Do You Own a U.S. Property? It Might Be Time To Get Your House In Order

Recently it was announced that the federal government's deficit will get $343 billion in 2020 with total debt to increase to $1.2 trillion. These are debt levels we have not seen since the second world war. [1] With so much money being injected into the system and rising debt levels, the question on many people's mind is "how will the government pay for this debt?"

US Owned Real Estate and Why the Government is Looking into it

Admittedly, the plan on repayment/debt servicing remains to be seen but it is likely fair to say that the government is looking at their options especially when it comes to taxes. In fact, it was recently uncovered that the government is looking a little bit closer into US owned real estate.

Jamie Golombek wrote on July 10th about the CRA making a request for information (RFI) on June 25th entitled "Bulk United States Real Property Data" (re: Canadian Residents). [2] In the RFI it is stated clearly that the Canadian Revenue Agency is looking for US real estate property data where a Canadian is owner. It appears that CRA is looking into the historical records of mortgage transactions, property taxes, real property records and more. Additionally, the RFI went on to say that this information will enhance the CRA's ability to administer and enforce tax programs and protect Canada's revenue base.

So, what does this all mean? Well in short it appears that CRA is looking to uncover whether Canadians have been appropriately filing their taxes as it relates to their real estate holdings in the US. They will be looking into whether you have been correctly filing your T1135 forms which relates to foreign property where the cost is more than $100,000. For the record, foreign property that is for personal use only does not need to be reported, however, if the property receives rental income then you must complete this record.

Additionally, the CRA will likely be looking into sales of US properties to determine whether the appropriate capital gains tax has been reported. This is particularly important in the case where there has been a gain related to currency appreciation in the US dollar versus the loonie. For example, if you are one of many people who recognized in 2012 that having the loonie at par with the US dollar gave you a great opportunity to scoop up assets in Florida or Arizona, but later sold the property when the exchange rate was $1.30 or higher then you may be at risk of misreporting your capital gain in Canadian dollar terms. Even if the property were sold in US dollars at no gain, you could be on the hook for the capital gain as it relates to the currency.

Enforcing the Existing Tax Code and Locating Any Lost Revenues

It remains to be seen just how much information the CRA will be able to gather in this RFI but what is clear is that the CRA is looking for opportunities to enforce the existing tax code in a more efficient manner and find any lost revenues.  In my opinion this is likely only the beginning and so it is important for anyone who does own US property, it's worth taking a second look at this time to ensure that you have reported things onside. The penalties for failing to do so will undoubtedly be large. Additionally, I foresee that the value of efficient tax planning is about to become a whole lot more valuable in the coming years.

- Grant White, CIM, CFP

Grant White is a Portfolio Manager/Investment Advisor at Endeavour Wealth Management with Industrial Alliance Securities Inc, an award-winning office as recognized by the Carson Group. Together with his partners he provides comprehensive wealth management planning for business owners, professionals and individual families.

This information has been prepared by Grant White who is a Portfolio Manager for Industrial Alliance Securities Inc. (iA Securities) and does not necessarily reflect the opinion of iA Securities. The information contained in this newsletter comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors. The Portfolio Manager can open accounts only in the provinces in which they are registered.

[1] https://www.cbc.ca/news/politics/bill-morneau-fiscal-update-budget-deficit-1.5641864

[2] https://financialpost.com/personal-finance/taxes/snowbirds-beware-the-cra-is-hunting-for-bulk-u-s-real-estate-data-to-keep-tabs-on-transactions-by-canadians