Navigating Cross-Border Taxation for Real Estate Investors

Summary

Real Estate Without Borders: Navigating Cross-Border Taxation for Real Estate Investors

Episode Release Date: March 16, 2025

In this insightful episode of Real Estate Without Borders, host Dave Hutch engages in a comprehensive discussion with Sammy, a seasoned CPA and IRS enrolled agent, alongside co-host Daniel Fosh. The episode delves deep into the complexities of cross-border taxation, specifically tailored for American investors venturing into international real estate markets like Canada and Mexico. Below is a detailed summary capturing the essential discussions, expert insights, and practical conclusions drawn during the episode.

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1. Introduction to Cross-Border Taxation

Dave Hutch opens the episode by introducing Sammy, an expert in cross-border and international taxation with over 14 years of experience. The primary focus is on guiding American investors through the tax implications of purchasing real estate abroad.

Notable Quote:

"We're going to cover a lot about how Americans need to worry and structure their taxes when investing outside of the US."
— [00:01] Dave Hutch

2. Understanding Key Tax Forms and Filing Requirements

Sammy elucidates the critical tax forms that American investors must be aware of when purchasing Canadian real estate. The discussion centers around FBAR (FinCEN Form 114) and Form 8938, highlighting their thresholds and filing obligations.

• FBAR (FinCEN Form 114): Required if foreign accounts exceed $10,000 at any point during the year.

  Quote:

  "When you hit that threshold, you've got to file something called FBAR."
  — [03:00] Sammy

• Form 8938: Triggered when foreign assets exceed $50,000, typically relevant when real estate is held through a foreign corporation.

  Quote:

  "If you buy Canadian real estate through a Canadian corp, that will trigger Form 8938."
  — [03:50] Sammy

3. Personal vs. Corporate Ownership of Foreign Property

A significant portion of the episode discusses the advantages of purchasing property personally versus through a corporate entity. Sammy emphasizes the complexities and additional tax burdens associated with corporate ownership, such as the necessity to file Form 5471.

Notable Quote:

"It's beneficial to own and purchase as a personal entity from the US as a foreign buyer instead of trying to open up a corp in Canada."
— [04:01] Sammy

4. Tax Treaties and Avoiding Double Taxation

The conversation shifts to the US-Canada Tax Treaty, which aims to prevent double taxation for investors. Sammy explains how this treaty allows for the Foreign Tax Credit (FTC) using Form 1116, enabling investors to offset Canadian taxes against their US tax liabilities.

Quote:

"For an American or anyone who has to file a Canadian rental tax return, you're going to pay Canadian taxes on the net rental... you can pop it over on the US side under Form 1116 and then eliminate the double taxation."
— [07:15] Sammy

5. Capital Gains Taxation

Capital gains from the sale of foreign property are addressed, with Sammy detailing how they are taxed similarly in both the US and Canada. He highlights the importance of utilizing the Foreign Tax Credit to avoid double taxation on these gains.

Notable Quote:

"Capital gains are very similar in the US as they are in Canada... you sell the property in Canada, you pay that income tax, then claim that tax credit on your US return."
— [09:57] Sammy

6. FIRPTA and Its Relevance

FIRPTA (Foreign Investment in Real Property Tax Act) is discussed to clarify its applicability. Sammy clarifies that FIRPTA concerns non-US residents selling US properties and does not apply to US citizens purchasing foreign real estate.

Quote:

"FIRPTA does not apply to US citizens or green card holders buying foreign properties."
— [11:10] Sammy

7. Exchange Rate Considerations

The necessity of converting foreign income and expenses into US dollars using the IRS-approved exchange rates is highlighted. Sammy advises investors to utilize the IRS Treasury rates for accurate reporting.

Notable Quote:

"You need to use the IRS rate, convert, use the annual average and convert all the income and expenses to USD."
— [13:54] Sammy

8. Documentation for International Real Estate Investors

Proper documentation is paramount for seamless tax filing. Sammy outlines essential documents such as the Purchase and Sale Agreement, mortgage statements, property tax bills, and rent rolls. He also differentiates between the US's cash basis accounting and Canada's accrual basis.

