As the loonie rose along with heat this week, some folks who could summon up the energy in these dog days of summer no doubt would have been thinking about buying a U.S. property. After all, prices have never been more affordable, especially for Canadians. If not now, then when?
Financial Post
Learn more about the often forgotten tax planning that is important prior to buying a U.S. property for Canadian. BRIAN BURTON of the Calgary Herald discusses in his article:
One thing is certain for all Canadians who buy homes south of the border, he says: “At some time or another, we will all have to deal with the IRS (United States Internal Revenue Service).”
As Canadian “Snow Birds”, flock south for the winter, they are encountering the fact that the cost of Florida real estate has drastically declined in recent years, making the idea of owning property in the sunny south increasingly palatable. One of the biggest fears of owning foreign real estate is the question of what happens when I die?
The recently passed Tax Relief Act, in the United States (“US”) has a $5 million indexed exemption and a 35% rate for tax payable. As a result, Canadians who own US real estate held personally will not be subject to U.S. estate tax where their worldwide estate is less than $5 million at death. However, in 2 years the exemption drops back down to $1 million unless there are new tax law changes. For the purposes of this article we will discuss purchases in Florida.
In essence do we need to subject the Executors (Estate Trustees) to dealing with IRS and disclosing the full value of the deceased’s assets and getting into all of the myriad of cross border tax issues that appear the minute we need to deal with the US Authorities? Not if we can avoid it.
Canadians who purchase property in Florida have certain advantages: first, Canada and the US have a tax treaty that prevents Canadians from paying double tax in many circumstances. This will protect Canadians from double taxation in many circumstances, on the sale of the property. Second, for both tax and succession purposes the property can be placed into a carefully constructed Florida family trust.
In order to determine the eligibility of a given purchaser for such a vehicle it is necessary to meet with a legal and/or financial professional (tax accountant) familiar with all of the complex issues that affect the area and in order to make the professionals understand the individual needs of the person or family requiring the advice. This will allow for the careful planning necessary to make these vehicles work and comply with the tax legislation of both the US and Canada. The cost to establish the trust and administer it, is a small price to pay to avoid the extremely expensive time consuming, frightening and complex world of US tax.
Now is a great time to purchase land in Florida – if done properly. Speaking to a law firm such as ours together with the right tax accountant can greatly decrease your potential risks in falling afoul of either the Canadian or US taxation authorities When done properly the Florida family trust will provide peace of mind and security. In other words: use a Florida family trust to shelter you from the cold!
By: Jayson Schwarz and Aaron Grinhaus
Jayson Schwarz is a Toronto business and real estate lawyer and partner in the law firm Danson Schwarz Recht. Aaron Grinhaus is his Associate. If you have questions, use the web site, www.dansonschwarz.com, email us at info@dansonschwarz.com and give us your questions, concerns, critiques and quandaries.
About 54 percent of home purchases in Palm Beach, Broward and Miami-Dade counties were cash buys in the final quarter of 2010. That’s about 7,530 homes and condominiums between October and December that were paid for with Benjamins instead of borrowing, according to real estate analysts at Zillow.
Read the full article here as posted by the Sun Sentinal in Florida
The Toronto Sun published a great article pointing out some of the pitfalls of buying U.S. Real Estate without consulting expert first:
“Or similarly, buying a house in a sub-division and finding most of the other properties are unoccupied. He has also increasingly been made aware of scams close to the Mexican border, where properties are being sold with a rental contract in place, which evaporates shortly after the purchase.”
Read the full article here
As Canadian “Snow Birds”, flock south for the winter, they are encountering the fact that the cost of Florida real estate has drastically declined in recent years, making the idea of owning property in the sunny south increasingly palatable. One of the biggest fears of owning foreign real estate is the question of what happens when I die?
The recently passed Tax Relief Act, in the United States (“US”) has a $5 million indexed exemption and a 35% rate for tax payable. As a result, Canadians who own US real estate held personally will not be subject to U.S. estate tax where their worldwide estate is less than $5 million at death. However, in 2 years the exemption drops back down to $1 million unless there are new tax law changes. For the purposes of this article we will discuss purchases in Florida.
In essence do we need to subject the Executors (Estate Trustees) to dealing with IRS and disclosing the full value of the deceased’s assets and getting into all of the myriad of cross border tax issues that appear the minute we need to deal with the US Authorities? Not if we can avoid it.
Canadians who purchase property in Florida have certain advantages: first, Canada and the US have a tax treaty that prevents Canadians from paying double tax in many circumstances. This will protect Canadians from double taxation in many circumstances, on the sale of the property. Second, for both tax and succession purposes the property can be placed into a carefully constructed Florida family trust.
In order to determine the eligibility of a given purchaser for such a vehicle it is necessary to meet with a legal and/or financial professional (tax accountant) familiar with all of the complex issues that affect the area and in order to make the professionals understand the individual needs of the person or family requiring the advice. This will allow for the careful planning necessary to make these vehicles work and comply with the tax legislation of both the US and Canada. The cost to establish the trust and administer it, is a small price to pay to avoid the extremely expensive time consuming, frightening and complex world of US tax.
Now is a great time to purchase land in Florida – if done properly. Speaking to a law firm such as ours together with the right tax accountant can greatly decrease your potential risks in falling afoul of either the Canadian or US taxation authorities When done properly the Florida family trust will provide peace of mind and security. In other words: use a Florida family trust to shelter you from the cold!
