Where to start as a Canadian investing in USA?

Question

Gord Stevenson · Answer

@Roy N.  I hear you Roy.  As I said, “unless your financial situation is such that a more complex (and more expensive to maintain) structure is warranted.”  Maintaining corporations in both sides of the border would be like that for me anyway.

I file my own US and Canadian taxes, and do not engage an accountant, so my administration costs are low if you don’t count my own pain and anguish.  :-). Setting up LLPs were under $100 a pop and I have five.  Using corporations they would probably be $500-$1000 each to set up and if I then needed an accountant...maybe a couple of thousand per year?  Plus the added cost of setting up and maintaining a corporation in Canada.

The other concern I had with corporations when I first researched it was that they had both a higher income taxpayers rate, and a higher capital gains rate than LLC/LLP (partnerships) for US taxes.  That may or may not still be true.

I don’t have stats but my guess is that the vast majority of LLCs and LLPs are set up as partnerships for taxation purposes in the US and those will attract double taxation according to the new Canadian tax authority viewpoint....unless you own the LLC/LLP in a Canadian corporation.  If a fellow reader has sufficient scale or other financial complexities, to warrant the cost of a CPA and/or already has a Canadian corporation in place to own the US investments then I agree...different situation...use the CPA and whatever he or she suggests.  I also agree that depending on your own level of skill it may be advisable to get a professional opinion.

Can we agree that the situation with the CRA position has changed and that serious due diligence should be exercised before using one as a Tax resident of Canada?

Ali Boone · Answer

Yep! I used to focus on internationals buying in the US. First thing you need to do is get set up with a US entity and a US bank account. The entity is often an LLC, but not for Canadians. LLCs actually don't work in Canadian's favor for tax implications and such. So you'd want to work with someone who specializes in doing this kind of setup. I think it's....LLPs, or something? for Canandians? I can't remember the designation.

Once your entity and bank accounts are set up, then you can buy whatever you want.

Gord Stevenson · Answer

@Jessey Kwong I live in Calgary and have several properties in the US.  If you want to chat, send me a Collegue Request.  Cheers.

Roy N. · Answer

Jessey:

There is no equivalent to an LLC in Canada - which is one of the reasons the can be problematic for Canadian investors in the U.S.A.   Looking at it with a Canadian lens, an LLC lays partway between a sole proprietorship and a corporation and has characteristics of both.  The CRA views them as a corporation, while the U.S.A. allows you to treat them as a flow-through entity (revenues taxed in the individuals hands like a sole proprietorship)

A corporation, as we have in Canada is more akin to a "C" corporation in the U.S.A.

Gord Stevenson · Answer

@Ali Boone @Roy N. @Jessey Kwong LLP’s used to be advised for Canadians, but not now.  Please search on my posts for a longer answer.  The net of it is that LLPs are similar to LLCs but “in the old days”didn’t attract double taxation for Canadians.  The CRA has changed their position and now they are treating LLPs the same as LLCs.  There is a grandfather clause for LLPs created before April 2017 but any new ones are problematic.  You can use an LP but that doesn’t provide the same level of liability isolation.  For most Canadians it probably makes sense to hold US properties in your own name and buy extra liability insurance.  Unless your financial situation is such that some more complex (and costly to maintain) structure is warranted.

Kris Mcfarlane · Answer

How do Canadians close the financing portion in the states; it's my understanding that our credit doesn't transfer to the states, our Equafax or Transunion rating.

You essentially need to buy cash OR with a LLC and U.S. account are we able to close financing with U.S. banks.

I have a U.S. address and bank account. In Canada my current LTV is 48% but I do have heavy equity and great credit. Making more money annually is not an option; I am an employee on salary and only have 1 year declaring my rental income.

I would either like to explore buying south or portfolio lending in Canada.

Anyone's thoughts would be greatly appreciated.

Cory Graham · Answer

Hi Jessey,

I am a fellow Vancouverite new to the REI game as well, and my initial research is leading me towards buy and hold USA properties due to the craziness of the Vancouver market.   I have one property in Surrey BC I currently live in and am definitely wanting to get involved in either WA, or Phoenix AZ markets.

If you make any headway on your research and want to touch base I would be willing!

Cheers

Roy N. · Answer

Gord:

Neither technically attract double taxation.  The issues arises when there is a disconnect between the elected manner of taxation in the U.S.A. and how the entities are viewed under Canadian tax law.

An LLC, when used and taxed as a corporation, can still be a useful tool to Canadians investing in the U.S.A. who perhaps have no intention of repatriating their earnings in the short term and would like to control when they are ultimately repatriated.

What makes sense for you or I, may be different and neither may be a fit for some other Canadian.   Best to work with an   accountant experienced in cross-border business / real estate investment to make a plan that fits your needs.

Jessey Kwong · Answer

@Ali Boone - that's correct, Canadians don't have LLCs but we have corporations, i believe thats the equivalent?@Joe LaFleur do you mean that TD Bank is very helpful because TD is also in Canada?

Where to start as a Canadian investing in USA?

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