BUSINESS

CONSULT AN EXPERT
Owning U.S. property
can be taxing experience

WHEN I asked Virginia Perry to help readers of this col-
umn who own real estate or shares in the United States to
save tax, she responded with a 15-page report.

Practically every word will be
Sweet tax-saving music to the ears
of those who now face many new
rules in the U.S. covering such
property and investments.

“There are several steps you can
take to reduce the risk of double
taxation,’’ said Perry, who studied
U.S. tax in Arizona where she
became a certified public accoun-
tant in 1981 and now, as a
chartered accountant, is a manager
in Peat Marwick Thorne’s U.S. tax
group.

vacation home in the U.S.

Perry gives three situations (with
values in U.S. dollars):

(1) The place was bought in 1979
for $40,000, was worth $70,000
Dec. 31, 1984, is now worth
$100,000 and has furnishings now
worth $10,000.

(2) Bought for $100,000, worth
$175,000 in 1984, now worth
$250,000, furnishings worth
$25,000.

(3) Bought for $200,000, worth
$350,000 in 1984, now worth
$500,000, furnishings worth
$50,000.

If Joe dies this year, he will pay

© Ownership by a Canadian
corporation. Joe’s share in a Ca-
Nadian company (which owns the
vacation property) would not be
included in his U.S. estate. How-
ever, there could be bath Canadian
and U.S. tax implications when
property is transferred into the
company and when the company is
wound up.

If you rent ou’ your place, you
pay a U.S. non-resident tax on
gross rental income from U:S. real
estate. But you may elect to treat
this as ‘‘effectively connected in-
come,”’ claim all allowable deduc-
tions and save tax.

Note that selling a holiday place
in the U.S. could trigger both Ca-

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nadian and U.S. income taxes.
the following U.S. estate taxes — ——
(given here in Canadian funds, _— ne
based on a $1.20 exchange rate):
(1) $16,560; (2) $79,560; (3)
$193,560. This could be quite a
shock to Lisa is she plans to keep

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“Many Canadians own
real estate in the United

doilars
and sense

Michaei Grenby

Many Canadians own real estate
in the United States, whether in the
sunbelt or just a few kilometres
south of the border. Changes to
the U.S. estate tax could produce
an expensive shock when some-
body with such property dies.

“This is a complex tax planning
area,” warned Perry. ‘‘The ap-
propriate strategy depends on all
the facts in each individual's situa-
tion, so it’s usually a good idea to
get professional advice. Also, talks
are now going on between the two
couniries so the rules could change
in the future.”

(For a free copy of the !1-page
guide, U.S. Estate Tax — Now
More Taxing for Canadians,
phone any Peat Marwick Thorne
office —- in the phone book under
Peat Marwick or under Thorne
Ernst & Whinney — or write to
Virginia Perry, Peat Marwick
Thorne, 1177 West Hastings St.,
Vancouver, B.C. VGE 2L9; phone
685-3511.)

Perry provides an example of
Joe Smith, 71, and his wife Lisa,
69, both Canadians who live in
Canada. Joe owns a furnished

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the holiday home and there are no
insurance or other liquid funds to
pay the tax bill.

‘The value of a timeshare right
or timeshare ownership interest in
U.S. residential real estate is also
subject to U.S. estate tax,’’ said
Perry, adding that most states also
have an estate or inheritance tax
“although the Hawaii, California
and Florida rates generally do not
exceed the credit available under
the federal estate system."*

She suggested four strategies
which could reduce or at least
defer the estate tax, but warned:

‘*Make sure the costs of carrying
out any of these steps will be less
than the amount of tax you expect
to save. In some cases, it might be
better to buy life insurance, or sell
the property.’’

e Joint ownership. The U.S.
estate tax law provides a basic
$60,000 exemption. So if Joe and
Lisa jointly own the property, the
taxes are cut sharply to (in Cana-
dian funds): (1) zero; (2) $12,960;
(3) $50,160.

* Providing in the will for a
qualified domestic trust. If Joe
leaves the vacation home to such a
trust, the U.S. estate tax is defer-
red until the capital is paid out of
the trust or Lisa dies.

States ... Changes to the
U.S. estate tax could
produce an expensive
shock when somebody
with such property
dies.”*

If you own U.S. securities, you
can eliminate or defer estate tax by
(i) owning no more than $60,000
of such stocks; (2) transferring the
stocks to a Canadian holding
company; (3) leaving the stocks to
a qualified domestic trust.

Once again, get expert advice
before taking steps in any of these
areas.

sae

Based locally, Mike Grenby
writes a money column which ap-
pears in newspapers across
Canada. Mike will respond to
readers’ questions and story ideas
through the paper. Write to Mike
Grenby, Money Columnist, North
Shore News, 1139 Lonsdale, North
Vancouver V7M 2H4. Mike cannot
reply individually but will answer
as many of your letters as possibile
in his column,

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