More Sunshine Ahead for Canadian Snowbirds?



A new bill introduced by two U.S. senators is designed to have foreigners spur on the struggling U.S. economy. Senators Charles E. Schumer (D-NY) and Mike Lee (R-UT) have introduced The Visa Improvements to Stimulate International Tourism to the United States Act (VISIT-USA Act). The new legislation proposes two different variations of a 3-year non-immigrant residential visa. One of which is a “home ownership visa” which is the subject of this blog post.

The VISIT-USA Act would create a new visa for Canadians citizens who meet the following conditions:

1. Uses at least $500,000 in cash to purchase 1 or more residences in the United States. Each property must be purchased for more than 100 percent of the most recent appraised value; and

2. Maintains ownership of residential property in the United States worth at least $500,000; and

3. Resides for more than 180 days per year in a residence in the United States that is worth at least $250,000; and

4. Are not otherwise inadmissible;

Under current immigration law Canadians visitors cannot spend more than 180 days in the U.S. The new visa would extend the number of days Canadians could stay in the U.S. from 180 to 240 per year and would be renewable every 3 years. If this bill were to become law we may see a radical change to the migration patters of thousands of Canadian snowbirds.

At first blush Canadian boomers may be excited about the prospects of a year round golf season. A word of caution to retirees who will be lining up at U.S. immigration offices like teenagers at Apple stores: before making any moves it is critical to understand all the personal, financial and tax impacts of such a lifestyle.

The visa would not allow Canadians to work in the U.S. or obtain any U.S. benefits such as social security or Medicare. Canadians who will be increasing their time in the U.S. may lose their Canadian health care benefits. This means that private insurance becomes a threshold issue and is a must have for anyone considering the proposed visa. In addition, Canadians may wind up becoming tax residents of the U.S. and paying tax to the IRS on their worldwide income. While getting involved with the IRS sounds like a dicey proposition for most Canadians, this actually may be a good thing as U.S. income tax rates are significantly lower than Canadian income tax rates.

The Canada U.S. Tax Treaty has been designed in such a way that you can only be a tax resident of either the U.S. or Canada. Tax residency is a question of fact. Some of the key questions to ask to determine tax residency are:

- Where do you spend the majority of your time?
- Where does your immediate family reside?
- Where is your socio-economic center?

Becoming a tax resident of the U.S. means you are becoming a non-resident of Canada for tax purposes. When a Canadian cuts ties with Canada from a tax perspective this may give rise to departure tax issues. Careful planning must be done in advance to analyze one’s assets with the objective of deferring, minimizing or eliminating departure tax issues.

U.S. tax residency has numerous advantages for Canadian retirees. Lower income tax rates on income and pensions, no OAS clawback and an opportunity to possibly withdraw proceeds from RRSPs / RRIFs nearly tax free are a few of the highlights. Once the dust settles, Canadians may find that they have additional after tax dollars to use and enjoy in their new sun filled retirement.

Stay tuned for more on this new Bill. At this point we do not know if the VISIT-USA Act will become law but one thing is for sure, second to the Habs-Leafs hockey rivalry, this may be the most debated topic in South Florida this coming winter.

Register now for a workshop for Canadians interested in Moving to the U.S. taking place on November 18, 2011 in Toronto, ON.

Follow Matt Altro on Twitter at @MattAltro

Matthew Altro featured in the Montreal Gazette Online



Allison Lampert contacted Matt for his take on this new proposed bill and what it means for Canadians, for the Real Deal business blog on the montrealgazette.com.

U.S. residency could be taxing for Canucks

ALLISON LAMPERT
The Montreal Gazette, Real Deal Business Blog
October 24, 2011

Recent reports that foreign buyers of U.S. homes could one day get automatic visas is good news for Canadian buyers – albeit with one big caveat. The impact of cross-border taxation could make the price of a U.S. residency a lot more expensive than a $500,000 house, experts say.

As a way to bolster the weak housing market, two senators want to give a U.S. residency visa – but not the right to work – to all foreign buyers spending $500,000 or more on American real estate, the Wall Street Journal reported last week.

Canadians are among the largest group of non-Americans buying homes in the United States – accounting for a quarter of all foreign buyers – often in states like Florida that were hard-hit by the housing melt-down. A visa would allow Canadians to reside in the United States for longer than the current six months.

Having to return to Canada after six months is a frequent complaint among Canadian buyers of U.S. homes, said Matthew Altro, chief operating officer of Altro & Associates LLP – a firm specializing in cross-border tax, estate planning and real estate.

“This is not ideal for our clients, or other Canadians who have properties in the United States,” Altro says. “Limiting them to six months a year is a stumbling block. This would be opening a gateway to many.”

