the United States by making a good legal, fiscal and testamentary planning. It remains important to consult a lawyer or a notary in Quebec before proceeding with this important investment