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U.S. Properties Owned by Canadians
A number of years ago the United States, to feed its ever burgeoning deficit, established legislation to tax US residents as well as non-residents owning US property upon their death. One tactic for a Canadian to avoid this estate tax was to own US property in a Canadian corporation. Corporations do not die and are, therefore, not subject to estate tax. The Canadian government would generally allow this arrangement without assessing shareholder taxable benefits provided the sole purpose of the company was to own the US property. Such companies are referred to as “Single Purpose Corporations”.
On June 23, 2004 the Canada Revenue Agency rescinded their administrative position on Single Purpose Corporations. Such arrangements will now result in taxable benefits being assessed to the shareholders of the company. Single Purpose Corporations established before June 23, 2004 are grandfathered from this new position.
Canadians with a world wide asset value of less than $1,200,000 will generally be exempt from US estate tax. For those Canadians owning US property, whose world wide assets exceed $1,200,000, US estate tax may apply. The good news is there are still structures that can avoid the IRS such as non-recourse mortgages, limited partnerships, trusts and joint ownerships.
If you are contemplating a US property purchase please call us.
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