But living in the United States for more than six months would also expose them to Canadian departure taxes when they leave the country, along with U.S. estate taxes if they pass away South of the border.

“With proper planning, before you move, many of these problems may be reduced or eliminated,” Altro said.

Indeed the U.S. proposal is not so different from a program that already exists in Canada, observed Peter Goncalves, a financial planner with RBC.

The Federal Immigrant Investor program fast-tracks permanent residency for wealthy individuals who invest in Canadian financial institutions.

“This U.S incentive may want to facilitate the courtship of the same type of wealthy foreigner with the added policy objective of stimulating the U.S. housing market,” he said.

Click here to read Matt’s blog about this important topic!

David A. Altro featured in the Kelowna Daily Courier



David was interviewed by business reporter Steve MacNaull of the Kelowna Daily Courier. The article ran in The Okanagan Saturday on October 22, 2011.

Please click here to view the article in PDF format and scroll down to read the complete article below.

Cross-border real estate simplified
Owning U.S. property need not be as complicated as it may seem says author and tax expert

STEVE MacNAULL
The Okanagan Saturday
Saturday, October 22, 2011

They are called cross-border lifestylers. Or sun belt buyers or snowbirds, if you will. They are the Canadians who purchase vacation and investment homes in the southern U.S. to beat our Great White North winters and make some rental income and equity on the side.

“With the perfect storm we’re having right now there’s more of them than ever,” said Montreal-based buying-in-the- U.S. expert and tax lawyer David A. Altro during a stop in the Okanagan this week.

“Real estate prices in the U.S. are depressed, representing great deals for Canadians, plus the loonie is high.” That means Canadians are not just buying a property they will use for vacations, but rent out when they aren’t using it to generate some income.

Other Canadians are buying five to 10 U.S. homes at a time and renting them out full-time to pull in even more revenue. Altro is the author of Owning U.S. Property The Canadian Way, the managing partner at Altro & Associates in Montreal, and works in conjunction with lawyers at Altro firms in Toronto, Calgary, Vancouver and in U.S. sun belt destinations Phoenix, Arizona and Fort Lauderdale, Sarasota and Naples, Florida.

“Buying U.S. property is not complicated,” pointed out Altro, who led a seminar organized by Royal Bank for 200 people at the Best Western Inn in Kelowna. “But you have to do it right to protect yourself and pay the least amount of taxes.”

Altro’s speaking tour also brought him to Vancouver, West Vancouver and Victoria.

Altro’s answer to almost every question about buying a vacation, second or investment home south of the 49th parallel is ‘cross-border trust’.

“The key is not to put the U.S. property in your own name nor a Limited Liability Company (LLC), (but) put it in a cross-border trust,” he stressed.

That way when you pass away, your estate avoids probate (the lengthy and costly U.S. legal process of dealing with claims on and distribution of estates).

A cross-border trust also allows your estate to avoid U.S. state and death tax.
A trust also means you pay the lowest capital gains tax if you decide to sell your U.S. property.
And a trust also means if you have rental income you pay only U.S. tax on it.
You declare the income in Canada as well, but don’t have to pay tax in Canada because the trust prompts a foreign tax credit.

“If you own a U.S. property in your own name, you open yourself up to probate of your estate, state and death taxes, higher capital gains taxes and paying double (in both Canada and the U.S.) taxes on rental income,” said Altro.

Altro stressed he is not a real estate broker, he leaves that job to the U.S. representatives who show Canadians condominiums, townhouses, homes, villas and land in snowbird states like California, Arizona, Texas and Florida. “But I can advise on purchases and identify all the tax issues and implications,” he said.

“I can also advise on inspection clauses and title issues. It’s important Canadians have the property they are buying inspected and are protected if something goes wrong.

“It’s also important to make sure you get free and clear title.”

Altro recommends all Canadian buyers use a lawyer familiar with cross-border tax and issues.

He also advises clients to hire an accountant with crossborder experience to file income tax returns, especially when there’s rental income involved.

Owning U.S. Property The Canadian Way (self-published, 136 pages) is available for $20 at AltroLaw.com.

David A. Altro featured on BC radio stations


David A. Altro was interviewed by Frank Stanford on CFAX 1070 radio in Victoria, BC and on The World Today Weekend with Sean Leslie on CKNW AM 980 in Vancouver, BC.

Click here to listen to the CFAX recording

Click here to listen to the CKNW recording

Will a Short Sale Leave You Feeling Shortchanged?



We are now about three years into the recession, and there’s no denying that property prices in the U.S. are still at affordable lows. As winter creeps up on us, many Canadians are likely researching just how much a nice little vacation home might cost.

