Tax

Have a Tax Question? Ask a Tax Expert

Ask an Expert,
Get an Answer ASAP!

Tax
This answer was rated:

I am a canadian citizen, have business also in canada but am

I am a canadian citizen...
I am a canadian citizen , have business also in canada but am a resident of US and live in US as well as in Canada. If I purchase a property in Canada , what would be my tax consequences . I do realize that US resident pay capital gain tax to canada for having a canadian property at the time of sale but if I am also a canadian citizen, how would that work?
Show More
Show Less
Ask Your Own Tax Question
Answered in 2 minutes by:
10/25/2013
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 30,633
Experience: Taxes, Immigration, Labor Relations
Verified
Lev :

Hi and welcome to our site!
You are correct - as a resident of the US - you are required to report all your worldwide income.
However - income is only realized when the property is sold - if you purchase and keep the personal property - there is no income realized regardless of the value of that property.

Lev :

Still - if you pay real estate taxes and mortgage interest in Canada - these may be deducted on your US income tax return.

Lev :

When you sell the property - the gain will generally be taxable for both - Canada and the US.
However for US tax purposes - you will be able to claim a foreign tax credit - thus effectively will avoid double taxation of the same income.

Lev :

If the same income is taxable abroad and in the US - you may claim a credit for taxes paid abroad - so the same income would not be taxed twice. Use the form 1116 -http://www.irs.gov/pub/irs-pdf/f1116.pdf please find instructions here - http://www.irs.gov/pub/irs-pdf/f1116.pdf
The credit is limited by the US tax liability on the same income - the form 1116 is used to calculate the amount of credit. That means - if tax liability abroad is higher - there will not be US taxes on that income, but if tax liability abroad is lower - in the US you will pay the difference after the credit will be applied.

Customer:

Here is my dilemma. I am both US resident and Canadian citizen , file taxes both in US and canada, If I buy a property as a US resident which is what I want to do as I want the rental income to be reported on my us taxes and not canadian taxes, at the time of sale, does the canadian capital gain tax apply to me as foreigner or as Canadian citizen since I also hold canadian passport

Customer:

can I also show the rental income in US taxes without showing it in Canadian tax return? or do I need to show it both places?

Lev :

Based on your situation - you are subject of taxed in both jurisdictions. In Canada - based on where the property is located and in the US - based on your residency.
So you may not choose to to report your rental income to Canada.
However - as I mentioned above - you will be able to avoid double taxation by claiming a foreign tax credit on the US tax return - based on your residency.

Lev :

Sorry for type - So you may not choose NOT to report your rental income to Canada.
You need to report your rental income on both - US and Canada tax returns.

Customer:

are you saying that I can show the rental income in my canadian tax return and then claim that same credit on my us return as foreign tax credit?

Customer:

now if I do a joint investment with a sister who is US citizen only and put her as my joint partner, can she claim the full income in her tax return without me showing any rental income on mine although the property would have both names as owners?

Lev :

Yes - you will report your rental income and allowable rental expenses on both Canadian and US tax return. Then - you will calculate your net rental income - which will be subject of income taxes for both countries.
And finally - based on your residency - you will claim a foreign tax credit on your US tax return - thus effectively will avoid double taxation of the same income.

Customer:

Now my question is if my sister is in joint partnership with me who is a US citizen only, can she report a full rental income in her taxes and I avoid it in mine althouth the property will have both names as owners? Is that possible.

Lev :

now if I do a joint investment with a sister who is US citizen only and put her as my joint partner, can she claim the full income in her tax return without me showing any rental income on mine although the property would have both names as owners?
If your sister is the one who runs rental activity and received a rental income - then - yes - she will need to report all income and expenses on her tax return.
However - if rental activity is run jointly - by you and by your sister - each must report his/her share of income and expenses.

Customer:

The reason for asking this is her tax bracket is much lower than mine so it would be beneficial as a family

Lev :

The reason for asking this is her tax bracket is much lower than mine so it would be beneficial as a family
If that is your income - you may not shift it to another person.
Each person must determine and report his/her share of income.

