David A. Altro is a regular contributor to Paul Delean’s business column in the Montreal Gazette, please scroll down to read David’s answer to three reader questions.
Tax strategy: Expert Tackles Cross-Border Queries
The Montreal Gazette
Tuesday, April 22, 2014
Cross-border tax issues can be complex. We’ve had several raised recently by readers that we submitted to local tax expert David Altro of Altro LLP, author of Owning U.S. Property – The Canadian Way. Here are his responses:
Q: “I’m a Canadian citizen and resident. If I want to gift $20,000 to my daughter, who is a green-card holder living and working in the U.S., can it be accomplished free of gift tax if the $20,000 is deposited in her Canadian bank account?”
A: Yes. There are no tax consequences in transferring the money from the Canadian bank account to a U.S. one. If the donation was made in the U.S., the tax-free limit for a gift to an individual would be $14,000 per donor, per year (so parents could donate assets worth as much as $28,000 tax-free to a child).
Q: “A decade ago, my father gave his New Hampshire summer home and land to my sister and I to spare us inheritance taxes. I live there several months every year, but I reside in a home I own in Quebec. I would like to pass the property on to my children while I’m still alive. How do I do that and pay the least taxes?”
A: If you gift the property to your kids, they’ll be entitled to the annual tax-free gift of $14,000 apiece, but the market value less those sums would then be subject to a tax of roughly 40 per cent. “To avoid that,” Altro said, “you should sell it to the kids at market value. That will trigger a U.S. capital gains tax on the accrued net gain of about 15 per cent. There may also be a small state tax.” On the Canadian side, it’s a disposition whether you sell or gift the property and capital-gains tax would be payable on 50 per cent of the gain, though “you should get a foreign (tax) credit in Canada for the tax paid to the Internal Revenue Service (in the U.S.).” If the appreciation of the U.S. property is greater than your principal residence in Quebec, there might be merit in using the principal-residence exemption for this transaction rather than saving it for the Quebec property. That’s an option worth analyzing further.
Q: “My son is in his fifth year as a student in the U.S. He will be taking a post-doctoral fellowship in July and I have been told that he must give up his Canadian residency after five years outside the country. What does this imply for his holdings here, such as a tax-free savings account (TFSA) or Canada Savings Bonds (CSBs)?”
A: The residency issue isn’t a big deal. Your son doesn’t have to liquidate the TFSA or CSBs, Altro said, regardless of whether he chooses to file his taxes as a resident of Canada or of the U.S., though he will need to report the TFSA earnings as well as bond income if he opts for U.S. reporting.
The Gazette invites reader questions on tax, investment and personal finance. If you have a query you’d like addressed, send it to Paul Delean, Gazette Business Section, Suite 200, 1010 Ste. Catherine St. W., Montreal, Que., H3B 5L1 or to by email to firstname.lastname@example.org