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Real Estate of risks and receives the best possible tax treatment when it's held under a limited liability corporation. Each piece of property would have its own corporation with shares that are easily transferred to another owner, independent of other properties, and this prevents all the other properties from being exposed to liabilities should an event occur in relation to one of the properties. Rental income is subject to U.S. income tax, but losses, which typically occur during the first few years, can be written against Canadian income, if the property is in your personal name. But there needs to be a reasonable expectation of profit and if a rental property continuously operates at a loss, and if there appears to be little effort in the way of marketing, it could become the subject of a reassessment. "You actually have to take steps to make it into a rental," says Nesathurai. "I would very rarely want to have clients hold property in their personal name. And many Americans don't hold property in their personal name." When it comes to U.S. property, estate tax issues are among those that Cheyenne Reese most frequently deals with at Vancouver-based Legacy Tax and Trust Lawyers. A couple with combined, total worldwide assets valued at more than $5.34 million is subject to an estate tax of about 40 per cent. That sum, she points out, includes any life insurance benefit payable upon death. That's when the concept of separate wills, a trust, or partnership becomes part of the conversation. "That's generally a good idea for people generating income," she says. "People need to be worried if they've got a lot of assets." But the game changes substantially if one of the spouses is an American citizen. So that's an aspect Reese wants to establish at the outset. In addition to capital gains and U.S. estate tax issues, David Altro considers probate or debt and incapacities among the most important considerations for Canadians looking to take advantage of land deals south of the border. There are distinct differences in tax rules in the two countries, says the managing partner of cross-border tax and estate firm Altro Levy LLP. In Canada when a person passes away there may be taxes on the increased value of the property. In the U.S. the estate tax is based on the value of the property on the date of death; capital gains isn't part of the calculation there. "What lawyers need to know is that corporations have some really negative effects. Because the U.S. capital gains tax rate is much higher in a corporation than if it's owned individually, in a cross-border trust, or in a limited partnership," says Levy who recently released the third edition of his book, Owning U.S. Property the Canadian Way. His firm's preference is for clients to use a trust or a limited partnership in crossborder real estate deals. Because trusts and limited liability partnerships don't die, they are easier and cheaper to trans- fer upon death than a personally owned property. It's also incumbent upon the Canadian resident to pay close attention to the time they spend in the United States, warns Roy Berg, a U.S. tax lawyer licensed in five states and working in Calgary. The penalties for overstaying your welcome could be jarring. And beginning this June, U.S. and Canadian authorities are sharing their information, meaning they will know exactly how many days every Canadian spends on the other side of the border. "If you spend too much time in the United States there are five bad things that could happen," says Berg. You can be subject to income tax as an American resident, with your worldwide possessions subject to U.S. estate tax. If you're one day over the allowed time, you can be deemed an illegal alien; a first offence can result in being barred from the country for three years. If you become an American resident, you're no longer a Canadian resident and must pay an exit tax. And as an American resident you will lose your provincial health care coverage. The U.S. has always counted Canadians entering the country, but the U.S. hasn't been keeping tabs on departures and therefore didn't possess the information required to calculate the amount of time Canadian residents spent in the states. That changes this summer when the U.S. and Canada will start sharing that information, providing both governments 2014 LEGAL RESOURCE GUIDE VISIT THE INTERACTIVE DIGITAL EDITION www.canadianlawyermag.com/lrg • Check out websites • Link to lawyers • Download information • Request a free consultation FROM THE PUBLISHER OF 22 Untitled-1 a1r y 2 0 1 4 Febru www.CANADIAN L a w ye r m a g . c o m 14-01-15 2:50 PM

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