Quote:

"You need to see what you've collected in terms of income. Now the interesting thing about the US is we're on a 1040 personal tax return... in Canada you work usually on an accrual basis."
— [23:26] Sammy

9. Tax Optimization Strategies

The episode explores strategies to optimize tax positions, including leveraging Section 216 of the Canadian tax code to elect taxation on net rental income rather than gross. Sammy suggests that creating deductible expenses like depreciation and mortgage interest can effectively minimize taxable income.

Notable Quote:

"Ideally, you're going to hit it with the foreign tax credit and eliminate the double taxation on that."
— [25:48] Sammy

10. Navigating Changing Global Property Regulations

Daniel Fosh introduces the topic of increasing nationalistic sentiments affecting foreign real estate investments, citing examples like Portugal’s foreign buyer bans and Spain’s increased land transfer taxes. Sammy discusses the impact of such regulations on the real estate market and notes the absence of loopholes to circumvent these rules.

Quote:

"I'm not aware of any loopholes to kind of avoid that... it's going to impact us overall."
— [27:05] Sammy

11. Best Practices and Final Recommendations

In concluding remarks, the hosts emphasize the importance of adhering to tax regulations and maintaining meticulous records. Sammy advises against attempting to shelter income illegally and underscores the benefits of working with knowledgeable accountants to navigate the complexities of cross-border taxation.

Notable Quote:

"If you're a US Citizen, you've got to report any income you earn anywhere in the world, even if you don't live in the United States."
— [19:36] Sammy

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Conclusion

This episode of Real Estate Without Borders serves as an essential guide for American investors eyeing international real estate opportunities. By breaking down intricate tax forms, elucidating the benefits of personal versus corporate ownership, and offering strategies to mitigate tax liabilities, Dave Hutch and his guests provide valuable knowledge to navigate the often daunting landscape of cross-border taxation. Whether dealing with FBAR filings, understanding FIRPTA implications, or leveraging tax treaties, investors are equipped with the insights needed to make informed and compliant investment decisions globally.

For those looking to expand their real estate portfolios beyond US borders, this episode underscores the critical importance of professional tax advice and diligent financial planning to ensure successful and tax-efficient international investments.

Transcript

[Dave Hutch]

All right, welcome back to another episode of Real Estate Without Borders. Today is our, one of our first guests. It's me, Dave Hutch, Daniel Fosh, and Sammy. We have an accountant here who owns two firms, one in Toronto, one in Florida. And we're going to be covering a lot about how Americans need to worry and structure their taxes when investing outside of the US So I'm super excited because this is honestly probably one of the, the most questions we get asked. So we're going to try to cover as much as we can and keep it as simple as possible. I'm excited for this one. I think it's going to be good. Let's kind of jump into this and let's start with. I know we were just talking about this before we, we hit record, and I wanted to get this on the, on the, on camera. So the Canadian tax implications. Okay. So, Sammy, you have offices. Well, first of all, maybe you should introduce yourself. Let's do that first before I jump into it. Sammy, take it away, buddy.

[Sammy]

Thanks, Dave. So, yeah, I'm a licensed CPA of Ontario, Canada, and I'm also an IRS enrolled agent. So my practice has been around for 14 years. And we focus on cross border tax between US and Canada, and we also do international tax. So. Thank you.

[Dave Hutch]

It's exactly what we need.

[Daniel Fosh]

Yeah. So I guess what we, what we really want to chat through today is like, what do people need to know if they're thinking about investing in a place outside, let's say, outside of the country that they live in. And you can, you can use like, you know, if you want to, probably the largest portion of the audience is going to be from the US So if, if it's, if it's easiest to kind of use that as an example, go for it. But what, like, if I want to, if I live in any country and I want to buy real estate in a different country, what are the key considerations that I need to think about?

[Sammy]

Yeah, well, first off, so, yeah, mainly our focus is between Americans buying Canadian real estate. But I can generalize to say that it's always very important. Whatever country you reside in, if you're buying Canadian real estate, you always want to check what your domestic tax laws are. Usually your country will have some sort of income tax treaty with Canada. Canada has income tax treaties with a lot of countries around the world. So essentially, for an American who buys Canadian real estate, one big consideration is something called fatca, stands for Foreign Account Tax Compliance Act. So this, this came into place for basically Americans who have to report any offshore bank accounts. So essentially, obviously, when you buy real estate, you have to open up a bank account in that country. You're going to have at least the threshold, which is 10,000 USD at any time of the year. They're going to have to kind of report that back to the irs. Other countries, UK or any other country around the world, they're going to have to check with their domestic tax laws on what their foreign reporting standards are.

