Today, many Canadians own real property in the U.S. as vacation or rental property.
There are various ways to hold such property, and the choice of how to hold your foreign real estate depends on the goal(s) you wish to achieve. Some of these goals may include avoiding ancillary probate in the U.S., deferring, reducing or avoiding capital gains tax or land transfer tax, planning for children and their inheritance, and protection from creditors, to name a few.
The consequences of how you hold title to foreign real estate vary significantly. Owning property personally, in a partnership, by a corporation, as tenants in common, as joint tenants, as a Cross Border Trust, or as an LLC, each comes with its own unique advantages and disadvantages.
For Canadian citizens, despite how the property is held in the U.S., it will be treated in Canada according to Canadian law. This can get complicated when considering structures like LLCs that although advantageous to U.S. residents, are treated differently for Canadian residents, providing unwanted and unexpected tax burdens.
Ideally, one should plan how their property in the U.S. should be structured prior to purchase or closing, but there still may be options available to optimize your goals at a later date. One reason for early planning, is that if the property is already owned and later transferred, there may be a risk of triggering capital gains if there has been any increase to the value of the property.
Cross-border planning on how to structure title to foreign real estate will affect you financially, legally, and logistically.
When dealing with cross-border planning, it is best to be done with the advice of someone well versed and knowledgeable in the field, such as a tax lawyer.
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