If you have a “single-purpose” corporation for U.S. estate tax planning, this may be a good time to explore an alternative way of holding U.S. real estate.
Prior to 2005, many Canadians used a Canadian corporation, referred to as a “single purpose” corporation to hold U.S. real estate for personal use, in order to avoid U.S. estate tax on the property. Shares of a Canadian corporation are not U.S. assets (U.S –situs property) for U.S. estate tax purposes. As long as the sole purpose of the corporation was to own the U.S. property and all the expenses related to the property were paid personally by the shareholders, the Canada Revenue Agency (CRA) would not consider the shareholders of the corporation to have received a taxable benefit for the personal use of the property. In 2004 CRA eliminated the administrative relief from the shareholder taxable benefit provisions. The use of a “single-purpose” corporation was no longer a viable planning tool.
However, corporations created prior to 2004 were grandfathered under the old regime until disposition of the corporation or its assets. Needless to say, continued use of a “grandfathered single purpose” corporation is burdensome!
With the recent significant decline in the value of U.S. real estate and the relative strength of the “loonie” to the U.S. dollar, many of us are investing more in U.S. real estate. Many techniques can be used to plan for potential U.S. estate tax liabilities with the use of trusts to hold U.S. property becoming more popular in recent years.
If you used a single purpose corporation as a tool for U.S. estate taxes and/or you are looking into to purchasing more U.S. real estate, with the decline in value of U.S. real estate, it might be a good time to visit your professionals to review your options.
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