[Dave Hutch]

Did you, did you say. So the, so the Americans that are looking to purchase in Canada, let's just say that for example, they need to have, they're going to have to open a Canadian account to complete that transaction. And did you say there needs to be at all times at least $10,000 in that account?

[Sammy]

So, so that's the filing threshold. When you hit 10,000, you got to file something called FBAR. So the technical name is called FinCEN114, but the layman term everyone calls it is FBAR. And so when you hit that threshold at any time during the year, a US citizen has to consider the FBAR. There's also another form part of the FACA reporting called 8938. That threshold is 50,000. But usually that doesn't get triggered when you buy Canadian real estate directly. It only gets triggered if you buy it through a foreign entity. So if you buy Canadian real estate through a Canadian corp, that will trigger form 8938. So it's probably sometimes more tax advantageous to consider buying it directly as a US Citizen and not buying it through a corporation.

[Dave Hutch]

Okay. So it's, it's beneficial for them to own and purchase as like a personal entity from the US as a, as a foreign buyer instead of trying to open up a corp in Canada and purchase that way.

[Sammy]

Correct, correct, correct. Because then they can avoid several forms. One is Form 8938. One is Form 5471, which is a disaster form to fill out for an American who buys any sort of entity through. For a foreign entity. You got to report basically the whole financial statement to that foreign company. It literally is a very, very complex form to fill out.

[Dave Hutch]

Okay, interesting. And then. So you said that. Can you, can you maybe. Because explain it to me like you're drawing in a crayon with the $10,000 thing is that like, say you're buying an investment property in Canada as an American. As an American, the income that comes into that Canadian account, once that hits $10,000, that's when it would get Triggered.

[Sammy]

Correct. So. So any US citizen or green card holder, if they have signing authority, they don't even have to own the account. Let's say you have a signing authority on any account outside the United States. As soon as it goes over 10,000 USD. So let's say it's like 10,000 Canadian, it won't get triggered. But if it goes to 10,000 USD, usually you got to convert the Canadian into USD, then you got to file the FBAR.

[Dave Hutch]

Cool. Okay. Is it. Can you explain like the, the advantages. I remember we talked about this kind of briefly before off camera, like on the phone. But the advantage of buying as a American citizen versus buying in a corp. Just like what's like the main benefits for somebody and why would they choose to buy as a citizen versus a corp other than that whole thing? Is that the main reason?

[Sammy]

Very good question. Yeah. So that form 5471 we were talking about, if they buy it through a foreign entity, it's gonna, it's gonna create such a disaster for them for their filing requirements because then they got to re report all the financial statements of the foreign entity on their US tax return. So it's always kind of something to consider to have an American buy real estate in Canada directly or through some US llc. Probably a US LLC would probably be something more advantageous. Now one thing to consider that Canada doesn't have LLC. So Canada doesn't see LLCs as flow throughs. We only have personal. We have corporations, we have partnerships. So that's another thing to consider that LLCs are. Even though they're flow throughs in the United States, in Canada they're considered corporations. You might be subject to double taxation. You got to be a little careful.

[Dave Hutch]

With that as well on the taxation side of things. Just because maybe I want to understand it is there, there is a tax treaty. I know we keep covering Canada, but there's a tax treaty between U.S. and Canada. Correct. So you wouldn't get double tax.

[Sammy]

Right, Exactly. So for the most part, there's articles in the tax treaty between U.S. and Canada that covers things to avoid you being double taxed. Now they're. Now income tax treaties are not perfect. So sometimes you always got to check the articles in which the treaty relays relies on to see if you could take a treaty position on that double taxation.

[Dave Hutch]

Okay. Because I'm just reading through your notes here. So that's, that's covering like the foreign tax credit. The taxes paid in Canada can be credited against the US taxes using Form 1116.

