Updated on January 23, 2024
There are tax implications when selling a property located in the U.S. that you need to be aware of to avoid unpleasant surprises.
When a Canadian resident sells U.S. real property, whether it is in Florida or elsewhere, withholding tax of 15% of the sale price is payable. For example, a home that sells for US$400,000 would require that US$60,000 be remitted to the Internal Revenue Service (IRS). This amount is collected from the sale price at the time of the transaction, either by the buyer or the agent, and then remitted to the IRS.
However, there are exceptions. The withholding tax does not apply if the sale is for less than US$300,000 (or it is reduced to 10% in the case of a sale between US$300,000 and US$1M) and the purchaser signs an affidavit stating that the new property will be a principal residence that will be occupied at least 50% of the time during the two years following the purchase.
The IRS applies this requirement under the Foreign Investment in Real Property Tax Act (FIRPTA) to ensure that the seller does not avoid its tax obligations in the U.S.
The good news is that the property seller will be able to recover some, if not all, of the withholding tax that was paid at the time of the transaction.
Recovering the tax withheld
The rate of 15% of the sale price is generally higher than the effective U.S. tax rate, which is between 0% and 20% of the capital gain. The seller may therefore obtain a refund for any amount already paid in excess of the actual tax due.
In order to recover the funds, the seller will have to file a U.S. income tax return, which will show the capital gain on the sale of the property. The funds withheld for FIRPTA will then be deducted from the tax liability and the balance will be refunded.
Note that the seller will, in all cases, have to file a US tax return even if he has benefited from the exemption from the 15% withholding tax as described above.
The sale of real property in the U.S. does not relieve Canadian residents of their obligation to report the transaction and pay tax on the capital gain in Canada. However, the Canada – United States tax treaty makes it possible to avoid double taxation.
What forms are required?
Naturally, there are tax forms to be completed for this process. The 15% withholding tax is remitted to the IRS using forms 8288 and 8288-A. Once the forms have been processed and the withholding tax received, the IRS will remit a stamped copy of form 8288-A, which the seller needs to file the U.S. income tax return.
At the time of the sale, the seller must obtain an ITIN (Individual Taxpayer Identification Number). Equivalent to the social insurance number in Canada, this number is mandatory for the 8288 and 8288A forms to be processed and will be needed later to file a U.S. income tax return in order to recover some or all of the 15% withholding.
Canadian passport certification
The application to obtain an ITIN must be accompanied by a certified copy of your passport. Certification by Passport Canada can take weeks or even months. Furthermore, you will not have your passport during this time since it must be sent to Passport Canada for certification. The good news is that Raymond Chabot Grant Thornton is accredited by the U.S. tax authorities to certify Canadian passports the same day they are requested.
Our cross-border tax experts are also available to prepare the prescribed tax forms and the U.S. and Canadian tax returns simultaneously.
In short, it is in your best interest to consult an international tax expert with in-depth knowledge of both countries’ tax rules in order to avoid unpleasant surprises or long delays. This expert will be better able to accompany you in order to not only minimize the financial impact of the sale of real property in the U.S., but also recover your money as efficiently and quickly as possible.
09 Feb 2023 | Written by :
Kais Yousfi is a tax expert at Raymond Chabot Grant Thornton. Contact him today!
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Updated on February 19, 2024
Many companies are slow to change their payment methods. However, this is a major issue affecting their productivity.
The sooner your organization embraces this transformation, the sooner you will gain productivity and be equipped against threats to your data security. However, with so many available solutions, a clear strategy is needed.
Cheques, an outdated payment method
Even today, many organizations still issue cheques as payment. However, this method is expensive. According to some studies by Payments Canada, it costs between $15 and $20 to issue a single cheque. Furthermore, according to the Association for Financial Professionals (AFP), cheque fraud accounted for 66% of total fraud in 2021.
Despite the facts and studies on the subject, organizations continue to operate with this archaic payment method, under the false impression that any change would be too complex to implement.
Efficient strategy to avoid risk
Other companies have gone electronic, but without a clear enterprise-wide strategy. The result is redundant payment solutions and multiple, sometimes incompatible, processes within the same organization. This approach creates confusion, puts data security at risk and fosters fraud.
Additionally, the lack of interaction between the different systems requires numerous manual processes that hinder controls and productivity and increase the possibility of errors.
Optimized processes that will make you less vulnerable
In this situation, your company’s maturity is determined by how it complies with industry best practices in terms of payments and payment security.
To assess it, you need to analyze your processes and determine your vulnerabilities by asking yourself these important questions:
- Is the use of cheques still predominant in your company?
- Do you operate with manual processes and controls?
- Are there several payment solution providers, including banks, in your organization?
- Do you have processes in place for payments to providers, payroll and others?
- Is it easy to trace back the complete cycle of a specific payment (reason for payment, approval, issue, receipt, reconciliation)?
- How long would it take to detect a case of fraud?
- Do you have any measures to protect your providers’ banking data?
A technological solution for implementing best practices
For payment digitization, optimization and automation, the payment factory is simply the most recommended solution for most businesses.
A payment factory is a technological solution that meets all the abovementioned challenges. It allows for:
Centralization
A payment center is the bridge between the different systems and the financial institutions. It centralizes the processing of payments from the various internal systems.
Increased controls
The payment factory allows for flexibility in approval models and potential fraud detection. For example: three or more levels of approvals for payments with a non-standard value, or additional authorization for a first payment to a new provider.
Automation
The payment factory makes it possible to automate several steps in the payment cycle. For example: the payment notification to the beneficiary or reconciling payments by posting accounting entries.
Integration
Interfacing between different systems and financial institutions is key. It eliminates manual data entry, optimizes the entire process and helps achieve the desired efficiency. It also ensures increased security when information flows from one system to another.
As a technological solution, a payment factory would be the foundation for future payment solutions such as Interac for Business, real-time payments and many others.
In short, the payment factory will allow you to eliminate or reduce your vulnerabilities, as well as accelerate your business processes so that you can spend more time on profitable business activities.
03 Feb 2023 | Written by :
Louis-Étienne Bérubé is a management consulting expert at Raymond Chabot Grant Thornton.
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The Grant Thornton International IFRS team has published the 2023 edition of Navigating the changes to International Financial Reporting Standards: A briefing for preparers of IFRS financial statements. The publication is designed to give preparers a high-level awareness of recent changes that will affect companies’ future financial reporting.
This publication covers both new standards and interpretations that have been issued as well as amendments made to existing ones, giving a brief description of each. The 2023 edition of the publication has been updated to include changes to International Financial Reporting Standards (IFRS) that have been published between January 1, 2022 and December 31, 2022.
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As at December 31, 2022, there were eleven countries around the world whose economies were considered hyperinflationary. Entities whose functional currency is the currency of one of these countries and that have December 31, 2022, reporting requirements have to reflect the requirements of IAS 29, Financial Reporting in Hyperinflationary Economies, in their IFRS financial statements.
Recent IFRIC decisions relating to hyperinflation
The IFRS Interpretations Committee (IFRIC) recently considered a number of accounting issues in relation to hyperinflation. They included:
- translating a hyperinflationary foreign operation and presenting exchange differences;
- accounting for cumulative exchange differences before a foreign operation becomes hyperinflationary;
- presenting comparative amounts when a foreign operation first becomes hyperinflationary.
We encourage careful consideration of not only the IAS 29 issues noted above but also an issue they considered earlier this year, which was how to consolidate a non-hyperinflationary subsidiary by a hyperinflationary parent.
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