Financing property with non-resident status

[danielsparre]

Hi everyone,

I have a question about investment property financing when filing as a non resident for tax purposes in Canada. I work overseas in Germany and all of my "job" income is coming from out of country. So to avoid high tax hits from the CRA each year I have thought about the idea of filing as a non resident. Have spoken with my mortgage broker about this and she says there are 3 lenders she knows of that will lend to non residents however they all require 35% down to purchase investment property. Is there any way around this? Are there any specific lenders who deal with non residents and would consider lending in a more conventional 20% down scenario? Any other ideas on how to get around this? I want to keep buying more properties but it makes things so much more difficult when a minimum of 35% down is required.

Any input is greatly appreciated. Thank you!!!

 

[Thomas Beyer]

Buy now as a Canadian then file for non-resident status.

35% down is quite common.

Or get a Canadian corporation ( with a Canadian director ) or do a JV.

Why become a non-resident as German taxes are quite similar or slightly higher than here.

 

[danielsparre]

Thanks for the reply Thomas!

I have just looked into buying now before filing as non resident. Hopefully that will work and allow me to at least pick up another property.

By opening a Canadian corporation do you mean an LLC with a Canadian resident as owner? I'd love to do that and make my wife the owner however a spouse is not able to file different tax status. So if I'm non resident so is she.

In Germany we are taxed at approx. 35% however when filing in Canada in our tax bracket we are dinged at 50%. Basically what the government says is that we have to make up that difference and if I continue to file I'll be on the hook for over $20k/year. I just figured if I claim non residence I can save that money rather than give it to the CRA and use it to pay down properties.

I'm just assuming there really are NO lenders out there who would lend to non residents using the normal 20% down guidelines?

 

[Thomas Beyer]

LLC is a US flow through corporation. That legal entity does not exist in Canada. It could be an LP or better, a corporation.

Why are you so concerned about taxation in Canada as a German tax filer anyway as you would usually not pay any taxes in Canada while holding rental properties due to CCA ( capital cost allowance also known as depreciation) ?

 

[danielsparre]

Thanks again Thomas! Would you happen to have a tax consultant that you could recommend? Someone who would be familiar with foreign income as well as rental property income/expenses? I'd love to speak with someone who could steer me in the right direction. My tax guy has been OK for many years but its clear to me now that with all these moving parts I may need to switch to someone who is more well versed on the real estate side of things.

 

[Thomas Beyer]

Check CRA website for form T776 as that is what you can do yourself and that is how you report rental income. It shows a field for CCA/depreciation and that is why usually you pay no taxes while holding, unless you have very low leverage, say 60% or less.

Also check NR4 (withholding taxes for non-residents) and TIN (tax ID number) to not be subject to this withholding. Most savvy accountants can do that for you, for a fee, of course.

As such, as stated, one option is to hold the assets in a Canadian corporation, owned 100% by you, as only money out of this corporation has to be reported, and usually nothing while holding, even when assets are sold within the corporation. You need a Canadian director, though.

Another option is a trust. You need a Canadian trustee and you can be the 100% beneficiary.

 

[danielsparre]

Thanks again Thomas. I will look into this further. At the moment it seems to be the German income from my "job" which is the main issue. To my knowledge the only way around paying tax on that income is to claim non residence. But I will have to confirm that with my tax guy. In the meantime, if you have a tax adviser that you can recommend I'd love to get a 2nd opinion on how to go about this.

 

[Thomas Beyer]

Bist Du schon in Deutschland ? Oder noch in Kanada ? Suche doch mal über Google einen Steuerberater in Kanada. Aufgrund unserer Größe benutzen wir die Steuer- und Buchhaltungsfirma Buchanan Barry in Calgary, aber es gibt überall solche Leute.

 

[Nicola]

I'm a Canadian non-resident investor, and have been for many years. If you want to email me with questions, I'm happy to help. [email protected]