Canadians Buying US Properties

[Chris Semak]

I started looking to invest in my local area about 6 months ago and I have had no luck. I am now looking at buying properties in the US and was wondering how it was done? I have a Corp. set up in Canada and would like to buy through that Corp. Do I need to set up a US Corp ? Is there anything different from buying in Canada? I know this is very general but hopefully somebody knows the answers that I am looking for but don't what the question is yet.

[Roy N.]

@Chris Semak

I would like to sound a further recommendation that you sit down with an accountant and attorney who understand cross-border taxation, liability and real estate to ensure you get the ownership organisation which adequately balances your long term goals with protecting your assets and minimizing your taxation.

While you can own property in the U.S.A. directly in your name; directly in the name of your Canadian corporation; via a JV/partnership; or through a 'child' entity in the U.S.A., there will be pros and cons to each.

If your intention is to grow your U.S.A. portfolio, then you may wish to incorporate an entity in the U.S.A. to hold your real estate ... though many/most accountant types (Oh, Steve Hamilton???) will tell you holding real estate in a corporation will result in higher taxes (for a U.S.A. resident), that may not be the case for a foreign investor. Your real-estate profits would be taxed at the applicable U.S. corporate tax rate {which is still less than the corporate tax rate on passive income at home}, but your earnings would not have to be repatriated.

If you own property in the U.S.A. either directly, or via your Canadian holding company, you will have to repatriate the earnings which translates into paying the withholding tax (30% in most instances) to the IRS and then paying the delta, between the amount withheld and what you would be taxed in Canada on the full earnings, to the CRA. This holds true if you invest via a flow-though entity in the U.S.A. such as a partnership or flow-through LLC.

If you have a U.S. corporation and want to repatriate earnings you can typically do so with a U.S.A. withholding tax of <=10% provided your U.S. entity is a child (100% owned) of your Canadian holding company.

Of course ... it's a little more complex than my above ramble ... hence the need to see an accountant and attorney before you start.