Canadian buying property in Florida? Here's the smart way

Many Canadians choose to buy property in the US sunbelt, picking up real estate to use when escaping the colder months here in Canada. Maybe you’re retired or semi-retired and plan to take up the snowbird life, living in Florida for several months a year, or perhaps you simply want a quiet retreat for some family weekends, and an annual vacation.

If you plan on buying a property in Florida, there are a few things you need to think about to manage your costs and tax liabilities, both now and in the future. This overview will give you a few ideas to start you thinking. Be sure to talk over your personal circumstances with an expert advisor before you make the leap and pick up your new vacation property in the Sunshine State.

Probate and how it affects your purchase

Property is a long term investment. And so while it may feel a little pessimistic, it makes sense to think about what may happen to your Florida condo if you, or your spouse were to die. Probate comes as a surprise to many vacation home owners, which means their family have to deal with navigating this costly process as well as coming to terms with the tragic loss of a loved one.

By understanding probate, and putting some plans in place when you buy your property in Florida, you can help alleviate this cost and hassle at a later stage.

So what exactly is probate, then?

Probate is the legal procedure needed to formally transfer a property to the named beneficiaries of the deceased. It’s a drawn out process which can take from 8 to 12 months, and cost some 3%- 4% of the value of the home in legal fees and related charges. During probate all of the assets of the estate are frozen, so the condo can not be sold on. ¹

The good news is that there are some legal ways to structure your property purchase which can help avoid probate altogether, and ensure your condo is passed to your remaining family members without the fees. We’ll talk through your options in a moment, to give an overview of the smart ways to buy property in Florida as a Canadian.

Planning on buying property in Florida? Don’t pay more than you have to in bank fees

Of course, you don’t want to leave your loved ones with fees to pay on your Florida property after you’ve gone. But don’t forget that there are smart ways to cut your costs when buying a Florida condo, too.

Currency conversion and international payment costs can mount up when buying a property abroad. Banks tend to charge high fees for cross border payments, and you might also find a margin is added to the exchange rate used for currency conversion.

You could get a better deal when sending money abroad, if you use an alternative service, like Wise. Payments are made using the mid-market exchange rate with no margin added, and just a low transparent fee to pay. This can work out to be much cheaper than using your regular bank - especially when making high value transfers for real estate.

Once you’re in Florida, you’ll also need a smart way to access your money without being hit by high fees. Check out the Wise multi-currency borderless account - a modern alternative to traditional bank accounts, which lets you hold your money in 40+ currencies, and switch between them using the mid-market exchange rate whenever you want to.

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How can you buy your property then?

To avoid paying high fees and taxes, you’ll want to do some research, and get some professional advice. There are a range of different legal structures you can use when buying a new property in the US - and each has its own benefits and drawbacks.

Here are a few of the common options to consider. ¹

Incorporation

One way to avoid the issues associated with probate is to set up a Canadian incorporated company, and have the company buy the property. Under this structure, there is no need for the probate process because the property continues to be owned by the company, even after your death. However, this is not the most suitable option for most people, because you’ll need to file your company taxes both in Canada and in the US, and may need to pay taxes in Canada on the rental value of the property, even if you don’t let it out during the year.

Joint Names

If you’re buying a vacation home with a spouse or other family members, you might consider putting it in joint names. This way, if one owner dies, the condo will remain the property of the other named owners.

Using joint names is unlikely to be the answer if you intend to keep the property in the long term, though. Unfortunately, death is one of the few certainties in life - and when all of the joint named owners pass on, you will be facing probate once more.

LLCs - Limited Liability Companies

The LLC is an American company structure which is not recognised in Canada. This causes a number of complications which makes this one of the worst ways to buy a US property.

If you buy using a US LLC, the Canada Revenue Agency will apply the standard company tax on the property if it’s sold. On the US side, the LLC won’t be taxed, but the owner would be liable for tax as an individual. You couldn’t in this situation offset one payment against another, as the owner and the company are different entities - making it highly likely that you’ll wind up paying tax twice on the same property.

It’s worth noting that there have been cases of US based advisors suggesting Canadians use this route to buy property, as it is a cost effective way for a US citizen to buy a vacation place. However, the situation is different here in Canada - make sure you check your options with a Canadian tax specialist before you commit, to avoid nasty surprises later down the line.

LPs - Limited Partnerships

A Limited Partnership (LP) would involve owning a majority share in a property, with your own incorporated company owning the rest. This is a possibility for people looking to buy property in the US for rental income, but doesn’t work well for those who want a vacation place. Some forms of limited partnerships may cause double taxation problems - if you’re considering this route, make sure you get solid professional advice first.

CBT

A Cross Border Trust (CBT) is a good option for many Canadians looking to buy a property in Florida. You get many of the advantages of owning the condo through a company, but with the lowest tax liability and no risk of double taxation. CBTs can be set up as a couple, or if you’re buying with a spouse you may have 2 CBT’s, each owning half of the property in question. ²

The trust - or trusts - then own the property. Should you die, the property ownership remains with the trust, avoiding probate. If you’ve bought the property with a spouse, your share of the home will pass to them if you have a single CBT, or can simply remain in trust in your own CBT. If the original owners of the property both pass on, the home can then be divided into further trusts for the named beneficiaries, such as your children.

Probate doesn’t apply, as the ownership of the property remains with the CBT uninterrupted.

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Buying property is never going to be cheap, so it makes good sense to find ways to cut your costs and future tax liabilities. By doing some research and taking good professional advice from a Canadian cross border tax specialist, you can help to alleviate some of the costs arising from probate.

And by taking further steps, such as using a low cost international payment provider like Wise to cover your real estate purchase costs, you may find you can save even more. Good luck, and enjoy the sunshine.

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Sources:

1. The Globe and Mail - How to be a tax-smart snowbird with property in the U.S.
2. Altro Law - The benefits of owning U.S. property in a Trust

All sources checked 3 September 2019