[Sammy]

Yeah, good. Point. Yeah, Form 116. So essentially, as an American or anyone who has to file Canadian rental tax return, you're going to obviously pay Canadian taxes on the net rental. Luckily, good accountants can probably create losses on rental properties in the first few years. You got a lot of renovation, a lot of depreciation, a lot of mortgage interest. So technically you're not going to have that big net income, but you never know. So if you do and you do pay Canadian taxes, you can pop it over on the US side under Form 116 and then eliminate the double taxation. Now I'm in Florida, so Florida is a state that doesn't have state income tax, so you only got to worry about the federal. So really you're flying. So once you pay the Canadian taxes, our tax rates are a lot lower than Canada. We're not going to pay any tax in the United States on that rental.

[Dave Hutch]

Cool. I think you want to cover the capital gains. I know I skipped over that. I got excited about Form 1116. Sorry about that.

[Daniel Fosh]

Yeah, I guess we could do that. The one other thing before we actually jump into capital gains does this. Is there any limitations on a state by state basis? So like a lot of the people looking to invest in real estate in Canada as an example are coming from California. I actually had somebody ask me recently and he, he was under the impression that like, California was one of the only places that, where there was complications to the tax treaty. Is that the case or is it the same for every state?

[Sammy]

So from what I know, I think the income tax treaty is on a federal level. It's on a national level between Canada and the United States. Each state has its own rules when it comes to state tax filings. So probably unaware on a state by state basis, but it could open up some kind of, some tax issues on the state tax return. But usually you get an adjustment for any federal, basically any federal source. So international source funds don't go to the state. They get usually deducted. But each state has its own set of rules.

[Daniel Fosh]

Okay. Awesome. Yeah. I think that their concern was that, that California didn't recognize foreign tax residency. But I'm not sure. Maybe we can, we can cover it on a, on a subsequent discussion about this in regards to capital gains, because I know that the, you know, there's some differences that, that need considered regarding capital gains in Canada versus the U.S. or, or in many other countries. I mean, a lot of countries don't have capital gains. A lot of countries have far larger capital gains. How does that get taxed? Like, you know, everything that you've mentioned so far is kind of on income tax on a rental. What, what does it look like when somebody chooses to dispose of something and they're subject to paying a capital gain? How does that get taxed when that capital ends up coming back into the.

[Sammy]

U.S. very good question. So capital gains are very similar in the US as they are in Canada. And we also got a principal exemption rule similar to Canada where if it's a principal residence, you don't pay tax. Here in the United States we have it, but there's a, there's an exemption amount where for a single person they only, they don't pay tax on the first 250, that's 2K. And then for married person, it's half a mil. So essentially on an investment property, you don't get those exemptions. So you sell the property in Canada, you pay that income tax. We're going to go back to what Dave mentioned about the Form 1116. You're going to claim that tax credit and you're going to eliminate the double taxation on that.

[Daniel Fosh]

Interesting. So in that regard, it just becomes like you, it becomes an income, let's call it. And then you use the same filing procedure that you mentioned before.

[Sammy]

Cool. Yeah, same strategy. Ideally, you don't want to pay capital gains tax twice, so you're going to hit it with the foreign tax credit.

[Daniel Fosh]

Okay. And then does the FIRPTA apply to foreign property ownership? Like, would it trigger that where non residents are selling US Real estate?

[Sammy]

Good question. No. So that FERPTA tax does not apply to U.S. citizens or green card holders buying foreign properties. That's actually for non resident or non U.S. citizens or non resident aliens buying U.S. properties and selling them. So FIRPTA does not apply to Americans buying international real estate.

[Dave Hutch]

If you guys think you're going to get away with not telling me what FIRPTA means, you're. That's criminal. Let's back that up and cover what FIRPTA means, please. In crayon.

[Sammy]

Yeah, yeah. So I'm one for acronyms. So I barely ever, I barely ever use the full thing. But I'll go ahead and tell you, it stands for Foreign Investment and Real Property Tax act, but we always go by the acronym firpta. So yeah, it's just an act for basically non US citizens or non green card holders. When like, let's say a Canadian, he buys a property here in Florida, you know, they, they're snowbird, they own the property for a few years and then they decide to leave and sell the property. Well, Guess what? They're going to be hit with this large withholding tax, 25% of the gross sale. So if the property's a million bucks, right off the bat, the IRS is holding a quarter million.

[Dave Hutch]

Interesting.

