Cross border tax saving strategy for a Canadian – US joint real estate venture

Two entrepreneurs, one of whom is a US citizen, were looking to enter the Canadian real estate market by purchasing a commercial rental building and its adjacent vacant land. Their plan was bold, yet simple – Rent the property which would earn them a passive stream of income, re-zone the land to build an additional rental property and then eventually sell the entire complex.

The entrepreneurs approached Zeifmans to assist with the venture. They were quickly informed on the issues surrounding the potential purchase of the property. Aside from the costs of acquiring the property, renovating it and arranging the financing, they also discovered that they had some financial and tax compliance hurdles to overcome – dealing with HST on the purchase, deciding the optimal structure to hold the investment property for income tax purposes and navigating the overwhelming minefield of withholding tax issues connected with the partial ownership of the investment property by a non-Canadian.

We worked with the entrepreneurs to design a cross border tax saving strategy that would allow them to eliminate the payment of HST on the property’s closing. Our team also determined the optimal financial structure to ensure that income taxes and withholding taxes paid to the Canada Revenue Agency (CRA) were minimized and ensured compliance went seamlessly. In addition, we assisted with determining an exit strategy for whenever the entrepreneurs decided that the time was right to sell. Furthermore, we ensured that that US citizen was not subject to double taxation in Canada and the US.

Proposition. We proposed a cross border tax saving financial structure that would allow the entrepreneurs to eliminate their withholding tax obligations on rents earned within the project.

Dual Citizen Strategy. We determined a mechanism for the US citizen to avoid potential double taxation on the income earned from the project by taking advantage of the Canada-US tax treaty. Additionally, we developed a strategy for the Canadian resident to minimize the Canadian taxes on his share of the income as well.

Legacy. Our team came up with a plan to ensure that upon eventual disposition of the rental complex, taxes were minimized. By having an efficient corporate structure and by implementing an effective strategy, the purchasers ultimately ending up paying a significantly reduced amount of taxes on the venture, leaving more money in their pockets. They also had the peace of mind that their regulatory and tax compliance had been carefully looked after by their Zeifmans advisors.

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