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CSA TRAVEL INFORMATION GUIDE
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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).
If you have not made an election to treat your U.S. rental property income as effectively connected
with a U.S. trade or business, then tenants or management agents have to withhold the 30% non-
resident tax from the gross rent and send it to the IRS using form 1042 Annual Withholding Tax Return
for U.S. Source Income of Foreign Person’s and IRS form 1042-S Foreign Person’s U.S. Source Income
Subject to Withholding.
If you decide to make the election, to avoid the tenant or management agent from still making the
30% withholding, you must provide the tenant or agent with IRS formW-8ECI Certificate of Foreign
Person’s Claim That Income Is Effectively Connected With the Conduct of a Trade or Business in the United
States.
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.