Renting your U.S. vacation property - Be sure you know the tax implications

June 2013

    

Like many Canadians, you may own a vacation property in the United States (U.S.). And, you may be considering renting it out for the purpose of earning income or to defray the ongoing maintenance expenses. Before you begin renting your U.S. vacation property, however, you should take into account both the U.S. and Canadian income tax consequences.

Is your property subject to U.S. income tax?
If you are a Canadian tax resident, you must pay U.S. income tax on the rent you receive from your U.S. vacation property whether you or your agent:

  • arranges the rental while in the U.S. or Canada,
  • receives rental payments while in the U.S. or Canada, or
  • rents the property to Canadians or others.

 
If you are NOT a U.S. person1, you must pay U.S. income tax on the rent you receive in one of two ways: 
  1. withholding tax, or,
  2. tax on net rental income.
If you ARE a U.S. person2, you declare the rent as income on your U.S. tax return and you may deduct your ordinary expenses and a depreciation charge from this income. You then pay tax on your net rental income according to U.S. tax rates.

Foreign tax credit helps avoid double taxation
As a Canadian resident, you pay tax on your worldwide income, including the rent you receive from your U.S. vacation property. However, you should receive a credit on your Canadian tax return for any tax you have paid in the U.S. on rental income. This is referred to as a “foreign tax credit” and by claiming the credit, you avoid double taxation on the same rental income.

Also, remember that you may need to report the cost of your U.S. vacation property and the net rental income you have received. This is required when the cost of your specified foreign property (your rented vacation property and other foreign investments) exceeds $100,000 at any time in the taxation year. 

As with any tax planning, you should consult a tax advisor about your own unique circumstances.

Any discussion of U.S. tax matters in this communication (including any attachments) cannot be used for the purpose of avoiding tax penalties.

1 You are a non-resident alien for U.S. tax purposes.
2 You are a U.S. citizen or resident alien (green card holder), or have elected to file a U.S. income tax return.
        

    If you would like more information on income tax planning, or would like a complimentary copy of our publications “U.S. Estate Taxes”, “Renting Your U.S. Vacation Property”, and “Planning the Purchase a U.S. Property”, contact your Investment Advisor.
    Previous Tax & Estate Planning Strategies
    View items by year:

    2013

    2012

    2011

    • Renting your U.S. vacation property - Be sure you know the tax implications

      Jun 04, 2013

      Like many Canadians, you may own a vacation property in the United States (U.S.). And, you may be considering renting it out for the purpose of earning income or to defray the ongoing maintenance expenses. Before you begin renting your U.S. vacation property, however, you should take into account both the U.S. and Canadian income tax consequences...
      read more
    • What’s at the heart of your business?

      May 06, 2013

      You’ve worked hard to grow your business over the years and now it’s time to share the wealth with your favourite charity. Giving back through a personalized charitable giving strategy speaks volumes about who you are and the values you hold dear.
      read more
    • Family Wealth Transfer Plan: Permanent life insurance, an efficient way to accumulate and transfer wealth

      Apr 02, 2013

      Are you aware that permanent life insurance can be used as an efficient way of accumulating and transferring wealth? The Family Wealth Transfer Plan utilizes an effective insurance strategy that allows a parent or grand parent to transfer assets tax free to the next generation...
      read more
    • Trusts – An integral part of your estate plan

      Mar 01, 2013

      Integrating a trust (or multiple trusts) as part of your estate plan may provide significant benefits to you and your family. Typical benefits may include...
      read more
    • RRSP or TFSA contributions – which should I choose?

      Feb 01, 2013

      Registered Retirement Savings Plans (RRSPs) and Tax Free Savings Accounts (TFSAs) are two types of registered savings programs. Canadians are encouraged to contribute to both types of savings vehicles, but how do they really compare?
      read more
    • Take advantage of new limits to maximize contributions to your Tax-Free Savings Account

      Jan 04, 2013

      Effective January 1, 2013, the annual contribution limit for Tax-Free Savings Accounts has increased to $5,500. While this may be a small portion of your overall savings strategy annually, it can be one of the most powerful...
      read more
    • 2012 – 2013 TAX PLANNING STRATEGIES to minimize your taxes, maximize your wealth

      Dec 03, 2012

      As you may know, financial planning is time sensitive and many tax strategies are driven by deadlines. While the following list is not exhaustive, here are some timely action items...
      read more
    • Tax loss selling – Smart strategy to reduce your capital gains this year

      Nov 01, 2012

      Each year, whether in bull or bear markets, volatility presents investors with tax loss selling opportunities. If you’ve realized capital gains in the year, consider selling assets with an accrued loss to offset the gains. You may also realize the loss if you’ve had capital gains...
      read more
    • Choosing a guardian for your children: Take time today to secure their future