[Sammy]

Now that's not their final tax liability. When they go to file their tax return, their final tax liability might be like 75k. So they're going to get this massive refund. What we do, we're acceptance agents, so we can actually help them get a withholding certificate to reduce that withholding amount to what their actual liability is. So we do the FERPTA tax withholding and we, we also help Canadians, snowbirds who are going to sell us property to reduce that.

[Dave Hutch]

Cool on that. Okay, on that note. Well, first, folks, are you crushing energy drinks over there or what was that?

[Daniel Fosh]

No, that was a. A poppy. You ever had poppy? You know those, right? Probiotic, like fake soda. Oh, dude, I live off these things.

[Dave Hutch]

This guy is healthy.

[Sammy]

They got those at Whole Foods.

[Daniel Fosh]

Yeah, everywhere. Like, they just came to Canada, so they got them Costco here, which is pretty nice.

[Dave Hutch]

They're not in Mexico yet, fellas. So I'm still. I'm still drinking tequila.

[Sammy]

Yeah, you got tequila, dude.

[Dave Hutch]

You got the dawn right to the source.

[Daniel Fosh]

Food, beverage.

[Sammy]

Yeah, it's very healthy, man. Agave.

[Dave Hutch]

Hey, before we. Before we go, I wanted to quickly the exchange rate considerations, because if an American is buying in Canada or I guess anywhere globally, actually, for capital gains, would the capital gains and rental income be reported in the currency that the country that they bought the property in, or would it be reported in US Dollars?

[Sammy]

Very good question. Very good question. For an American reporting that Canadian rental income on their tax return, they got to. They got to use the IRS treasury rate. So if you. If you go into Google, literally, and type in IRS exchange rates, they'll pop up the exchange rates for a bunch of, like, major countries, Canada is going to be right on there. It's going to have different columns and it's going to give you the year that it applies to. So for like 2023, 2024, they'll have the exchange rate. You're going to use the IRS rate convert. Use the annual average and convert all the income and expenses to USD Crazy.

[Dave Hutch]

I'm on Twitter. Just. Sammy, if you ever need some answers, check out Twitter. Okay? Twitter's got this AI called Grok. We. I've spoken about this in the past. I just want to make sure you're aware of it too.

[Daniel Fosh]

Dave is sponsored by Grok.

[Dave Hutch]

Actually, I need to get Elon Musk on the show to get me a sponsorship for Grok, because, anyway, it's the best AI platform anyways. Neither here nor there. Super cool. Okay, I'm going to Google that on my own time. Fosh, what do you got next here lined up?

[Daniel Fosh]

I think, like, what would be for. In. In your experience where people are buying the most real estate from the US like, so where are US Residents buying the most real estate? And what are. What are. Like, kind of like the. The. The oddities of those. Those countries, you know, Canada, probably. I think Canada and Mexico are the two biggest places where Americans buy real estate, so we could maybe start with those.

[Dave Hutch]

What.

[Daniel Fosh]

Like, what do people need to know if you're. If you're a US Investor buying property in Canada or Mexico or anywhere? Like, are there any standardized kind of, I don't know, weird things that you think to watch out for?

[Sammy]

Yeah, from. From a. I mean, from an overall perspective, I've had. I've had Canadians buy. Sorry, can you hear me? I think One of my AirPods went out.

[Dave Hutch]

Okay.

[Sammy]

Yeah. So I've seen issues where, you know, you're buying properties and partnerships and partners, and some partners want to exit early, so it creates some kind of dysfunction that's more on the business side of things. I've seen people approach me for. I'm gonna have to pop in. These both died. Give me one sec. Sorry.

[Dave Hutch]

Yeah. No, sir, take your time. No, no, let's get. Let's get Poppy on the show as a sponsor. Fosh. What do you think about that?

[Daniel Fosh]

I'm down.

[Dave Hutch]

What's the flavor?

[Daniel Fosh]

This one's orange, but they. Yeah, they got. There's another one, Cove as well. Well, Costco. Like, they're cheap. I don't know. They're. They're. If you go just buy them, like, retail, they're like, three bucks a can. It's insane. Might as well drink energy drinks, and you get jacked up for the day, but same cost, right? But that's right, man.

