So… You Bought Your Place in the Sun

When our Canadian dollar was flying high and real estate prices in the US southern states were depressed, many Canadians decided to take the plunge and buy their winter vacation home.

What most Canadians don’t know, however, is that if you die and own US real property, you may have a large deemed capital gain tax with respect to that property, as well as a possible US estate tax liability. The combination of the both, in some instances, could take a substantial chunk out of the value of that property.

In the past, Canadians used a Canadian “single purpose” corporation to acquire such properties, thereby avoiding the US estate tax liability. However, since 2005, acquisition of US real estate through one of these entities has lost its luster.  The CRA now deems use of the property by the principals as a taxable benefit which must be claimed on the owner’s Canadian tax return. If you set one of these up prior to 2005 they were grandfathered, so you are still in luck! 

Before you panic, generally the base values before US estate tax comes into play are relatively high. Also, US and Canada have tax treaties which will dampen the effects of double taxation. 

If you go beyond common law jurisdictions, especially civil code and Islamic countries (France, Japan, Saudi Arabia) there are what are referred to as “forced heirship rules.” These rules override how you would like to see your estate distributed in your will and accordingly you need to seek expert advice in that locale to ensure your wishes are carried out.

Enjoy the sunshine and your home away from the cold blast of winter, but be sure to get advice before you sign on that dotted line!

This article is not to be construed as legal advice. You are encouraged to consult a professional.