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Tax Rules: What Every Canadian Owner Needs to Know About Their U.S. Vacation Property

BCBusiness + Manning Elliott LLP Every situation is different, so it's prudent to seek professional advice


BCBusiness + Manning Elliott LLP

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Any Canadian with property in the U.S. needs to engage the services of a professional adviser, says Manning Elliott LLP tax partner Steve Reed

Every situation is different, so it’s prudent to seek professional advice

It’s a temptation for Canadians with U.S. vacation property to seek tax advice from fellow Canadians who have spent years adhering to regulations and paying taxes on their homes down south.

But while getting input from other property owners seems normal and, in fact, is common, Steve Reed, a tax partner at Manning Elliott LLP, believes it’s a recipe for disaster. “For starters, no one size fits all,” he says. “Each property owner’s tax situation is different, so the same solutions can’t be replicated.”

Reed says: “Also, U.S. taxation and regulations are so intricate that it’s impossible for property owners to understand the scope of implications—let alone take advantage of the many potential benefits.

“The bottom line is that any Canadian with property in the U.S. needs to engage the services of a professional adviser.”

Reed presides over a dedicated tax team which has considerable experience with U.S. tax laws, and he says one of the most common questions from clients is how ownership of a U.S. vacation property should be structured.

“There is no one right answer as each individual or family will have very different circumstances. In addition, not only do the U.S. federal and state income-tax rules affect the decision, U.S. estate and gift-tax rules may also have application.”

Tax experts are well versed in understanding and helping clients navigate the implications of specific initiatives. As well, a recent initiative that may have a significant impact on Canadians who own U.S. assets is the Tax Cuts and Jobs Act (TCJA). This legislation, which came into law in December 2017, has increased the U.S. estate and gift-tax exemption to over $11-million for the period up to Dec. 31, 2025, and there are also substantial reductions in corporate tax rates.

Reed says: “For Canadians who own U.S. vacation properties, the former will double the prorated U.S. estate-tax exemption under the Canada-U.S. Tax Treaty providing relief from estate taxes. The latter may make other alternative ownership structures much more attractive. Many Canadians considering the purchase of a U.S. vacation property may now determine the form of ownership without concern for the U.S. estate-tax exposure and high corporate taxes.”

The change in tax law under the TCJA may afford new opportunities to reduce or eliminate the overall tax burden, whether Canadians are holding their U.S. vacation home personally, in a company, through a trust, or through a partnership.

More importantly, the single example of the TCJA demonstrates that professional advisers can point clients toward benefits as well as protect them from the unwanted consequences of tax laws.

“Regulations on both sides of the border are constantly in flux, so it only makes sense that professional consultation takes place,” says Reed. “Property owners may be surprised by the extent to which the rules can work in their favour.”

Manning Elliott LLP is one of the province’s largest independent regional accounting and business advisory firms with offices in downtown Vancouver (604-714-3600), Burnaby (604-421-2591), Surrey (604-538-1611), and Abbotsford (1-604-557-5750). The firm has been around for more than 60 years and employs over 200 professionals and staff.

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Created by BCBusiness in partnership with Manning Elliott LLP