mardyarse

Hoping to buy a place in Florida within the next 5 years however just interested if anyone here has bought in Florida? If so, are there advantages to having your Canadian citizenship (ie you can stay for longer outside of Canada for the winter months), do you rent out? How does that work with taxes etc.,

Any advice/pros and cons/do's and don't do's would be greatly appreciated. Cheers

Simon Legree

Not Florida but I have a place in Arizona. I've had it for almost eight years
There is no advantage to having Canadian citizenship as regards ownership.
You can stay in the US for up to six months.
I aim to arrive on or about November 1 and leave in early April. As I make additional trips to the US during the year I have to keep track of my days.
There are also restrictions on how long you can be out of your home province as regards medicare.
You may also need to get additional motor vehicle insurance for being in the US for an extended period.
I do not rent. If you do you may well run afoul of the IRS ! My neighbor got into a situation regarding rent and had a lot of agro with said IRS as they class rent as "passive income" which is taxable in the US.
Depending on what you buy you will pay property taxes if applicable. In my case it is all included in the monthly Home Owners' Fee. This is in fact a condo fee. It covers exterior maintenance, including gardeners, pool maintenance and so on.
Hope that helps.

mardyarse

that does help thanks.

Auld Yin

It is my understanding that realty taxes in Florida are noticeably higher for non-residents/non-US Citizens.

JonboyE

One thing you can look into, especially if you are looking to get rental income from the property, is to form a corporation in the US and have this buy the property.

Obviously, there is an additional cost in maintaining the corporation but it can help you avoid some nasty tax pitfalls.

Steve_

It's pretty straightforward to do - here is a quick summary:

If you rent out property in the US and you're above the $100,000 limit for foreign holdings you have to fill in a T1135 with your tax return. Although CRA seem to be pretty laid back about things usually they aren't about the T1135, remember to fill it in and include it with your T1 (if you merely own it and don't rent it out then you do not need to fill in T1135);

Rental income in Florida is usually subject to sales tax: http://dor.myflorida.com/dor/forms/2009/gt800034.pdf so you must get a sales tax number and collect it;

Rental income in the US is subject to US income taxes, there is no Florida income tax, this requires you to fill in a 1040NR and usually an 8840 as well, it's summarized (not very well imo) in this CRA publication: http://www.cra-arc.gc.ca/E/pub/tg/p151/README.html - the problem with this publication is that it appears to be out-of-date, under the revisions to the tax treaty I'm pretty sure you have to declare the income as effectively connected with a US trade or business, but it is to your benefit to do that anyway otherwise the renter has to do a 1042-S which is a PITA you can live without. Also obviously you will need to claim a foreign tax credit in Canada on the rental income to avoid dual taxation (T2209).

It also waffles on at great length about the US residency test for tax purposes because they've copied IRS publication 513, however under the US-Canada tax treaty it basically boils down to, is your principal residence in Canada? Yes? Then you're not resident in the US for tax purposes (but you still have to pay tax on US-source income as a non-resident);

Florida has what is known as the "homestead exemption" which reduces property tax by 50% for residents (at time of purchase) and due to various silly initiatives to keep residents happy and their taxes low the rate of increase has been capped - but not for non-residents. Thus non-residents pay pretty steep property taxes and I would strongly suggest you figure out what they are before buying, also bear in mind they can go up significantly;

From an immigration standpoint, CBP use this general rule of thumb of six months per year that you can stay (for other nationalities the visa will say six months - but Canadians don't need a visa). The older you are the less they care, in my experience. One benefit that many people aren't aware of is that you can as a Canadian citizen get a Florida driver's licence, has to be renewed annually. I don't recommend it though because the more it looks like you live in Florida the more hassle you will have with CBP and the IRS, I've spoken to Canadians who've been denied entry when they showed up with a US registered vehicle for example.

Steve_

I hear this one a lot but I've never been able to establish what the benefit of it is. It's much harder to fill in an 1120-F than a 1040NR, that is for sure. The corporation is still liable to pay the property taxes, collect sales taxes and so on, plus you're now operating a full-blown business in the US which can cause immigration problems. Also if you don't pay out all the revenue from the corporation (as benefit to the owners, maintenance costs, etc.) then you get hit with corporation taxes.

There are the ordinary obvious benefits to a corporation (limited liability, income levelling, easier transfer in case of death) but for a single property it's not worth the effort and personally I don't think it's worth the effort until your net revenue is well into six figures at least.

One thing you do need to do is have a will for that jurisdiction so that under State probate law you don't run into a problem there, but with a single condo or something that is pretty simple, basically "I leave it to x who is liable for the probate fees".

