TORONTO--(EON: Enhanced Online News)--Since the financial crisis, Canadians have increasingly looked to the US real estate market as a potentially lucrative and under-valued investment opportunity. Canadians hope to “cash in” on deals that were once the domain of professional real estate investors. Investing in US commercial real estate, a new publication from Grant Thornton LLP, is designed to provide information and insight into key considerations for Canadian investors.
“Improperly structured, a good investment can quickly turn sour when the full tax picture becomes clear.”
“While opportunity may exist, investors often focus too much on potential high returns without considering other factors that come into play,” says Bo Mocherniak, National leader of Construction, Real Estate and Hospitality at Grant Thornton LLP. “Improperly structured, a good investment can quickly turn sour when the full tax picture becomes clear.”
Investing in US commercial real estate is a big step and there’s no one-size-fits-all template. It’s critical that any Canadian companies, pension plans and individuals looking to expand their investment portfolio to US commercial real estate fully understand their options and structure the investment to minimize unnecessary taxes and penalties and maximize relevant tax credits, among other things.
Investing in US commercial real estate delves into two key issues:
- Ownership structure options: Taxation may have a significant impact on overall return on investment, so potential investors need to take the time to understand the ownership structure options and tax implications, among other things, before pulling the trigger on any deal. There is no “perfect” ownership structure for US commercial real estate. The paper examines the pros and cons of various ownership structures to help potential investors understand which might be optimal under different circumstances.
- Capitalization structuring: When Canadian investors choose an ownership structure that includes a US corporation, the issue of capitalization (debt/equity) arises. The best approach is to model the projected taxable income to determine what level of debt can be supported, both from a tax perspective and taking into account US thin-capitalization, interest limitation and transfer pricing rules.
The paper also addresses other issues to be considered, including Canadian foreign accrual property income (FAPI) calculations, US replacement property type rules, US branch income allocation and the need for timely and proper ownership documentation.
Investing in US commercial real estate is a valuable resource for anyone looking to expand their holdings in order to take advantage of market opportunities. To download a free copy, please visit our website.
Bo Mocherniak, National Leader, Construction, Real Estate and Hospitality at Grant Thornton LLP, is available for interviews about this and other real estate investment issues.
About Grant Thornton LLP
Grant Thornton LLP is a leading Canadian accounting and advisory firm providing audit, tax and advisory services to private and public organizations. We help dynamic organizations unlock their potential for growth by providing meaningful, actionable advice through a broad range of services. Together with the Quebec firm Raymond Chabot Grant Thornton LLP, Grant Thornton in Canada has approximately 4,000 people in offices across Canada. Grant Thornton LLP is a Canadian member of Grant Thornton International Ltd, whose member firms operate in close to 100 countries worldwide.
The information contained herein is prepared by Grant Thornton LLP for information only and is not intended to be either a complete description of any tax issue or the opinion of our firm. Changes in tax laws or other factors could affect, on a prospective or retroactive basis, the information contained herein. You should consult your Grant Thornton LLP adviser to obtain additional details and to discuss whether the information in this article applies to your specific situation.