As travel opens up, owning or renting a home in a warmer climate might again be the goal of many Canadians. However, maneuvering around currency changes, tax jurisdictions and mortgage issues can be difficult without proper advice. Kim Parlee talks to Pierre Letourneau, a High Net Worth Planner with TD Wealth, about how to manage property purchases successfully.
- With travel restrictions lifted, some Canadians are flying, and some are looking at buying, and looking at buying some new places to be out of the country, maybe in the States or overseas. But there are complexities, and we couldn't have anyone better to help us figure this out than Pierre Létourneau. He's a High Net Worth Planner with TD Wealth. He's got a quick checklist for us on the things we need to keep in mind.
And people are going to have to do their own homework, see if they really want to get into this, but number one, you're saying, is, make sure you think about the ownership structure if you're looking to buy abroad.
- Yeah, definitely. There's a lot of factors that you need to consider to really determine what the best ownership structure is. First off, which country are you buying in, right? What the use of the property is going to be-- is it going to be a rental? Is it going to be just personal use?
Do you-- creating a legacy asset? And then the taxes as well, too-- all that will determine the right ownership structure. It might not just be personal ownership. You may want to look at a trust. You may want to look at a partnership or a corporation to hold the asset.
- Yeah, and I know we can get into some more detail on that, but just, this is something just with ownership structure-- take your time. Think about this, because you said, it's the use of the property. It's like, what do you eventually intend to do with this? That's going to dictate everything you need to do today.
- Right, and knowing that is going to be helpful when you work with an advisor, somebody that could really guide you through the process and make sure you get the right ownership structure.
- Tell me a bit more about taxes. What are some of the big things you need to think about when it comes to taxes?
- Again, use of the property is going to be important there. So if you're generating rental income, obviously that's a taxable-- that's taxable income. If you're doing that, let's say, with a US property, you may have to report that to the IRS and pay taxes on that. And you may have to report that-- you'll likely have to report that in Canada as well, too, so that leads to double taxation.
The good news is, Canada has a lot of treaties with these foreign jurisdictions, or a foreign tax credit regime that allowed-- that sort of eliminates a lot of the double taxation, but it's not a perfect system.
- Yeah, so they have to be careful of that, like, in that use. The other thing, of course, is that if you are looking to borrow to buy the second property, I mean, first off, rates are going up, so people should be careful about that. You might get some deals, but the mortgage might be more. What do you need to think about with the mortgage?
- Well, I think it's a lot more complicated than people think. You know, it's not the same process, necessarily, as what you're used to here in Canada. You may have to be dealing with a local bank. Interest rates may be a bit higher because you're a foreign national, or there may be additional fees.
But I think the most important part is, your good credit score here in Canada may not be applicable in that other jurisdiction. So that becomes problematic. I find-- I've worked with a lot of clients that have great credit scores here, but it's like they had no credit in the US, for example, and so it makes it very complicated.
- Oh, interesting. So it's a blank slate.
- Yeah, it can be.
- And you have to kind of prove yourself from day one again. And then another one I think that people need to think about is that maybe you don't want to buy if you go abroad. Maybe you just rent. I mean, there's a lot of-- I'm sure there's just a lot of complication you'll be avoiding by looking at renting at the same time.
- Right, both strategies have their drawbacks, I think. If-- certainly renting a property gives you a lot more flexibility, so you can just decide-- if you decide you don't want to go back there, you don't have to. If you purchase, well, you're making a larger commitment, and obviously, there's all these other complications. But at least if you like a certain place, you're guaranteed. You can use the property as you wish, right?
- So having that flexibility can be very valuable, and so you may want to go through all the complexities. But I'd say, if you're looking to buy, get the right advisor in place, somebody that has experience with cross-border issues, so that that person can guide you through the process and probably make it a lot easier and less complex.
- And can I ask, well, just one last question quickly, is just time-- like, these are things-- I'm assuming this is not something like, oh, I'm going to buy it, go buy it. Like, there's a much more-- much larger investment of time to get this kind of thing done.
- Yeah, absolutely. Absolutely. And if possible, obviously, you'd want to go visit the country that you want to go to, and really make sure that you're comfortable in the area that you're looking to buy, and speak with the right advisors and meet the right people to help you through the process.
- Pierre, thanks very much.
- Thanks for having me, Kim.