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CSA TRAVEL INFORMATION GUIDE
To make this election, you need to file a U.S. income tax return form 1040NR U.S. Nonresident Income
Tax Return along with letter stating:
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Location(s) of all of your real estate property in the United States
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The extent of your ownership in the property
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Description of any major improvements to the property
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List of any previous taxable years for which you made an election, or revocation, to treat U.S.
real property income as effective connected with a U.S. trade or business.
For more information on this election, refer to IRS publication 519 Tax Guide for Aliens under the
section entitled “Income from Real Property”. For information on rental income and expenses, refer to
IRS publication 527 Residential Rental Property (including Rental of Vacation Homes).
For more information on U.S. withholding taxes, refer to IRS publication 515 Withholding of Tax on
Nonresident Aliens and Foreign Entities.
When it comes time, in the future, to sell your property, generally a withholding tax of 10% of the
gross sale price is payable under the Foreign Investment in Real Property Tax Act, 1980 (FIRPTA). The
tax amount withheld can be offset against the U.S. income tax that is payable on any capital gain on
the sale, and refunded if the amount withheld exceeds the tax owing. There are two exceptions to
this 10% withholding rule:
1.
If the selling price of your U.S. based property is less than $300,000 USD and the purchaser
intends to use the property as their principal residence, withholding under FIRPTA does not
apply. To apply, the purchaser must have definite plans to reside at the property for at least one
half of the time that the property is in use during each of the next two years following the sale.
While the buyer using the property as his/her principal residence cancels the need to withhold
part of the proceeds on closing, please note that it does not cancel your general tax liability
for any capital gains realized on the sale. You still must complete a U.S. income tax return, and
possibly pay capital gains tax, on the sale of your property.
2. As an alternative to having an automatic 10% of the gross selling price withheld, if the U.S.
tax liability on the sale of your property is calculated to be less than the amount that would
be withheld under the 10% withholding rule, it may be possible to obtain a “withholding
certificate” from the IRS that will allow only this smaller amount to be withheld at the time
of closing. This will speed up the time it would have taken for you to receive a refund for any
tax overpayment had the full 10% amount been deducted and remitted to the government. A
determination of a tax-payable amount by the IRS generally takes 4 to 6 weeks.
A similar issue surrounds death tax liability, should something happen to you. How the property is
registered on title could impact these two variables in the future.
For all financial and tax issues surrounding a property abroad, seek professional legal and accounting
advice before you buy.
Can you claim a Canadian federal foreign tax credit?
If you paid U.S. tax on U.S. income that you are reporting on your Canadian income tax return, you
may be able to claim a federal foreign tax credit to reduce your Canadian federal tax payable.
For information on how to claim the foreign tax credit, see CRA Interpretation Bulletin IT-270R3
Foreign Tax Credit.