[Sammy]

I'm. I'm one of those health nuts, too. I actually prefer wired headphones, man. I'm one of those, like, conspiracy. I think the brain weights cook, you get cooked eventually, right? So it's like, yeah, got to go to the Wired, so.

[Daniel Fosh]

I've already cooked enough, actually, so doing it. My DIY solution. I didn't need headphones to do it for me.

[Sammy]

Do it yourself.

[Dave Hutch]

Yeah.

[Sammy]

I know the last 20 minutes of tax will cook you, too, so. But essentially, as we were saying. Yeah, I've seen a lot of Fallouts where people buy. Like I saw, you know, I had a client in Canada, she bought a property in Tulum with, with two people, and one of them needed to get liquid. It created a huge issue getting over the border mortgages you got. It's sometimes challenging. Dave, I know you know a lot about that, so you could talk on that. But essentially, for an American, whether he buys property in Canada or Mexico or anywhere in the world, there's a cool. There's an interesting thing about it where on Canada we don't really have this, but when you go to buy that rental property from day one, you got to, you got to separate. Like, let's say it's a house and there's, there's a plot of land. Bless you. There's a plot of land. Bless you again, I know there's allergies right now going on well where I am, but. So essentially you got to like, separate out the land from the real estate. Like, let's say you buy a property for a million and there's a land component. You can't depreciate a million dollars because land, land's not depreciated. Land doesn't. Land doesn't break and break down. Land doesn't tear down. So you got, as an, as an, your accountant, he has to think about separating the land out just to depreciate the building because the IRS looks that on your depreciation schedule. So that's one thing. That's like an interesting thing that you wouldn't really see unless you're an accountant, but you got to always separate the land components.

[Dave Hutch]

I wonder, like, one thing that I experience a lot for Canadians and Americans investing in Mexico specifically is they attacks here is significantly less in Mexico. But what they try to do is. I don't know if I'm talking to the wrong guy here with the irs, but what they try to do is, is keep the US and the IRS maybe out of the loop by keeping money in Mexico and not bringing that money back to, to the U.S. you know, is that something that people kind of ask you about? How can they shelter or maybe utilize. And I'm not trying to catch you off guard because I know you don't do like the global accounting, obviously. But if I, let's say, for example, I buy a property in Mexico as an American, and I'd rather take advantage of the low tax rates in Mexico versus America, is it possible to like to, to kind of shelter that income or is that illegal?

[Sammy]

Good question. I mean, it's, it's it's illegal. I'll tell you, I'll tell you a cool thing. Like, we're all Canadians, right? So we're just like, we're just used to, like only having to report income when you're a resident in Canada, when you terminate residency with Canada, it's like you don't owe Canada anything because you're not a resident. But the thing about the United States, it operates on a citizenship and a green card holder and a resident type of status. So I can be living in freaking Antarctica. But if I'm a US Citizen, I mean, I used Antarctica. I don't know why, but if I live in Antarctica and I'm a US.

[Daniel Fosh]

Citizen, don't do that. Not financial advice.

[Sammy]

Yeah, I'm not, I'm not, I'm not giving you good advice here. But if you live there, you got to report any income you earn anywhere in the world, even if you don't live in the United States if you're a US Citizen. So if you're a US Citizen, you got that rental income in Mexico coming in. You got to report it on schedule E. So there's no way to really avoid it. Now. Do you have to pay tax on it? That's another question. That's another question. We talked about eliminating net income through depreciation, mortgage interest, all these expenses, renovations. So you might have to report it, but you're not going to have to pay tax if you don't have net income.

[Dave Hutch]

Right. If you do it. So it's, that's why, that's why we wanted you on the show, Sammy, because I think that's important to understand. It's like there's a, there's the right way to do this and you can do it successfully if you have the right people in your corner, you know, doing things by following the rules. If there's anyone else in the IRS is listening to this, don't come for me. I'm just asking questions here. I pay tax everywhere on time.

[Sammy]

There you go.

[Dave Hutch]

Just making sure.

[Sammy]

Register that name, Dave.

[Dave Hutch]

That's right. That's right. Okay. Do you, So I want to talk about, like, just quickly, like tax treaties. What is that? Can you explain what a tax treaty is? Like, what's the tax treaty between us and Canada?

