Cross Border Taxation for Canadian

[Jamal Harb]

I am a Canadian investing in the US and the time has come to do the taxes. I have researched intensively the ins and outs of US taxation by reading and speaking to accountants. Filing can be accomplished in one of two ways; hire a cross border accountant to do both countries, OR, hire an American to do the US and a Canadian to do the Canadian taxes.

Any one has experience in this that can comment on the pros and cons of each approach? I find the cross border accountants to be very very expensive and wonder if its worth the extra cost.

Thanks,

[Oren K.]

I have also been researching this topic in anticipation of making an investment. I've discussed this with several accountants and also consulted with one of the top cross boarder tax specialists in Toronto.

Steven's response is correct; due to similarities in law, tax policies and bilateral treaties, there is little if any double taxation when Canadians invest in the US. There are some obvious extra administrative costs of multiple tax returns, probably a more involved corporate structure, etc. but not double taxation.

That being the case, the more important question is; how to minimize the overall tax obligation.

Disclaimer: I am not a Tax Expert or professional so consult someone with your personal situation.

On the assumption that the real estate investment is going to be an ongoing business and not just a one time thing or vacation property, there are techniques which can reduce the effective tax rate.

The specific one that I have been advised to consider is to ensure that the real estate business itself is operated on a break even basis so that no there is minimal if any tax owing. Assuming there is positive income, you take it out as consultant fees into a separate company. Yes, this is yet more overhead / administration / costs but due to the tax rates for what is considered a passive business (e.g. Real Estate Rental) vs. an active business (e.g. Consulting), there is a big difference in effective rates.

So if your investment is going generate a small income, it may not be worth the extra costs but as you scale up, at a certain point it does make sense to put the infrastructure in place.

Where that point is, is not clear to me yet and if you do not need it immediately, should you put it in place in anticipation or can you defer it until needed are still questions I am asking.

Anyone care to chime in?