Q. Do I have to file a U.S. tax return? 

If you hold a Green Card or are considered a “resident alien” under the Substantial Presence text, you will have to file a tax return. There are a few IRS formulas that determine whether or not you are considered a “resident alien,” and, therefore, required to file a U.S. tax return. If you have income producing investment property in Arizona or anywhere else in the U.S., you’re going to file a U.S. tax return to report your annual income from the U.S. property.

Q. Is there double taxation on the income or capital gains from my investment property? 

With proper tax planning and professional advice there should never be double taxation when you own an investment property. The Canada-U.S. Tax Treaty has many provisions built into it to protect citizens from being taxed twice by the U.S. Internal Revenue Service (IRS) and the Canada Revenue Agency (CRA). There are a number of credits and deductions that can be claimed going both directions, and you will definitely need the services of a sharp, cross border tax planning professional to help you keep more of you hard earned funds. Remember, what you don’t know can REALLY hurt you. We have a team of exceptional partners experienced in helping Canadians plan their taxes for maximum effectiveness.

Q. What are withholding taxes and do I have to pay them when I purchase an investment or recreational property? 

Canadians who sell Arizona real estate have two kinds of withholding taxes they may incur upon selling an investment or any other type of property. One way for many Canadians to avoid the gross withholding tax is to file a U.S. tax return and elect to pay tax on net rental income. The Canadian resident can then receive a refund for any taxes withheld, to the extent the withholding amount exceeds the tax payable. If a Canadian owns U.S. rental property and incurs significant expenses (mortgage interest, maintenance, insurance, property management, property taxes, etc.) they may want to file a U.S. income tax return and take advantage of the net rental income election. The amount subject to tax at the marginal rate will likely be substantially lower than the amount subject to withholding tax. If a Canadian sells real estate located in the U.S. a withholding tax of 10% of the gross sales price is normally payable. The tax withheld can be offset against the U.S. income tax payable on any gain realized on the sale, and refunded if it exceeds the tax liability. The 10% withholding requirement on the gross sales price applies regardless of the sellers adjusted basis in the property. At the end of the day, due to the tax treaty between Canada and the U.S., there will be little difference between making the money there or here for many Canadians. 

Q. Do I need a U.S. ITIN (individual tax identification) number or corporation? 

This will depend on your personal situation and your US investing goals.  We can assist you with the itin process for a small fee ($199.00) and can also provide you with valuable information on available legal entities.