Customer:

Then when we are ready to dispose the property, capital gain would apply to her as a foreigner in her portion and as canadian on my portion. IS that right? Could she sell her portion later on without incurring a tax consequences to me

Customer:

and then I sell it to an buyer incurring a capital gain that is fully applicable to me. I do realize that normal way would be to do it as joint and pay everything accordingly. but I am trying to understand if there is any way to avoid capital gain tax at the time of disposal that does not apply to her as a foreigner since she is not canadian , only I am

Lev :

When the property is sold - similarly - each co-owner will be responsible for his/her share of the gain. Because the property is located in Canada - the gain is subject of Canadian tax.
There is no difference if the owner is a foreign or a resident. But if the owner will be in lower tax brackets - the actual tax liability will be less.

Customer:

We are a family and normally use assets to help one another so it is not an issue personally among us but want to know the tax consequences of doing it and how we should approach this investment purchase that we would like to keep it as rental. I am getting a mortgage from a canadian bank for it also.

Customer:

what is your advise on how we should handle the purchase of this property understanding that I am a us resident and canadian citizen and my sister is US citizen only. We would like to buy it in joint and trying to find the best way to do it. I m getting a mortgage for this property in Canada. Is there any other way we could do it that would benefit us better?

Customer:

What you have explained to me so far, I do know and understand it but I am trying to find out if there is any other option to make it easier for us on taxes.

Lev :

That is up to you if you want to partner with your family members.
However - the tax liability may not be shifted. You need to be very clear- who owns the property and in which proportions and who runs the rental activity.
Based on these facts - the tax liability and reporting requirements will be determined.

Customer:

If my sister runs the rental property, she can report the rental income in her taxes fully, right?

Lev :

Yes - that is correct.

Customer:

but if I do, then I have to report it on canadian taxes and then report it again on us taxes.

Customer:

does my sister have to file a canadian tax return being a us citizen owning a property in canada?

Customer:

or she only shows it in her US tax return as an investment property

Lev :

The same is true - regardless who runs the rental activity - because the rental property is located in Canada - that is income from Canadian sources - and Canadian tax return is required.

Customer:

oh even for her? How would she file a canadian taxes

Customer:

she would not have any social insurance number to do it? I thought she would just have to report in US taxes that she has an investment property in canada and report the rental income from it

Customer:

would that not be the case

Lev :

How would she file a Canadian taxes?
If she is a nonresident and has income from Canadian sources - she will file her Canadian tax return

As a non-resident of Canada, you pay tax on income you receive from sources in Canada. The type of tax you pay and the requirement to file an income tax return depend on the type of income you receive. Generally, Canadian income received by a non-resident is subject to Part XIII tax or Part I tax.

Customer:

this income will be rental income from an investment property

Customer:

can you explain part xiii AND PART I TAX

Customer:

WHAT DOES THAT MEAN/

Lev :

this income will be rental income from an investment property
Because the property is located in canada - that rental income from is from Canadian sources
T4058 Non-Residents and Income Tax - 2012 - http://www.cra-arc.gc.ca/E/pub/tg/t4058/t4058-12e.pdf

Customer:

are these canadian tax forms or us?

Lev :

If you received rental income from real property in Canada or timber royalties on a timber resource property or a timber limit in Canada and you are electing to file a return under section 216 of the Income Tax Act, use Guide T4144, Income Tax Guide for Electing Under Section 216 (for more information, see “Electing under section 216” on page 7). Guide T4144 includes the return you will need.
http://www.cra-arc.gc.ca/E/pub/tg/t4144/t4144-12e.pdf

Customer:

What is the best approach then. I should buy the property just in my name, pay income tax in Canada, take credit in US tax rather than involving my sister? Then at the time of sale, what happens to the capital gain.? Does it apply to me as US resident or Canadian citizen being that I am taking foreign credit in the us taxes as us resident? Can you clarify that for me please

Customer:

Lev, are you still there?

Lev :

What is the best approach then. I should buy the property just in my name, pay income tax in Canada, take credit in US tax rather than involving my sister?
Requirements to report rental income to Canadian authorities are based on the fact that the real property is located in Canada. That is irrelevant if the person is a resident or not a resident in Canada.
Then at the time of sale, what happens to the capital gain.?
The same is true for the gains realized from the sale - because the property is in Canada the gain is income from Canadian sources - and as such will be subject of Canadian income taxes regardless of the residency of the owner.
There is no " best approach"... either way - there might be advantages and disadvantages - which might be outside the tax area. For instance your sister might apply for public benefits based on her low income - but she will be required to report her rental income and Canadian assets in this case. She might not apply now - but will apply in the future - that we may not predict.
Does it apply to me as US resident or Canadian citizen being that I am taking foreign credit in the us taxes as us resident?
Foreign tax credit may be claimed by any US citizen or US resident who has income from foreign sources and if that income is subject of foreign taxes.