Jayson Schwarz is a Toronto business and real estate lawyer and partner in the law firm Danson Schwarz Recht. Aaron Grinhaus is his Associate. If you have questions, use the web site, www.dansonschwarz.com, email us at info@dansonschwarz.com and give us your questions, concerns, critiques and quandaries.
By: Jayson Schwarz and Aaron Grinhaus
As home prices in Toronto continue to climb, many are wondering if Toronto is experiencing a real estate bubble. While no-one can give a definitive answer, economist argue that Canada is one of the safest countries to keep your investment today as Europe and USA have significant economic and government debt issues still to play out over the next few years. Thus it is very likely interest rates may stay relatively low for prolonged period of time due to the situation in the US. This may continue to drive investment into Canada for the immediate future.
Many Torontonians remember the Toronto real estate market crash of the late 80’s - early 90’s and fear the current market may be due for a similar fate. Some fundamental differences do exist:
1) The current home prices in Toronto are far more affordable than in the late 80’s and is inline with-in a normal range
2) The overall trend line for prices has been consistent over the last 15 years and the current market prices are inline with the trend
Realty Times explores what happened with the recent American housing crisis and what needs to be done to prevent such a meltdown. David Fletcher’s interviews Harold Green of Central Showplace in a article that sheds light on the America Need for A Trust-Based Mortgage System.
Here are some experts from that interview:
RT: What caused this recession?
There is always going to be a reason that people point to when the economy slows down. I believe that most people would agree that a credit crunch caused this. The credit crunch was caused by too much easy credit inflating the price of everything including housing. It ended when lenders, for all practical purposes, quit lending.
RT: When do you think it will turn around?
It will turn around when liquidity returns. Many of the funds that were the tried and true sources of liquidity were virtually put out of business when the bubble burst. These funds took years to create and they will not suddenly re-appear.
RT: How long do you think it will take to rebuild the funds?
It will take years for these funds to rebuild. Until then, we will have to rely upon the sources that are available and they are going to be limited to banks that are solid and programs that are sponsored by the government.
RT: What can we expect from banks in the near term?
You should expect banks to move to more secure business models where taking risk is removed and replaced with more banking fees. Qualifications will tighten and the cost of borrowing will be significant. This will relax and get back to a normal market when the alternative sources of capital become healthy again.
RT: What does a ‘normal’ market look like?
A properly balanced money supply will enable reasonable people acting reasonably to acquire assets for reasonable prices and obtain reasonable financing from reasonable lenders. Right now the source of funds to create liquidity in the markets is pretty much going to be provided by the FED, the government and foreign investors.
RT: How did we get where are today?
From what we see from the sidelines, the lenders created this situation. Traditionally the people that are on the front line writing the paper, approving the loans and the lender’s themselves, are compensated based on their ability to write good loans, build and maintain profitable loan portfolios and make some money servicing those accounts. There is nothing wrong with that. It is a well established, proven business model. This model changed.
RT: How did the lender model change?
Simply put, the primary focus on how to make money in the mortgage market changed for some big lenders. While there were a number of factors involved, the sudden and significant demand for mortgages that came from the Wall Street was the straw that broke the camel’s back.
RT: How so?
Lenders saw this demand and rushed to fill it. Some of these lenders created programs that never existed before to get the paper to satisfy the hunger that arose for the mortgage-backed securities. These investments secured by first mortgages, sounded like a safe place to invest.
RT: The demand for mortgage-backed securities caused the problem?
This demand created an opportunity for companies to potentially generate huge profits by simply writing and selling loans. If they really wanted to be in the business, they could also build and keep a large loan servicing business that in normal times would not have been possible.
RT: It sounds like the new products helped no one but the lenders.
Lenders created new mortgage products that put a lot of investor’s money into the mortgage market and that money simply should not have been available. People that did not have the ability to repay were getting mortgages that they could not afford.
RT: The Lender, Not The Homebuyer, Created The Market?
You might say that. The ever increasing need for more and more paper to satisfy the appetite of the mortgage-backed securities that Wall Street was selling so quickly meant that the lenders that participated in this program needed to create a market.
RT: How did they do this?
They did this by marketing new mortgage products that were outside of the norm. They effectively relaxed lending rules to accommodate higher risk mortgages.
RT: The government did not have the authority to regulate this, true?
This unregulated transactional-based profit center was one of the primary factors fueling the housing bubble. They transferred the entire risk for the loan to the investors that bought the mortgage back securities and kept the profit center for servicing.
RT: How could this risk be minimized?
The incentive to take unreasonable risks would be greatly reduced if the pay check of the people writing and approving the loan was based on the quality and performance of the loan. For instance, fees should be earned and paid out over the term based on performance. Compensation should be reduced if the loan defaulted or if it was terminated.
Harold Green of Central Showplace was quoted in a recent interview with Paula Kulig of the Toronto Star, “If you’re a Canadian and you are looking to get a second home in the U.S., now is the time everywhere. There are deals to be had anywhere in the U.S. There are some places, like Las Vegas and Miami, where the deals are extraordinary. All of Florida has great deals.”
Paula’s article explores how Canadians are snapping up the great bargains that the US Sunbelt has to offer.
With the Canadian Looney almost at par again with the US dollar, the flock of snowbirds chasing the sun just keeps on growing. The National Post reports on some of tax implications to watch for when looking to buy a US home.
“Business owners who may be weighing the costs and benefits of purchasing a condo or home, or other U.S. property such as shares, must remember to factor in any applicable U.S. taxes.”
Read more: http://www.nationalpost.com/homes/story.html?id=2645811#ixzz0iD16ElED
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