Taxes for U.S. Owners of Canadian Property

With Toronto and Niagara Falls, Ontario just across the border from Buffalo, there are plenty of US residents who own property in Canada. As with other forms of investment, real estate transactions are regulated by the government with certain taxes that apply to the capital gains received by a seller or the gross income earned by a renter. With property across international borders, there are additional regulations that can apply from both countries. 

If you or someone you know is a U.S. citizen (or corporation) that plans to buy or sell Canadian real estate, you should understand that Canada, as well as the United States, has specific tax rules which apply. With offices in both Buffalo and Toronto, Marlies Y. Hendricks CPA is uniquely positioned to help property owners navigate through the process of buying or selling property in Canada.

Taxes For U.S. Citizens Selling Canadian Property

Capital gains realized by a U.S. person on the sale of any Canadian property, regardless if it has been rented, will attract taxes from the Canadian and US government. The following are regulations that you will need to consider during the sale of your property. One-half of capital gains are subject to Canadian tax for all investors. IRS forms should be filed to claim a foreign tax credit for the Canadian tax. CRA Information Circular IC 72-17R6 outlines the procedures concerning the disposition of Canadian real estate held by non-residents of Canada. Section 116 of the ITA prescribes a prepayment of 25% on the estimated capital gain on land and building (excluding selling expenses). There is a 50% withholding on the recapture of CCA.

Final Tax Liability: One-half of capital gains net of selling costs are subject to tax. For individuals, the maximum rate on a capital gain is approximately 21.46% including the 48% non-resident surtax.

Filing For Property Taxes For U.S. Citizens

There are a number of additional documents and legal proceedings that U.S. citizens are subject to when renting, selling or buying real estate in Canada. Additionally, there may also be other levels of consideration depending on your residency status in both countries. At Marlies Y. Hendricks, our accountants can prepare all the tax documents and declarations that you will need to have in order, sending information on your behalf to the correct governmental agencies in the U.S. and Canada so that you will not be penalized for any errors in your tax filing process.