Non-Residents & Estate Planning

by Tax Guy - Burlington Accountant on January 7, 2010 Print This Post Print This Post

Question: I am a US citizen married to a Canadian citizen living in Bermuda for the past 10 years.  We own no property in Canada and have no ties except to visit family for 1 week every year. My husband has just this year, though, opened investment accounts and bank accounts in Canada. I am not listed on those accounts.

 I would like to buy an apartment in Toronto but do not want to put his tax status in jeopardy.

 I also want to ensure that if he should pass away before myself, does our Will here in Bermuda cover his accounts in Canada?  It is hard to find tax planning information for Canadians married to US citizens who are living outside of US and Canada.

Summary Of Your Situation

Based on your e-mail, it appears that neither you or your husband are residents of Canada and you are a citizen of the U.S. However, your husband has opened a retail brokerage account and bank accounts in Canada and you are considering purchasing a condominium in Canada.

You would like to know what the tax consequences are and whether your Will in Bermuda will be valid.

Potential Issues And Pitfalls

At first blush, the major issue I see is one of residency. Canada taxes residents of Canada on their worldwide income and residency is a question of fact.

 The purchase of a condo and opening bank and brokerage accounts in Canada is generally considered to be establishing residential ties and could make you liable for income tax in Canada on your world-wide income.

You should read through the CRA’s information on what makes a person a resident of Canada. If the condo is retained and available for occupation, the CRA considers this a significant residential tie.

The Will

You Will should valid for property in Canada. However, if you are concerned about estate planning from a Canadian perspective, you might consider having a separate Will for the Canadian property drawn up so that only your Canadian property is subject to probate in the province your assets will reside.

U.S. Tax Issues

As a U.S. citizen, you must annually file an income tax return and pay tax on your worldwide income. You are afforded credits for foreign taxes paid and only remit the difference to the IRS. You will also be liable for the U.S. Estate Tax upon death.

If you do not intend to return to the U.S. and are concerned about U.S. taxes, you may consider renouncing your U.S. citizenship. Renouncing citizen ship may result in a tax bill now, but should eliminate annually filing a 1040 and eliminate the liability for U.S. Estate Tax (on non-U.S. situs property).

About The Tax Guy...

Dean Paley CGA CFP is a Burlington accountant and financial planner who services individuals and business owners locally, nationally and internationally. Dean has appeared in the National Post, Toronto Star and Metro News.

To find out more, visit Dean's website Dean Paley CGA CFP or connect via Twitter @DeanPaleyCGACFP.

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