Lost in all the clamor about the American “fiscal cliff” were other major changes to United States tax laws that came into effect on January 1, 2013. Canadians should be aware of these changes, especially if:
- Your worldwide assets are worth more than $1 million; and
- You own or are considering purchasing property in the US.
Changes to United States tax rules have not only extended capital gains liability to more of the middle class, but to more non-Americans than ever. The result of the changes is that US capital gains taxes, up to 45%, can be triggered on a transfer of ownership of property located in the United States. If that transfer occurs because of the death of the owner, the tax consequences could be severe — even forcing the estate to sell the property to pay the taxes.
If you fall into one of the groups affected, changing how you own your US property now might reduce the tax exposure. For example, the rules and consequences are different if your property is owned by you personally (either alone or together with another family member), through a corporation, a partnership or even a family trust.
Unfortunately, there is no one “best” vehicle of ownership — everything depends on the personal circumstances of the owner. What is effective for one property holder may be exactly the wrong mode of ownership for another.
If you own property in the US, or are considering buying something, we are always happy to discuss the circumstances with you over coffee and help ensure your affairs are structured in a tax efficient manner. If you want to discuss in greater detail, feel free to contact any member of our tax team: Mark Dolan or Kezia Sonntag.