How to go about buying property in Florida

As Canadian “Snowbirds” prepare to flock south for the winter, they often revisit the idea of purchasing Florida real estate. It is no secret that Florida real estate is attractive, as its resilience during the pandemic, low tax environment, favorable creditor protection laws and great reputation among international visitors all make the idea of owning property in the sunny south increasingly palatable. Yet one of the biggest fears of owning foreign real estate is the question of, “What happens when I die?”

As you may expect, there is an elaborate set of U.S. tax rules that will apply if you die while owning the real estate. For 2023, on death, U.S. taxpayers have an approximately $13 million value exemption before graduated estate tax rate apply (topping out at 40 per cent). This would only apply to you if you took permanent residence in the USA. A Canadian resident would, however, have a lower exemption amount of only $60,000.

Certain advantages

But it is not all bad news. Let’s address, in broad strokes, how this process works.

First, at the time of death, does the Canadian need to subject the Executors (Estate Administrators) to dealing with IRS and disclosing the full value of the deceased’s assets and getting into all of the myriad of cross-border tax issues that appear the minute we need to deal with the US authorities? Not if we can avoid it. Proper planning in this area can be of great value.

Canadians who purchase property in the U.S. have certain advantages over other non-residents. First, Canada and the U.S. have a tax treaty that prevents Canadians from paying double tax in many circumstances. This will protect Canadians from double taxation on the sale of the property. Second, for both tax and succession purposes, the property can be placed into a carefully constructed Canadian resident partnership or corporation, in turn owned by an appropriate family trust (the “Sunshine Trust”) or directly by the Sunshine Trust. There are a variety of options to consider at this point, all of which will create more or less favourable outcomes depending on whether the Canadian owns the property until death, sells it prior to death or generates income from the property.

Sunshine Trust

To determine your eligibility and what is the best way to structure the purchase of your property, it is necessary to meet with a legal and/or financial professional (tax accountant) familiar with all of the complex issues that affect the area, and to help the professionals understand the individual needs of the person or family requiring the advice. This will allow for the careful planning necessary to make the right choice in how to hold the property and comply with the tax legislation of both the U.S. and Canada. The cost to establish the right structure and administer it is a small price to pay to avoid the extremely expensive, time-consuming, frightening and complex world of U.S. tax.

Now is a great time to purchase land in Florida, Arizona and elsewhere in the U.S. – if done properly. Speaking to the right Canadian and U.S. law expert, together with the right tax accountant, can greatly decrease your potential risks in falling afoul of either the Canadian or U.S. taxation authorities When done properly, a Sunshine Trust will provide peace of mind and security. In other words: Use a Sunshine Trust to shelter you from the cold.