The story is told of a time in early pre-statehood Utah, when there was no cash to speak of, and a young man wanted to take his girl to a show. In-kind exchanges were the way back then, and the cost for a ticket was three chickens.
Unfortunately, all he had was a turkey, so he picked up his date with his live turkey in tow, and paid their way to the show, receiving a chicken and three eggs as change.
It was a difficult evening with three eggs in one pocket, and a chicken under his left arm, but he made do. Money as we know it today is extremely convenient. Whether it be coins, paper money, or strictly electronic units, it's just so dang handy.
"In-kind" exchanges of say, horses for tractors, honey for hockey sticks, or fence poles for cheese, require an unusual and cumbersome coincidence of circumstances and wants.Thus, money is a mutually agreed upon medium-of-exchange, eliminating requirement for goods to be traded in very unlikely situations.
In a place called Yap, a group of Islands located in present-day Micronesia, they figured out the medium-of-exchange idea a long time ago, but the convenience thing never really caught on.
Their currency historically was made of huge limestone rocks, some as much as 12 feet in diameter. (That's a very large medium, don't you think?) Pillaged from a nearby island at cost of life and limb, these rocks are even today valued separately, roughly based on the story behind each quarried stone, how many lives were lost in its getting, and whether they were carved out with the traditional shell tools, or if a more modern technology was used. Today these Rai Stones still carry precious monetary value, although the U.S. dollar has taken over as the day-to-day currency of choice.
Just imagine Yapese vending machines!
Don't take any wooden nickels.
In this, the fourth and last submission on the topic of Canadian snowbird property owners, we touch on a few more tax and estate planning matters involving the U.S. greenback and your little piece of paradise down that way. Be careful out there.
Canadian foreign income verification reporting
If your U.S. vacation property is used to earn rental income you should consider foreign reporting rules under Canadian tax laws. Canadians who hold certain types of foreign property with a cost in excess of C$100,000 at any time during the taxation year are required to disclose information on Form T1135 - Foreign Income Verification Statement.
Fortunately, U.S. vacation properties that are primarily held for personal use are exempt from reporting under the T1135 foreign reporting rules.
Canadian tax authorities generally consider primarily to mean more than 50 per cent. U.S. vacation property that is not rented out or is only rented for a small portion of the year in order to recover some expenses with no real profit motive would be considered personal use property and exempt from T1135 reporting.
Estate planning considerations
If you die owning "U.S. situs assets" such as stock of a U.S. corporation or U.S. real estate then you may be subject to U.S. estate tax. There are several strategies that Canadians may consider to minimize their exposure to U.S. estate tax.
These include gifting or selling U.S. situs assets prior to death, holding property in a properly structured Canadian trust, Canadian partnership or Canadian corporation, or acquiring life insurance to cover the potential U.S. estate tax liability. Canadians may also be subject to U.S. gift tax when they gift U.S. tangible property such as U.S. real estate, jewellery, cars and artwork that is located in the U.S.
Your will
It is important to ensure that you have a valid will that properly addresses your wishes with respect to your U.S. real estate.
Although a Canadian will may be adequate, complexities may arise due to potential clashes between the differing Canadian and U.S. succession laws. To minimize this risk, you should consider executing a separate will (drafted in the U.S. state where the U.S. real estate is located) to deal specifically with your real estate and other assets located outside Canada. When executing a separate U.S. will, it is important to ensure that it does not conflict or revoke your Canadian will. Speak to a cross-border legal advisor regarding multiple wills.
Consider preparing a properly drafted power of attorney that addresses your U.S. real estate. This will ensure that your property continues to be managed in accordance with your wishes (particularly important in the case of a rental property) in the event of your incapacity/disability. Under common law, the law of the jurisdiction in which the power of attorney is executed usually governs the relationship between a donor and the attorney. Therefore, it is important to execute a separate power of attorney in the U.S. state where your real estate and other U.S. assets are located. Speak to a cross-border legal advisor for advice.
Be prepared
Whether you already own U.S. real estate or are considering making a purchase there are significant tax planning, financial planning and estate planning implications to consider.
Mark Ryan is an advisor in Prince George with RBC Wealth Management, Dominion Securities (member CIPF) and can be reached at [email protected] or 250-960-4927.