Customer:

so it seems to make more sense to report rental income on canadian taxes , then report it again on us taxes with a credit to what was paid in canada. correct?

Customer:

I do realize that you cannot tell me what to do. All you can give me is tax laws and I am trying to see if there is a better way to approach this investment but seems to be no other way but what it is .

Lev :

so it seems to make more sense to report rental income on Canadian taxes , then report it again on us taxes with a credit to what was paid in Canada. correct?
Because that is a rental income is from Canadian property - you are required to report it on Canadian tax return - that is not a matter of choice.

Customer:

okay I understand. I would like to save my conversation with you as a book mark in my computer but do not know how to. lol. So I can go back as a review to it. Is there a way for you to email me what we discussed including all the website you suggested that I can go to and read on it further.

Lev :

I do realize that you cannot tell me what to do. All you can give me is tax laws and I am trying to see if there is a better way to approach this investment but seems to be no other way but what it is .
You are correct that I may not and will not advise you to violate the law. If for any reason you decide not to file your Canadian tax return - I would not say that is OK. But I will do my best to explain all requirements.

Lev :

Here is the address to this page - http://www.justanswer.com/tax/82qyb-canadian-citizen-business-canada.html
You may bookmark if using the option in your browser. Each type of browser might have different location.
You are welcome back any time.

Customer:

yes. I am not trying to violate the law but trying to find legal loopholes that are not possible to reduce the tax on my income.

Customer:

I could not load the conversation on the site you gave me . It could be my own computer problem. Wish I knew how to book mark this chat. I thank you for all your guidance and appreciate

Customer:

all your input. I need to further understand the tax laws from the site you gave me if only I can save all this in my computer. lol.

Lev :

This publication discusses the various types of rental income and expenses for a residential rental activity - www.irs.gov/pub/irs-pdf/p527.pdf‎

Lev :

I will switch to Q&A mode - please refresh your screen in a few secs...

Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 30,633
Experience: Taxes, Immigration, Labor Relations
Verified
Lev and 87 other Tax Specialists are ready to help you
Ask your own question now
Ask Lev Your Own Question
Lev
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 30,633
30,633 Satisfied Customers
Experience: Taxes, Immigration, Labor Relations

Lev is online now

A new question is answered every 9 seconds

How JustAnswer works:

  • Ask an ExpertExperts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional AnswerVia email, text message, or notification as you wait on our site. Ask follow up questions if you need to.
  • 100% Satisfaction GuaranteeRate the answer you receive.

JustAnswer in the News:

Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.

What Customers are Saying:

I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response...

T.G.WMatteson, IL

I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight.

BonnieChesnee, SC

Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation.

JohnMinneapolis, MN

Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with.

OrvilleHesperia, California

Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help.

Mary C.Freshfield, Liverpool, UK

This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!!

AlexLos Angeles, CA

Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult.

GPHesperia, CA

< Previous | Next >

Meet the Experts:

Wallstreet Esq.

Wallstreet Esq.

Tax Attorney

586 satisfied customers

10 years experience

Mark D

Mark D

Enrolled Agent

1,300 satisfied customers

MBA, EA, Specializing in Business and Individual Tax Returns and Issues

Richard

Richard

Tax Attorney

4,338 satisfied customers

29 years of experience as a tax, real estate, and business attorney.

Robin D.

Robin D.

Senior Tax Advisor 4

13,980 satisfied customers

15years with H & R Block. Divisional leader, Instructor

Megan C

Megan C

Certified Public Accountant (CPA)

8,651 satisfied customers

Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level

jgordosea

jgordosea

Enrolled Agent

2,885 satisfied customers

I've prepared all types of taxes since 1987.

