US Tax Grab Is Targeted At Canadian Real Estate Investors

US Federal and State agencies are starving for Tax Revenue and facing the choice of bankrupting the State Governments.

Canadians, have been investing at an increasing rates in the US rental and vacation properties since the US housing market took a dive in price in 2008.

IRS tax law for off-shore investors (Canadians) states that, gross rental property income should be taxed at source @ 30% rate by the property management company and remitted to the IRS each month. Only filing a Non Resident USA tax return, Canadians can get back some of the rental income deducted at source. Since most Canadian does not have any mortgage, they cannot claim mortgage interest expense against their rental income, and almost 100% of the income is taxable in USA.

The above rule is similar for off-shore real estate investors in Canada too.

States where Canadians have large investments in USA like, Arizona, Las Vegas, Florida, Hawaii, the state legislators are tightening the rule and making it mandatory for off-shore investors to hire USA based property management company and tax the rental income at source.

In Hawaii, the state legislature has taken dead aim at NAFTA and the provisions it requires of the state, and the protections it affords Canadians who make cross-border investments in vacation rental properties. In Hawaii, Four bills are advancing through the Hawaii legislature that target off-shore, i.e., Canadian, owners of vacation rental properties. Senate bills (SB2078, SB2089) and House bills (HB1706, HB1707) require off-island owners of rental properties to turn over the management of their rental property to on-island licensed real estate broker or salesperson, management agent, rental property agent, or condominium hotel operator.

It is estimated that Hawaii property management firms charge properties under their management anywhere between 30 to 50 percent, of the gross rental income with many hidden costs and property abuses.

Since NAFTA came into force, all kinds of Canadians from every part of the country have made cross-border investments in the U.S. Some will be wealthy, some will have pensions. Some will view the investment as a part of his retirement planning.

Thousands of Canadians have made and operate similar investments in Hawaii, Florida, California, the New England states and all other states and regions of the United States, without getting a legal tax advice, and falling prey to Real Estate Promoters.

In the end, though, the Hawaii legislature has underscored the nature of the times we live in, when governments are desperate for revenue, and lack the capacity or concern to get their fundamentals right. Government revenue becomes the top priority in desperate times and individual rights are slaughtered on the way.

It should be each Canadians responsibility to make a wise decision and not fall prey to the greed of real estate promoters while making investment decision in another country, another legal jurisdiction where, as a non – citizen off shore investors you don’t have any legal rights, like the citizens of that country might enjoy.

Get your team of advisors before making any investment decision in USA. There are still plenty of opportunities in your own land to grow your wealth.