All Forum Posts by: Robert Gunther

@Jay Hinrichs that insurance rule still exists.  Any place that is empty for longer than 1 week (like going on a 2-week vacation) there is no insurance coverage.

My insurance provider also automatically suspends coverage during any construction.  Redoing your kitchen?  Your insurance is null when the renovation is happening.  Crazy stuff.

Insurance providers have so many loopholes.  Got a slow leak under the sink you did not notice?  Maybe mold starts growing under the cabinets that you don't see...  No insurance against a slow leak.

Grrrr....  Taxes.  Another follow-up to my previous post.  It appears I was correct, you can't carry forward a tax loss from rental property as a non-resident.  This may or may not apply if you are a resident, I have no idea.  But as a non-resident if you lose money, too bad - you essentially lose the loss as a deduction in future years.

Here is a snippet from their instructions for the 'Electing-Under Section 216' tax document, the tax form a non-resident files to remit tax.  Here are the important bits regarding losses.

Rental losses

You cannot use a loss you report on your section 216 return to reduce income on another Canadian return for 2016 or

any prior or future tax year. As well, you cannot apply this loss to a section 216 return for any prior or future year.

The part I underlined is important since as a non-resident filing a return for rental income you only file the section 216 return.  It clearly states if you lose money in any year you can't carry it forward or back. 

So if you are buying your first property you are going to get hit with a big transfer tax, which if you can't deduct if you have no income in the year you purchased the property :-(

Knowing the tax rules are so important in trying to make money in Canada... Purchase your property early enough in the year that you can generate income to deduct against.

Since we are talking about taxes, let me share some more with you.  I may not be 100% correct on this but from what I have read and seen when filing my personal taxes this is what it looks like.

When during the year you purchase the property can have a big impact on your deductions.

When you purchase a property, you pay a transfer tax (http://www2.gov.bc.ca/gov/content/taxes/property-t...).

The last property I purchased, I paid something like $7,000 in transfer tax.

That tax is deductible against your rental income, in the year you purchase the property.  Assuming you have income.

If you purchase a property in January, pay your transfer tax and then collect rent for the rest of the year.  You have rental income to deduct it against - great.

However, if you purchased in December you will have little or no income.  You paid the transfer tax and now have nothing to deduct it against.

If you already have other property you have income to deduct it against, but if this is your first purchase watch out when in the year you buy.

You might think the tax payment you could not fully deduct could be used in future years.  I'm not 100% certain, but I believe for rental income for a non-resident your losses do not carry forward.

I had a building with a flood and lost a lot of money one year, I was not able to carry forward the loss to use against future income.

Bryan,

I have some experience with this.  As a non-resident (Canadian or American, same rules) with property in Canada that you are renting out there are a few rules.

* You are not allowed to collect the rent yourself, a resident of Canada must do it.  It could be a property manager or friend etc.  They must register with the Canadian government (federal, not provincial) and setup with an account number.

* Every month they collect the rent for you.  They have 15 days following the end of the month to remit 25% of the gross rent to the tax office (using the account number they are assigned).  They can then pay you the remaining 75% of the rent.

* Failure to pay the 25% on time, the penalty a fine and interest accumulates at 1% PER DAY to a maximum of 12% per year.

At the end of the year the person collecting your rent and withholding your tax payment issues you a tax form (NR4).

The government wants you to just stop there, they don't care if you file a return or not - they have already got your 25% tax.

You can elect to file a NR6 tax return on your rental income (that is a special return, just for rental income).  You can do all your deductions (interest, property management, repairs, capital cost deductions, utilities, city tax etc.).  Then you get some of the 25% that was withheld back.

It is also possible to file an NR6 undertaking on or before the first day of each tax year, you basically estimate your deductions for the year to reduce the monthly tax withholding from 25% down to some lower number.  This request must be approved before your agent can start withholding an amount lower than 25%.

They have something called a capital cost allowance (CCA), which allows you to deduct a portion of your property every year, the amount depends on the age of the property and when you bought it but since you would just be buying now it is probably 4%.  So you can deduct 4% of the property value every year on your NR6 tax return to reduce the amount paid.

But don't worry.... they are not really letting you deduct that.

When you go to sell the property, they have something called the capital cost allowance recapture.  So any amount you deducted over the years, they take back at the time of the sale.

Oh, while we are talking about capital cost... let's talk about repair/improvement of a property.  They have rules on that as well.    Let's say you want to redo the kitchen counters, it had trashed laminate counter when you purchase the property.

You can replace it with the same - 100% deductible.   If you upgrade to say granite that is considered an improvement, 0% deductible.  The cost is considered a capital cost, it goes to the value of the property and you can deduct it at 4% per year.

Hopefully, that sheds some light on the subject of taxes.

YouTube suggested I watch a CBS video from 2014, titled 'Woman lives nine years in forgotten house for free'.

The story is about a woman who was living in a house and the owner went to jail and she just kept living there....  Not so exciting.

What caught my eye was in the story the city auctions off the house because of unpaid taxes to a company based in Singapore.  Can they do that?  Can a foreign company purchase property in the USA or do they need to form a US entity?

@Account Closed It is actually a Hong Kong based company I am considering doing this with - that entity has the money but real estate in HK is just crazy stupid.  I am aware of the 25% tax Canada imposes on foreigners (it is on non resident Canadians as well).

I was hoping to do buy & hold in the USA, but I was not aware of the 30% tax - that is not very nice :(

Ideally I would love to finance and use some leverage, maybe 50% LTV or something... whatever it would take to get 'traditional' financing from a US bank or some type of US lender.

If I setup a us company, is that considered somehow 'foreign' if the owner was not American like a foreign person or foreign company?

I'm in the thinking/planning/structure phase of an idea.

I've got a company located outside the USA that has some money, would like to use that money to purchase property (ideally commercial 5+ unit residential buildings) in the USA.

Looking for ideals/structure on how do best do this?  I am assuming I would need to create a US entity of some type, owned by the foreign company?

Then somehow the foreign company loans or gives money to the USA company as initial funding?

How would banks in the USA look at this?  I'm sure a brand new US based company with no history and no sales is not going to quality for financing.

Anyone have any input, books I might read or accountants/attorney that specialize in working with foreign entities?

Good thinking, in a small unit going to the ceiling would add that extra bit of storage in a small place.

I only this week learned on RTA (ready to assemble) kitchen cabinets.

Searching online there seem to be quite a few vendors in the USA.

I love this concept, the prices seem to be WAY cheaper than getting a full cabinet or even cheap stuff from big box stores.

I would not mind spending a couple (few?) days doing a big Lego assembly of cabinets to save thousands off the price of a new kitchen.

Looking at a few RTA sites they use real wood and soft close hinges, which is exactly what I would like to see in my new cabinets.

Has anyone ever done an RTA kitchen, things to watch out for? How did it go?

I have never tried that software, but it certainly looks like the type of thing I am looking for.  Will check it out, thanks.