U.S. Estate Tax Exposure

What may come as a surprise to many Canadians is that they could be liable for U.S. estate tax. The estate tax is based on fair market value of the property owned at the time of death and the tax is assessed on U.S. situs assets. These assets include real property located in the U.S. as well as shares of U.S corporations, either private or public.

If an individual’s U.S. situs assets are more than 60,000 USD then there’s a requirement to file the estate tax return with the IRS. There are various exemptions available, such as a credit that shields the first 5,340,000 of worldwide assets (in 2014, this amount is adjusted for inflation) which means that there’s not necessarily a tax liability however it does not remove the obligation to file the return. This is of particular importance if as a result of death there will be a transfer of title on real estate or if there are investment assets with a U.S. company. To distribute the assets in accordance with the will, the financial institution or lawyer will ask for a transfer certificate. This is a certificate issued by the IRS which shows that the Estate has complied with all the requirements and has no outstanding obligations thus allowing for the transfer to take place.

There are numerous complexities depending on the individual’s circumstances and cannot be covered in general terms. It is important that the estate tax is not forgotten and is appropriately considered when the purchase of assets is planned. Failure to consider this tax could result in a substantial tax liability that could otherwise be mitigated or avoided altogether.

Questions?

General Enquiries: 613-726-7788

Fax: 613-729-4477
general@mcintyreca.com

McIntyre & Associates Professional Corporation

200 – 900 Morrison Drive

Ottawa, ON

K2H 8K7 

Principal Residence – Rental property

A common scenario is that when an individual (or family) moves to a new house, the old house is rented out rather than sold. What happens in that case is called a “change in use”, the old house changed its purpose from being used as a principal residence to a rent income producing property. This change in use triggers a deemed disposition and a gain is calculated between the original purchase price and the fair market value at the time of the change of use. The property could fall under the principal residence exemption so no actual tax is paid on the deemed disposition. If the rental property is sold 2 years later then the gain is calculated between the sales price and the fair market value of the property at the time of the change in use. There’s an election available which allows the property to still be designated a principal residence for up to 4 years following the change in use, provided that no deduction is taken for amortization when calculating the rental income from the property. Filing this election means that the new house or the old house (up to 4 years) can be used as a principal residence and is eligible for the exemption.

There’s also the possibility that the opposite happens. An individual (or family) move into a housing property which was previously rented out. In this scenario, there’s a deemed disposition for the property. There’s an election available which could defer the gain on the change in use until the property is ultimately disposed of.

There are a number of factors to consider when making the decision to designate one property over another as a principal residence. Things like potential gain in the future, current tax liability and the length of time the property has been owned or will be owned are all factors which could significantly impact the decision.

Questions?

General Enquiries: 613-726-7788

Fax: 613-729-4477
general@mcintyreca.com

McIntyre & Associates Professional Corporation

200 – 900 Morrison Drive

Ottawa, ON

K2H 8K7 

Our practice focuses on clients in the healthcare profession, technology sector, real estate development & construction, and high net worth individuals.

Expertise

The team at McIntyre & Associates is well-suited to assist businesses in any sector in the Ottawa region – from services, to manufacturing, to associations and not-for-profit organizations. Our client base is reflective of the diverse nature of doing business in Ottawa. Over the years the firm has developed specific expertise in each of the following areas. This expertise, borne from years of experience, can easily extend to other sectors providing unique insight into client needs and challenges.

Healthcare & Other Professionals

We have extensive experience working with professionals – with insight into their priorities, challenges and goals.

We are very familiar with the special tax rules for professionals.

As professionals ourselves, we understand your commitment to building a successful practice and achieving your goals.We can assist you with the startup of your practice (potential incorporation) through to retirement, and all of the important decision-making in between.

Our extensive experience with professionals means we can advise and assist you in making the right decisions for your practice.

Real Estate Development & Construction

We have a thorough understanding of issues specific to the real estate and construction industries.

Whether it’s tenant inducements, holdbacks, work-in-progress, or the need for bonding, we know the treatment of the tax and accounting issues. With our years of experience we are confident we can work with you through any purchases, sales, construction or renovation projects.

High Net Worth Individuals

As a HNWI we can assist you with your ongoing tax compliance and planning.

We have years of experience and we understand the tax issues related to HNWIs.
We can advise you on income splitting strategies, capital gain and loss planning, estate planning, and other tax issues specific to HNWIs.

Technology Consultants

Whether you are a local IT company or an independent contractor, we can help you as we have years of experience in this area.

We know the tax issues from both sides – the IT company and the independent contractor.
We have a solid understanding of your industry and how to address your key financial decisions.

Start Ups and New Businesses

Starting a business can be an exciting and an overwhelming process. You may need assistance with developing a business plan or financial/cash flow projections for potential investors. As Mcintyre & Associates has worked with many startups and new businesses over the last 30 years, we are uniquely experienced to help assist with the process.
As your resources are limited, McIntyre & Associates has created a new program for qualifying startups. Should you need more information or feel that your business qualifies, please feel free to contact us and we will set up a meeting to get you on your way!

Visit our website today!