American investing in Canada

[Steve Ricker]

I live in Ohio. I have an opportunity to invest in a single family home with Canadian family members in  Waterloo, Ontario.  The home and all related expenses/profits would be divided equally between the 4 of us (siblings). Does anyone have any advice about this since I live in the U.S. and this would be the first time I'm investing in Canada.  Pitfalls? Advice? Things to consider? Thanks for any input.

[Gord Stevenson]

I am a Canadian with properties in the US...so the reverse to the OP's situation.  A few thoughts...that need to be verified since the situation is reversed:

1) you will likely need to file Canadian income taxes for rent received and later for capital gains when you sell.

2) there is a tax treaty between the two countries that intends to avoid double taxation, but you have to watch for situations where it doesn't work.  The idea is that if you pay tax to the foreign tax authority, then you claim it back as a "foreign tax credit" (FTC) from your own tax authority.

3) a circumstance where the tax treaty doesn't work, at least in my situation, is if the property is held in a manner for which the two countries see the income as being of different types. E.g. The US sees an LLC as personal income, and Canada sees it as corporate and Canada won't allow a FTC for tax paid on a different type of income. Another case here is that the FTC is credited against other tax owing...so if you have no other tax owing the FTC does not return the foreign tax paid.

4) you will benefit from currency exchange when sending money north to buy the property (yeah!) but the reverse will be true when any rental income flows south.  And, when you ultimately sell and repatriate your capital you may win or lose depending on how the exchange rate has changed over the duration of your property ownership.

Just random thoughts for consideration.