I am looking for some advice. I am currently under contract to purchase a duplex and the seller is a Canadian citizen. Does anyone have experience doing deals with a seller that is not a US citizen? I am working with Chicago Title for the title work on the property and they seem to be dragging their feet and not really sure how to do this. Due to the seller living several hours away in Canada closing in the same location is not really feasible. The title company said we the seller would have to close a Chicago title branch in the US or at a US consulate in Canada. Additionally there are also tax complications from my research it looks like the seller will have to have 15% of the sale price withheld on ensure capital gains are covered if the seller fails to file a US tax return. If anyone has experience in this that would be helpful also. Thanks!
@Matt Scholten You've gotten the general idea correctly. A lot of Canadians buy into Arizona so I went to a class to learn how to deal with the implications. A Canadian closing is a little different but not insurmountable. The Title company might be confused because they don't these transactions often enough. Chicago Title is national, so have them call the Phoenix Office for details. You have a lazy Title agent or someone who is afraid of looking stupid. Sorry, "I calls it as I sees it". Also, have the Canadian check with their Chartered Accountant as to how they want to proceed at that end.
Thanks a ton Ken! In your previous dealing has the title company handeled the tax withholding or was that done in some other manner?
I am Canadian and buy/sell all the time cross border and quite often am in Canada for closings. First of all, I'd suggest you get a Title Co who's done transactions with foreign sellers, especially if they are telling you to have the seller close at their branch or at a US consulate is completely false. They simply need to do a "Fedex" closing whereby all the closing docs are emailed to the seller wherever they might be, they print them off, sign and have them notarized by an attorney. Everything needs to be signed in blue ink (deed in particular), and then couriered overnight back the Title Co.
As for the 15% withholding, if it is in their personal name (and not in a US entity), typically is up to the Buyer and their Title Co to handle this. However, if they have a US Tax ID (ITIN) the, seller can apply to have a withholding waiver certificate done by a US accountant who files the applicable info with the IRS. Also, if the purchase price of the property is less than $300K then this withholding tax is generally not required, depending on the Title Co as it's a bit of grey area.
@Chad U. - somewhat off topic, and you have a different perspective, but would love to get your thoughts on roadblocks and or general process for US citizens looking to buy investment properties in Canada.
Sorry Simon I'm really don't have much experience vice versa. I do know if you invest in Vancouver or Toronto you'll pay a 15% foreign investor tax at purchase. However, those are two of the most expensive RE markets in Canada so would suggest staying away from them. I'd also suggest sticking to investing in the US as there are far more opportunities for higher ROI vs Canada, particularly in the mid-west. If you're going to invest long distance, I'd stay within the borders as it's probably not worth the headaches you'll face. I deal with them all day long investing cross border.
@Chad - Thanks for the quick reply. Point is well taken, I'm more inquiring for information purposes as I think Van will come down at some point at there's a decent margin to be had from a vacation rental standpoint.
@Matt Scholten - I love the idea of buying from a Canadian seller. The extra hoops you have to go through to close the deal could turn off other potential buyers and allow you to get a better price
Hi guys, thanks for all the help. I just wanted to give an update on how the deal worked out. We were able to close on the property last Thursday. The seller closed at a Chicago Title branch in Montana and I was able to close in Michigan. The 15% withholding was required, and we completed tax forms 8288 and 8288-A. The seller was also required to fill out a W-8BEN, and a couple misc. withholding forms required by the title company.