JonboyE

There is the most important one. For non-resident aliens there is no exemption from US inheritance tax for property left to your spouse. The inheritance tax rates are quite high (35% I think) and are levied on the market value of a property, not the equity you own.

The surviving spouse can file an election to reset the tax cost at market value for Canadian tax purposes, but there is no double taxation relief because it is not a taxable event in Canada.

[Edit] A simple example of how it was explained to me. I don't claim to be an expert on US taxes. Mr A buys a house in Palm Springs CA. He pays $1m. $250k is all the savings he has. He borrows $750k from a bank.

He then dies.

US government wants $350,000, the bank want $750,000. Mrs A is left with nothing but a $100,000 debt.

If the house is owned by a corporation then no one has died as far as the US is concerned so no tax payable. The shares pass tax-free to Mrs A under Canadian law.

Steve_

Estate taxes in the US are minimal and on the average house or condo, non-existent. The 2011 limit is $5 million, for married couples, $10 million. Florida has no State estate or inheritance tax.

I could see if you were in the business of buying and selling real estate in the US and renting it out why you might want to use a corporation but for someone with one or two properties I don't think there's any benefit.

JonboyE

Different rules apply to non-resident aliens.

There is a good summary here http://www.jpmfinancialservices.com/...teTaxation.pdf

It seems the current federal rates for non-residents are up to 30%. Many states (though not Florida as you point out) also have their own taxes in addition. There is an exemption for the first $60,000 so if you are buying a small place in a cheap State this all may be moot.

Gremmie

Last I heard was that the house hold insurance was really high in FL due to the hurricanes etc.

Steve_

Article 29B of the tax treaty effectively treats a Canadian the same as an American for the purposes of US estate tax, only the US estate is subject to tax, there is no tax on transfers to a spouse. The credit is pro-rated though. This explains in detail how it works: http://www.bdo.ca/library/publicatio...head-Final.PDF

Given the $5/10 million limit (which means your whole estate, not just the bit in the US, the tax is pro-rated to that bit) in place at the moment though I wouldn't get too excited about it.

Also bear in mind even if you do pay estate tax in the US, it is deductible against the capital gains tax assessed on the estate of the Canadian.

Anyway I was about to point this out because it popped into my head:

So if you hold it in a US corporation, your stock in that corporation is subject to estate tax, and the corporation's value would be based on the assets, i.e. the property. Therefore - no advantage to using a US corporation.

So no advantage to using a foreign corporation, as it would clearly not be arm's length. Although I'm not sure that comment is correct, but as pointed out in the link I provided there are significant disadvantages to using a Canadian corporation (the main one being that the capital gains tax is higher on a corporation than an individual).

Personally if you're really worried about it and you're single (i.e. no spouse to leave it to) I would use an inter vivos trust but for the overwhelming majority of people I don't think it's going to be an issue.

Thinking about it back in ye olde days people used corporations merely to conceal the identity of who owned the property - in the era of the internet though I doubt there's much point to it, although I heard Sarah Palin tried it with her house in Arizona (which just makes the point, we all know it's her house so why did she bother?)

Steve_

While I'm thinking about it also - the 30% NRA tax doesn't apply to Canadians.

This is the thing that gets me about all the CRA and IRS publications, we all know that most Canadians and indeed I would have thought most Americans who hold real estate and so on abroad are most likely to do it in the US or Canada, however the way the tax publications are written they completely gloss over the Canada-US tax treaty which fundamentally alters how the tax system works for people in both countries. IRS publication 597 gives some vague advice, that CRA publication I posted a link to quotes IRS stuff that doesn't apply to Canadians, so even when they attempt to write publications that deal with the US/Canadian situation they get it wrong! All they did was lift the text out of IRS publication 513 and write an introduction for it.

The end result is that you get the impression that it's blindingly complicated, when in fact the treaty simplifies it all.

I'm pretty sure under the non-discrimination clause of the treaty that a Canadian can file a 1040 and an 8833 to declare rental income for example, but all the instructions say 1040NR and 8840. At the end of the day the tax works out the same way so you might as well use 1040NR and 8840, but then what was the purpose of the treaty?

JonboyE

Interesting. Thanks. My info was obviously out of date.

Do you know if in 2011 they have gone back to the 55% rate? I guess not.

[edit] In answer to my own question, it has been extended to 2012, but from 2013 it returns to 55% (eek) top rate and the exemption is dropped to $1m, unless the Tea Party get their way.

The current top rate is 35% with a an effective $5M exemption.

So, anyone planning to die in the next two years has little to worry about!

mardyarse

geniuses!! The font of knowledge out there amazes me sometimes, thanks guys