RS: My wife and I are considering the purchase of a condo in Miami. Based on estate taxes, would it be a good idea to put the title of the property under our 19 year old daughter.
Terry Ritchie: First off, as of today, right now, at this very moment, there are no US estate taxes. US Senate got too busy last month and failed to pass through legislation to deal with the extension of the U$3.5M exemption. It's a moving target as to what will occur and something that I have written about and am following closely. If you want an article that I have written on this, email me at email@example.com and I can forward. I'm not a big fan of having kids involved in the ownership of your US property. I'm sure your daughter is a wonderful person. However, is she married, will she get married, is she mature enough. A number of factors needs to be understood before the ownership decision can be made. Check out my book in Chapter 5 for more details.
George: Are there any tax advantages in purchasing U.S. real estate under a Canadian corporation.
Terry Ritchie: it depends on the purpose of the property. If for personal use purposes, generally no. Under IRS rules, if you use it personally, they will look through it as if you owned it personally unless you pay rent to the company. Also the income tax rules are much more onerous as well. As opposed to a 15% LT Capital gain rate, you could pay as high as 39% depending on the sale amount.
Confidential B: I have two questions: (1) if one plans to become US resident for a couple/ few years, what are the implications of continuing to own investments in Canadian-domiciled investments funds which do/ may not separate short-term gains, from long-term gains or other income? (2) how onerous is FBAR compliance assuming numerous Canadian financial accounts would be kept open over this period of US tax residency? Thank you.
Terry Ritchie: If you become a US resident and continue to own Canadian mutual funds a number of factors come into play here. Will you be severing your Canadian tax ties? If so, then you would be deemed to have sold these for Canadian tax purposes. Also if your adviser in Canada is not licensed in the US, you can no longer maintain an investment relationship with him/her or the firm. Also as US resident, you will now need to be aware of the US tax compliance issues with respect to holding Canadian mutual funds. If they are trust or corporate units, a bunch of nasty IRS compliance crap can come about. The FBAR stuff, like the T1135 issues we have in Canada have been around for some time. Its just that with the whole UBS/US citizen issue of last year, most folks are more aware of the FBAR requirements and the US Treasury is in my opinion more on top of these things. If you are a US resident and maintain any Canadian or foreign accounts, you will have to file US TDF 90-22.1 each year with your US Form 1040. Failure to file could result in penalties.
Jonathan: Terry, I want to get your thoughts on buying property in the US for purely investment sake. If one does not really care for it being a residential or business, which one will give you more return once all the taxes are taken out?
Terry Ritchie: Depends on obviously how much it appreciates over the period that you are holding it. The tax rate upon sale (Canada and US) and the Canadian dollar amount on purchase and sale. Obviously, many people now believe it is a good time to buy US real estate given where the dollar is and where US property values are.
Mike (B.C. snowbird): I am having trouble getting car insurance in Florida. If I buy a car in Florida I cannot get insurance for the Florida car from ICBC. If a go to an American car insurer they will give me very basic insurance as I do not have any insurance records within the United States. Any suggestions?
Terry Ritchie: If you are not a US resident or resident of Florida, I don't believe that you would be entitled to qualify for insurance in the State.