U.S. Properties May Be Taxable


    Owning property located beyond Canadian borders doesn’t mean it’s outside the reach of Canadian tax authorities, says a report by Jamie Golombek, CIBC’s managing director of tax and estate planning. “Many Canadians who own U.S. vacation homes are unaware that certain events may trigger taxes,” he says. “If you earn rental income on the property, sell or gift the property, or own the property upon death, taxes may need to be paid in both the U.S. and Canada.” However, he says although income and capital gains may be taxed in both the U.S. and Canada, people can generally claim a foreign tax credit to reduce Canadian tax. He suggests when selling a U.S. vacation home, people should consider claiming the principal residence exemption to reduce or eliminate their taxable capital gain in Canada. Since it can only be used on one property during any given time period, people will have to decide which of their properties would benefit the most from this exemption. In addition, gifting a U.S. vacation property is generally not recommended since it could result in a significant tax bill in both the U.S. and Canada.