[Sammy]

So, okay, so in Canada we have our income tax act. In the United States we have our IRS code. So a treaty. Sometimes these separate tax laws intertwine. Don't intertwine and they don't help people that have cross border tax complications. So they come out with A treaty. The whole point of this treaty is it's like, it's like overriding the domestic tax laws of each country to kind of try to offset this double taxation issue that these people that have issues on both sides of the border. So that's what I mean in my layman's terms, that's how I would. I guess if I use a Wikipedia or whatever, it might give you a different definition. But that's my definition of it.

[Dave Hutch]

I like it.

[Sammy]

Yeah.

[Dave Hutch]

Folks, you wanna the one thing that in the notes because I'm just, I'm reading through everything we were kind of talking about and it's like to avoid triggering Form 5471, extensive reporting requirements, try to purchase Canadian real estate either personally. Always spoke about that. Okay, so by. By purchasing personally, you avoid that 5, 4, 71 form. Got it.

[Sammy]

Yeah. You avoid that nightmare of a form. And if you've seen. It's a nightmare because. Okay. You ever seen a corporate tax return?

[Dave Hutch]

I've heard the US are crazy. Yeah.

[Sammy]

So you got like in Canada you got the precip. Oh yeah. So you know that whole T2 you got to fill out, right?

[Dave Hutch]

Yeah, of course.

[Sammy]

Now if you, if you're an American that owns a Canadian corporation, so you got to go file 5471, you got to go take that tax return in Canada, translate it to USD and re reported under your personal tax return in the United States. It's a nightmare. So then you got your subject to repatriation tax on your retained earnings. And you know, you can thank Trump on his last term for coming out with that. He wanted to bring make America great again by bringing businesses back into the United States. He didn't want Americans owning offshore corps corpse. So that was his motivation to do that.

[Dave Hutch]

Interesting. Okay, do you want me. I was, I was going to cover the documentation that investors should maintain for tax purposes. Unless fos you had something you wanted to jump in first or is that good?

[Daniel Fosh]

Go ahead. Yeah.

[Dave Hutch]

Okay, so like for an average investor or like maybe a, you know, someone that's investing globally for the first time, what are some documentation that they should make sure they hold on to for tax purposes. That way they're not scrambling when it's time to file taxes.

[Sammy]

Yeah, good question. So in the US we have a HUD where you know, you. If you use a title company to close. So our Canadian equivalent is the purchase and sale agreement.

[Dave Hutch]

Right.

[Sammy]

So we need the purchase sale. We're going to need their. If they're using a Canadian mortgage to Purchase the property. We're going to need their year end mortgage statement that shows all the interest they paid. We're going to need the property tax bill for the year. We're going to have to claim property taxes, maintenance fees. If it's a condo, if it's a house, they obviously have like, let's say they've got lawn care or snow removal. So you're going to need basically all your expenses. And hey, don't forget your rent roll. Right. You need your income, right? So you got to see what you've collected in terms of income. Now the interesting thing about the US is we're on a 1040 personal tax return. US you're on cash basis. In Canada, you work usually on an accrual basis. So cash basis means we're only paying tax in, in America on money we actually collect.

[Dave Hutch]

Yeah, okay. Okay. So that, so if, Go on. Sorry.

[Sammy]

Yeah, go ahead, go ahead.

[Dave Hutch]

I don't know. You're. You're smarter. Keep going.

[Sammy]

So if the, if the, if the rent, if the, if the lease starts in December 15, but the one month hasn't accrued, so in Canada you would report it because you know you're accrued 15 days. But in, in the United States you wouldn't because you haven't received the rent, you haven't received the rent from the tenant yet until the end of the month.

[Dave Hutch]

Okay.

[Sammy]

Interesting technicalities there. Little technicalities.

[Dave Hutch]

I think the last thing maybe, unless Fosh, you got some more stuff. But the last thing I want to touch on because it's from our notes, which I think is actually super important, is like investors. How can American investors optimize their tax position with like rental or, or the sales, the sales proceeds from foreign investments? So it's like, I know the one part you mentioned here is that you know when you're remembering to file. This is your language, not mine. Section 216, which allows you to, to tax net rental versus gross.