R. Klein, EA

R. Klein, EA

Enrolled Agent

1,839 satisfied customers

Over 20 Years experience

< Previous | Next >

Related Tax Questions
Ied dividend and capital gains worksheet no longer
ied dividend and capital gains worksheet no longer available … read more
Carter McBride
Carter McBride
LLM
233 satisfied customers
Can you help with a capital gains tax question. We are
We are selling 100 acre hobby farm. We are not gst registered and do not make money from it: … read more
Barbara
Barbara
Enrolled Agent, Paralegal
3,785 satisfied customers
I have a question about capital gains tax on a land purchase
I have a question about capital gains tax on a land purchase and if I can write off the money I put into the land. I am unsure of the proper terminology but here is the back story. I bought land in De… read more
abci168
abci168
Principal
27 satisfied customers
What form do I use to send realestate capital gains payment.
What form do I use to send realestate capital gains payment … read more
abci168
abci168
Principal
27 satisfied customers
On form 1041, capital gains have to be taxed at the estate
On form 1041, capital gains have to be taxed at the estate level, correct? No distribution deduction may be taken?… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
What are the turm capital gains tax on properties that are
what are the long turm capital gains tax on properties that are in germany? … read more
Robin D.
Robin D.
Senior Tax Advisor 4
Vocational, Technical or Trade School
13,980 satisfied customers
My question is about taxation of capital gains on equities,
Hello, My question is about taxation of capital gains on equities, like stocks, options, futures of F1 students. Here the facts:1. F1 student for 4 years in the US2. student does not get any income wi… read more
Chad EA, CFP ®
Chad EA, CFP ®
IRS Enrolled Agent, CFP(R),
Master\u0027s Degree
1,061 satisfied customers
Trying to avoid capital gains tax on primary residence due
Trying to avoid capital gains tax on primary residence due to the forthcoming tax reform. I know there are currently exemptions that allow one to avoid capital gains from sale of home. Primarily focus… read more
abci168
abci168
Principal
27 satisfied customers
I'm working to understand capital gains tax for California
I'm working to understand capital gains tax for California property purchased 4 years ago. It's a primary residence, purchased 4 years ago for $385k with $285k principle outstanding. Expected sale price of $630k … read more
abci168
abci168
Principal
27 satisfied customers
I'm canadian who want to understand capital gains tax rate.
Hi, i'm canadian who want to understand capital gains tax rate.I have a rental house that i bought at 500K. I sold it after 9 yrs at 1100K. With the money, i bought a new house (will be my primary res… read more
Barbara
Barbara
Enrolled Agent, Paralegal
3,785 satisfied customers
I have bitcoin and I want to avoid the capital gains tax and
Hi I have bitcoin and I want to avoid the capital gains tax and dont want it to be ordinary income what should I Do … read more
Chad EA, CFP ®
Chad EA, CFP ®
IRS Enrolled Agent, CFP(R),
Master\u0027s Degree
1,061 satisfied customers
What is the taxable capital gain for each 50% owner
What is the taxable capital gain for each 50% owner (divorced couple) on a 1031 Exchange property where only one owner meets the 2 of 5 years occupancy test and one of the 50% owners is now remarried?… read more
Chad EA, CFP ®
Chad EA, CFP ®
IRS Enrolled Agent, CFP(R),
Master\u0027s Degree
1,061 satisfied customers
Are you familiar with Capital Gain taxes on rental property?
Are you familiar with Capital Gain taxes on rental property? … read more
Lev
Lev
Tax Advisor
30,633 satisfied customers
I have a question about the capital gain tax on the real
I have a question about the capital gain tax on the real estate property. Property located in New York City. My parents and I are the joint owners with the right of survivorship. Mortgage is in their … read more
Fred Rook
Fred Rook
Corporate Controller
BSBA
63 satisfied customers
I sold a rental property at a loss (no capital gains);
I sold a rental property at a loss (no capital gains); however should I pay the $133,000 on the principal of my house I owe 166,000 at 2.8% or buy another rental? … read more
Lev
Lev
Tax Advisor
30,633 satisfied customers
Tax question is there anyway to offset a capital gain of 60
Tax question is there anyway to offset a capital gain of 60 to 70k by buying another commercial property… read more
Lev
Lev
Tax Advisor
30,633 satisfied customers
What is the capital gains tax on proceeds of the sale of a
What is the capital gains tax on proceeds of the sale of a home? … read more
Mark Taylor
Mark Taylor
Certified Public Accountant
Masters
2,275 satisfied customers
Capital Gains Question: My parents have a rental property
Capital Gains Question: My parents have a rental property they bought for $150,000 several years ago. The property is now worth around $500,000 dollars with a $350,000 mortgage. They want to gift me t… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Show MoreShow Less

Ask Your Question

x