Canadian buying Multifamily in Canada vs US

[Anthony Quint]

Hi everyone,

I'm ironing out my investment strategy of purchasing multi-family rental properties, but I'm a bit stuck on choosing the location. In particular, before deciding on a city, I first want to decide on whether I should invest in Canada or US (given that I am a Canadian). My interest in the US market is perked because of the stronger dollar, and better tax benefits (like the 1031 exchange). However, being a Canadian citizen, it seems like I would still need to pay Canadian taxes on the US properties regardless. 

In summary, I'm wondering if there are any other Canadian investors who have researched the same question. Is it just better to stay and find opportunites within the Canadian market? Are there various strategies/corporate structures that can be employed to minimize the tax obligation to Canada when investing in the states? Or am I thinking about the problem incorrectly to begin with. 

I would appreciate any sort of insight or suggestions:).

Best,

Anthony

[Dave Foster]

@Anthony Quint, the 1031 exchange is something you don't have in CA that allows you to sell appreciated real estate in the US and purchase new real estate while indefinitely deferring paying tax on profits.

The thing about this for a non US citizen is that you will be subject to a 15% withholding called the FIRPTA withholding tax.  That's 15% on the sale of your property.  1031 exchanges are extremely difficult to accomplish for a non-us tax payer.  So what most of our clients will do is set up domestic LLCS to own the real estate.  these LLCs are US taxpaying entities owned by a foreign national.  But because they are domestic they are exempt from FIRPTA and can do regular 1031 exchanges.

Just something to add to your decision tree