[Sammy]

Correct. They could take the election. File that section 216 form with Canada and then ideally you're going to be taxed on the net rental. So as I said, we're going to try and create that loss on your rental property. Well, you can't create a loss, but you can offset it to zero. Once you offset a zero, guess what your tax is. Dave, you could probably answer this.

[Dave Hutch]

What? Zero. You caught me off guard.

[Daniel Fosh]

Zero.

[Sammy]

There you go. No, you got it right. That's, that's the right answer.

[Dave Hutch]

So you guys hiring? I'm ready.

[Sammy]

Yeah, man. We need, we need people Me and Mebby are getting crushed out here at tax season, so I bet, I bet we can use your help.

[Dave Hutch]

All right, Fosh, do you have any other questions?

[Daniel Fosh]

Yeah, I guess like the only other thing that I, I think is worth talking about for US Investors buying outside of the US is you're starting to see like this nationalistic sentiment happen with like a lot of countries that have been recipients of remote workers and like the COVID exodus and whatever. Portugal has now put in like a foreign buyer's ban or like some, they've kind of scaled back their golden visa. Spain has increased their land transfer tax for nonresidents. Canada has the non residents speculation tax in Ontario or a foreign buyer.

[Sammy]

Foreign buyers.

[Daniel Fosh]

Yeah, foreign buyers ban. Now what's your perspective on like what do people need to know in that regard? And are there any ways to kind of like work around. I know in Canada there's, there's a couple of ways like people can buy outside of CMAs or they can buy buildings with more than four units in it. But are there like from your perspective, are there any ways to continue investing in real estate in some of those countries where policy has, has tried to make it difficult to do that?

[Sammy]

Yeah. In terms of finding loopholes, I'm not aware of any where, you know, you, you, you could avoid this speculation or foreign buyer tax. Technically I've seen, seen it really affect our real estate market because a lot of, a lot of wealthy investors internationally were, were pushing demand which basically pushed down supply and increased prices. Now when they come out with these taxes and try and ban foreign investors, what's that going to do? The real estate prices going to obviously push them down. The rent, the rent that's requested is going to be different. So it's going to impact us overall. But as of now, I don't know any sort of loopholes to kind of avoid that. I do know people who like end up moving. They were non residents, they moved to Canada. They're not technically a foreign person. So that in regards, is a way to avoid it. Do you, Daniel, do you know anybody or do you know any methods to avoid that yourself?

[Daniel Fosh]

Just that like just buying commercial properties. So, so I think foreign investors can purchase up to 10% in a corporation. Like so they, if they're not the major beneficial owner of a corp, they could own. They could, they could buy a property that has more than four units and technically is commercial for more than four residential units or they could buy outside of a census metropolitan area so more of a rural property to do It. There are so. Yeah, so. Yeah, go ahead.

[Sammy]

So not subject on the commercial side of things, I guess.

[Daniel Fosh]

No, yeah, it's not. That would have blown up the whole industry because, I mean, a lot of our development. A lot of our development land, initially the policy was actually worded and such that that was the case. And then they had to make some changes for it because basically a lot of like, you know, foreign capital buys development land in Canada and there's a lot of foreign developers and it made it impossible for them to do that. Right. So. And not just that, but like a lot of the. A lot of the owner. A lot of the buyers of, you know, office buildings or whatever. There's a lot of. Yeah, yes.

[Sammy]

There's a vacancies shot up too after Covid with, I know a lot of, you know, commercial landlords took a hit because some people just went totally remote after for sure. But that's more for Office, I guess.

[Daniel Fosh]

Yeah, yeah. I think it seems to be. It seems to be coming back. Like Toronto's actually got the strongest return to office in North America, like 72% of pre Covid now. But I think it's just. Yeah, we'll see what happens. I don't know. The future of the Office is a big question mark from my perspective.

[Sammy]

I agree.

[Daniel Fosh]

Okay. I think that's everything. I learned a lot from this. I really appreciate your insight and expertise and would love to have you back on the show maybe when we have some more pointed questions from our audience on what they're looking to do and kind of the things that they're problems that they're looking to solve.

[Sammy]

Sounds good. Thank you for having me. Dave and Daniel, you guys are great hosts and appreciate it as well.

[Daniel Fosh]

Yeah, thanks, man. Appreciate your time. Take care.

[Sammy]

Take care. Bye.