      Oct 02, 2012

      Making a decision about who should raise your children in the event that something happens to you is not easy. However, as difficult as it is, taking the time to choose an appropriate guardian (tutor in Quebec) for your children will provide you peace of mind and will ensure someone guides and supports them through young adulthood and into maturity...
      read more
    • Insuring what matters the most: Our health

      Sep 04, 2012

      Most of us would never give up our home insurance, our car insurance, and even our life insurance. Nevertheless, when the time comes to insure our health...
      read more
    • Spousal Loans: A strategy to increase net worth and reduce tax

      Aug 01, 2012

      Consider reducing your family income tax by using a spousal loan. A spousal loan is an income splitting strategy that transfers investment income from a higher income earner... read more
      read more
    • Cottage Succession – Keeping it in the family

      Jul 06, 2012

      For most of us, there are wonderful memories attached to a family cottage. However, at some point, cottage owners will face the financial and emotional challenges of selling or transferring this cherished family asset...
      read more
    • Registered Disability Savings Plan (RDSP)

      Jun 04, 2012

      If you have a disabled child, you are likely concerned with saving for their financial stability in the future. A Registered Disability Savings Plan (RDSP) is designed to help contribute to the long term financial security for a person with a disability. As an efficient savings vehicle...
      read more
    • Win-Win: Creating your customized charitable giving strategy while reducing taxes

      May 02, 2012

      You’ve worked closely with your Richardson GMP Investment Advisor to reach your personal investment goals. Now, we can help you achieve your dream...
      read more
    • Key person insurance - Is your business protected?

      Apr 02, 2012

      As a business owner or executive you understand how critical certain employees are to your organization, but have you considered what would happen if one of your star performers became disabled or suffered death? There are many situations where insurance can provide protection for your company...
      read more
    • Strategies to save tax and maximize your wealth

      Mar 01, 2012

      Don’t wait until the last minute! Income tax season is upon us and the more organized you are, the more likely you or your tax professional will be able to take advantage of deductions and credits on your tax return to maximize your wealth. Strategies to minimize your taxes are one of the components to an integrated approach to your tax and estate planning...
      read more
    • Insuring your children

      Feb 01, 2012

      No one likes to talk about it because no one wants to entertain the thought. Parents dare not imagine for a single moment the possibility of one of their children receiving the diagnosis of a critical illness or passing away. Yet, not talking and not thinking about the financial consequences...
      read more
    • Estate Planning

      Jan 01, 2012

      Estate planning is an essential part of wealth management, particularly if your estate involves significant assets, complex issues or multi-faceted relationships...
      read more
    • Critical Illness Insurance

      Nov 01, 2011

      Critical Illness isn’t something any of us like to think about, but unfortunately it happens. Despite our progressive healthcare system, we still are faced with increased waiting periods and out of pocket expenses for additional equipment and alternative treatments...
      read more
    • The tax benefits of flow-through share investing

      Oct 01, 2011

      Investing in flow-through shares has been a popular tax reduction strategy for several years in Canada. Flow-through shares allow the issuing company to renounce or “flow through” tax expenses associated with Canadian explora­tion activities to investors...
      read more
    • Modular Benefit Plans

      Sep 01, 2011

      While the cost of group insurance continues to rise, employers are ready to accept reasonable cost increases in order to maintain competitive compensation packages that will help them attract and retain the best employees...
      read more
    • Registered Education Savings Plan

      Aug 01, 2011

      With the ever increasing cost of post secondary education, the tax-deferred growth of a Registered Education Savings Plan (RESP) and the Canada Education Savings Grant (CESG) are attractive ways to plan for this major life event...
      read more
    • Estate bond

      Jul 01, 2011

      Life Insurance can be used as an effective way of accumulating and transferring wealth. An Estate Bond is a financial planning strategy that transfers non registered savings from a tax exposed investment to an exempt life insurance policy...
      read more
    • Cottage succession

      Jun 01, 2011

      For most of us, there are wonderful memories attached to a family cottage. However, at some point, cottage owners will face the financial and emotional challenges of selling or transferring this cherished family asset...
      read more
    • Insured Annuities

      May 01, 2011

      An Insured Annuity provides a guaranteed, tax preferred income stream for as long as you live...
      read more
    • Changes to the Canada Pension Plan and Quebec Pension Plan

      Apr 01, 2011

      The Canada Pension Plan (CPP) has recently implemented changes to benefits that will be phased in gradually over a six year period beginning in January 2011. If you have not already applied for CPP retirement pension benefits...
      read more
    • Charitable giving strategies

      Mar 01, 2011

      As part of your charitable giving strategy, you should consider the tax implications to ensure that you structure your donations in the most cost-effective manner. Charitable donations can be made through gifts of cash, life insurance, or other types of property, either during your lifetime or upon your death...
      read more
    • Tax planning checklist

      Jan 01, 2011

      As we embark on a new year, people tend to turn their attention to planning for the future. While we believe that tax planning should be an integral part of the overall wealth planning...
      read more