Taxation of Rental Properties To simplify your life during your move, you may decide to keep
your home in Canada and rent it out to family, friends, etc.
Typically, the rationale for this is it avoids the hassle of having
to sell the property before moving or being forced to sell it at
an inopportune time. What you may not realize is you are creating
a potential tax and paperwork nightmare that is sure to add a lot
of complexity to your life. Canada
Since the Revenue Agency retains the right to tax any Canadian
source rental income, you are required to appoint an agent IN CANADA
to ensure any taxes owing is paid. This means if you don't
pay the tax, the agent residing in Canada must. This way, the Canadian
government has the ability to "attach assets" to any claim for taxes
owing. In addition, you must file an NR6 form each year with
the Revenue Agency to appoint an agent and ensure the withholding
of 25% of the NET income (if any) is collected and remitted. This
must occur each time you receive a rent payment. If you don't
file the NR6 in a timely fashion, you are subject to a 25% withholding
on the GROSS income without question. Finally, you must file
a Section 216 tax return each year to properly take your expenses
against any rental income, which may result in a refund. Finally,
if Capital Cost Allowance is taken on the Canadian return, there
could be a nasty "recapture" upon the sale of the property that
you should ensure you plan for.
United States
Since you are required to report your worldwide income on your
US return, the rental income you derive from Canada must be reported
on your US return. This gives rise to the potential for double
taxation because of the 25% withholding paid to the Revenue Agency.
Proper tax planning and preparation can recoup some of the tax paid
to Canada as a foreign tax credit on your US return. Interestingly
enough, you MUST depreciate the rental property on your US return
even though claiming Capital Cost Allowance is optional in Canada
. Again, when it comes time to sell the property, there is
the "recapture" of the depreciation on your tax return for the year
of sale. You also get to take any net operating losses that have
accrued on the property over the years at this time as well. Proper
tax planning can make this a much easier transaction to deal with.
|
