US Real Estate Syndications while Candian Tax Resident

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US Real Estate Syndications while Candian Tax Resident

Mike Helminger
Kenmore, WA · Member since 2017 · 9 posts · 3 votes
I will be moving to Canada later this year. I have three syndications that I'm invested in: 1 self storage and 2 MHP.

I am curious what tax implications there will be as I become a Canadian resident. I know the US and Canada have a lot of tax treaties. Is depreciation and bonus segregation handled in a similar fashion in Canada? 

I know one of the main tax-advantaged strategies is to take bonus depreciation to really accelerate things. Will this work in Canada?
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Jesse Fragale
Investor · Toronto, Ontario · Member since 2016 · 50 posts · 15 votes
5y

Mike, not legal or tax advice (of course) but in Canada we do have depreciation in the form of what is known as capital cost allowance.  Works very similarly to US depreciation. Instead of 27.5 years for resi and 39 years for commercial in the US...in Canada we have 'classes of property.  For instance, most Canadian residential rentals are "class 1" which means you can depreciate the buildings at 4% a year.  Which is very similar to 27.5. Example $1 million/27.5 = $36,363 or 3.63%.

As far as bonus depreciation and cost seg.  I am unaware of bonus depreciation in Canada.  My understanding is it was most recently an aspect of the Jobs Act in the US.  Thats out of my depth.  Cost-seg is a good question that I honestly do not know the answer to.  I know Canadians have used different classes of equipment in their rentals on different amortization schedules...but I am not sure if it is cost seg per se.

Hope that helps.

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  • Taylor L.
    Rental Property Investor · RVA · Member since 2016 · 5k+ posts · 4k+ votes
    5y

    @Michael Plaks?

    0Reply
  • Jesse Fragale
    Investor · Toronto, Ontario · Member since 2016 · 50 posts · 15 votes
    5y

    Mike, not legal or tax advice (of course) but in Canada we do have depreciation in the form of what is known as capital cost allowance.  Works very similarly to US depreciation. Instead of 27.5 years for resi and 39 years for commercial in the US...in Canada we have 'classes of property.  For instance, most Canadian residential rentals are "class 1" which means you can depreciate the buildings at 4% a year.  Which is very similar to 27.5. Example $1 million/27.5 = $36,363 or 3.63%.

    As far as bonus depreciation and cost seg.  I am unaware of bonus depreciation in Canada.  My understanding is it was most recently an aspect of the Jobs Act in the US.  Thats out of my depth.  Cost-seg is a good question that I honestly do not know the answer to.  I know Canadians have used different classes of equipment in their rentals on different amortization schedules...but I am not sure if it is cost seg per se.

    Hope that helps.

    3Reply
  • Yonah WeissPro Member
    Cost Segregation Expert and Investor · Lakewood, NJ · Member since 2017 · 1k+ posts · 1k+ votes
    5y

    @Mike Helminger great question! If the properties are US based, the depreciation allocated to you on your K-1s will help you to offset your income from those investments. As far as your Canadian taxes, Canada has a tax treaty with the US that does not double tax you on the income you make in the US (unlike many other countries). Investing in US real estate as a Canadian resident is a great way to shelter that income with the benefits of depreciation.

    1Reply
  • Mike Helminger
    OP
    Kenmore, WA · Member since 2017 · 9 posts · 3 votes
    5y

    Sorry for the delayed response (I wasn't receiving email notification for some reason). Anyway, @Yonah Weiss I do not believe that interpretation is correct. Based on my understanding, these pots of money are treated differently in the US vs Canada.

    The CRA changed its administrative position a few years ago to treat US LLPs as corporations for Canadian tax purposes, such that distributions from such an entity to a Canadian resident taxpayer are likely to be characterized as dividends.

    https://agtax.ca/cras-taxation...

    0Reply
  • Basit SiddiqiBusiness Member
    Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
    5y

    @Mike Helminger

    You should notify your sponsors that you will no longer be considered a US resident. If you are not a US citizen, the sponsor may be required to withhold federal taxes on your behalf when the syndication has income(most likely in year of sale).

    [email protected]917-280-8544
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