I applaud that line of thinking (as soon as winter hits, I drink Vitamin D drops almost as quickly as the snow falls in a blizzard), but I urge caution on one major issue: if you come across a short sale property and decide to put an offer on it, make sure you have legal counsel to guide you through your real estate transaction.

Short sales occur when a homeowner needs to get out of a mortgage because they are in financial trouble, and they can’t pay off their loan. The seller will put their house on the market, price it attractively and then cross their fingers and hope that their lender will approve the sale and accept its proceeds as full payoff for their loan – even if the seller will fall short of paying back everything they owe.

While Altro & Associates, LLP is known for cross border estate and tax planning, we are also experienced at guiding our clients through real estate purchases in the U.S. We specialize in advocating for our clients throughout their purchasing process, which becomes even more important when a property is being sold short.

I’ll use a real example from our practice to illustrate my point. Earlier this year, Jacques and Alice found a beautiful condo in Miami Beach that caught their eye. Their realtor notified them that the sellers had two mortgages on the property from a bank and a private lender. The sale would have to be approved by both lenders because it would be a short sale.

Jacques and Alice decided to go forward – but they called us as soon as their offer was accepted, knowing that it would be a long road to their closing date. It’s not only been a long road, but an incredibly bumpy one too. Below is a long list of the short sale troubles that Jacques and Alice have had to endure:

  • Short sales often close at the last minute; the lender takes its time approving the sale and then demands a quick closing date with very little notice. This is what happened to Jacques and Alice. We advised the seller that we could meet the closing date deadline when they proposed it to us, but that our clients’ realtor in Florida would have to do a walk-through of the property before we would release any funds to the seller.
  • When the realtor showed up at the condo to make sure it was still in good condition, the locks had been changed and there was – wait for it – a squatter inside!
  • Needless to say, instead of celebrating a closing, eviction proceedings began. While the court proceedings dragged on, we needed to get multiple closing date extensions from the bank and the private lender.
  • Of course, to complicate an already complicated deal, our contact for the private lender was on vacation during this time, so it was extra difficult to obtain sign-off on the closing date extensions that we needed to save the deal.

  • The eviction proceedings went on for so long that the bank notified us that they were going to foreclose on the property, which would effectively kill our clients’ deal. They eventually changed their mind on this, but not before the mention of a foreclosure created heartache for our clients.

  • The eviction proceedings eventually ended, and once again, we were ready to close. This time around, however, we were notified that our clients would have to pay thousands of dollars extra in condo assessments that had become due.

  • Even though the purchase contract clearly states that the sellers were responsible for all such assessments, they were unable to afford the assessment payments, so those payments fell to our clients, if they chose to accept them as their burden.

  • Before agreeing to this extra cost, we advised our clients to review a draft settlement statement, also known as a HUD. A HUD is a document drafted by the U.S. title company in charge of creating the closing documents for a transaction. The HUD outlines the financial breakdown of a real estate transaction for both parties.

  • When we received the draft HUD and compared it to the previous one we were using before the discovery of the squatter, we noticed that the amount owing by our clients was actually LESS than before – even though they were apparently being charged more for the assessments!

  • If Jacques and Alice had reviewed this HUD and agreed to pay for the assessments, thinking they were somehow SAVING money, they would have been pleasantly UN-surprised upon receipt of the final HUD at closing, which would undoubtedly include the thousands of dollars in assessments that they would have “agreed” to paying after reviewing the incorrect draft HUD.

  • We noticed the error in the draft HUD, however, so that potential problem was avoided. We requested a revised HUD, which came with several more errors in other sections. Further drafts were also incorrect.

  • Once we received a HUD that was correct, we agreed to move forward with closing, but not before requesting that the title company do an updated lien search to make sure the property was free from any encumbrances.

  • Lo and behold, the night before closing, a federal tax lien came up on the title search, and we were once again delayed!

Not surprisingly, Jacques and Alice have still been unable to close on their property.

During the winding road described above, we advocated for Jacques and Alice by ensuring that the title company provided correct, up-to-date information at all points. We caught errors that could have easily gone unnoticed by reviewing all documents with a fine-toothed comb and knowing exactly what to look for. We coordinated and corresponded with the various parties involved in this complicated transaction so that our clients didn’t have to be the quarterbacks on so many moving pieces.

In short (no pun intended!), title companies create closing documents, but they don’t work on behalf of buyers. A really great realtor is a huge asset in a transaction like the one detailed here, but he or she doesn’t review important closing documents to make sure that you are legally protected.

Real estate lawyers are there for you, and you alone. When Jacques and Alice finally close on their dream home in Florida, we will be there with them, and they will have the peace of mind that comes with knowing that they weren’t alone, navigating the muddied waters of a short sale without a compass to guide them to legal safety.