Rental Property in Canada

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  • tacks
    Senior Member
    • Feb 2009
    • 276

    #1

    Rental Property in Canada

    Client has a rental property in Canada. It's showing a loss.

    My plan was to simply transfer amounts from the Canadaian tax return to the 1040 shc E and make and adjustment for depreciation and one or two other things. (And my client pretty much instructed me to do such.)

    But i don't understand how the CPA prepared it last year. None of the amounts match. Meaning that he did not use the amounts from the Canadian Tax return to do the 1040. All of them differ.

    Why were the numbers different? My first guess would be cash vs accrual methods. Or is it possible that he's just that sloppy?

    Is there something that i'm missing? Does this seem odd to you also?

    I will, in time, mention this to the client to see if she knows anything about the discrepancies. But i'd like to get a basic understanding before calling the client. I don't want to come off as an idiot.

    Any advice would be welcome. Thanks.
  • Kram BergGold
    Senior Member
    • Jun 2006
    • 2112

    #2
    Exchange Rates

    Did you account for the 2007 exchange rates?

    Comment

    • tacks
      Senior Member
      • Feb 2009
      • 276

      #3
      Originally posted by Kram BergGold
      Did you account for the 2007 exchange rates?
      Doh!

      How embarrassing. No, i did not even think of that. Thanks very much!

      (The feedback from this forum truly is excellent -- very valuable.)

      Comment

      • Uncle
        Senior Member
        • May 2008
        • 124

        #4
        Section 116

        Originally posted by tacks
        Client has a rental property in Canada. It's showing a loss.

        My plan was to simply transfer amounts from the Canadaian tax return to the 1040 shc E and make and adjustment for depreciation and one or two other things. (And my client pretty much instructed me to do such.)

        But i don't understand how the CPA prepared it last year. None of the amounts match. Meaning that he did not use the amounts from the Canadian Tax return to do the 1040. All of them differ.

        Why were the numbers different? My first guess would be cash vs accrual methods. Or is it possible that he's just that sloppy?

        Is there something that i'm missing? Does this seem odd to you also?

        I will, in time, mention this to the client to see if she knows anything about the discrepancies. But i'd like to get a basic understanding before calling the client. I don't want to come off as an idiot.

        Any advice would be welcome. Thanks.
        Did the client file a Section 116 application with CRA? If not, and client is a non-resident of Canada, client is going to owe substantial Canadian tax. This is a very tricky aspect of Canadian tax law, and very few clients understand the requirements.
        Christopher Mewhort, EA
        mewhorttax.com

        Comment

        • tacks
          Senior Member
          • Feb 2009
          • 276

          #5
          Hey Uncle,
          thanks for posting
          the client pays her canadian accountant to file with the Canadian Revenue Agency. I see an income tax return and lots of other stuff but not a '116.'

          I'm thinking that this other accountant probably filed it. Otherwise Canadian filing requirements are somewhat out of the scope of this engagement and not something she's paying me to consider.

          [Last year she got a CPA to efile her complex return for next to nothing. Call me shallow, but i question whether she slept with the guy. ]

          Comment

          • Burke
            Senior Member
            • Jan 2008
            • 7068

            #6
            Originally posted by tacks
            Doh! How embarrassing. No, i did not even think of that. Thanks very much! (The feedback from this forum truly is excellent -- very valuable.)
            Yes, since they also call their currency "dollars" it is often easy to forget that. I use www.x-rates.com and ask for historical data (by the year) which comes up monthly that I then average by 12. This gives me an average single exchange rate I can use for all the figures that I need to put on the return, since the income (and in your case, expenses) are accrued all year long.

            Comment

            • DonPriebe
              Senior Member
              • Sep 2006
              • 526

              #7
              Client has a rental property in Canada. It's showing a loss. My plan was to simply transfer amounts from the Canadaian tax return to the 1040 shc E and make and adjustment for depreciation and one or two other things. (And my client pretty much instructed me to do such.)
              I had a similar client, except his Canadian return always showed a gain while the US return showed a loss. IIRC, depreciation (Capital Cost Allowance?) is optional under Canadian law but mandatory under US law. This brought his US foreign source income to zero which resulted in no US foreign tax credit on the taxes he paid to Canada. At best they were a deduction on Schedule A.

              If it matters, he was a Canadian citizen but a US resident.

              Comment

              • Uncle
                Senior Member
                • May 2008
                • 124

                #8
                Section 216

                Originally posted by DonPriebe
                I had a similar client, except his Canadian return always showed a gain while the US return showed a loss. IIRC, depreciation (Capital Cost Allowance?) is optional under Canadian law but mandatory under US law. This brought his US foreign source income to zero which resulted in no US foreign tax credit on the taxes he paid to Canada. At best they were a deduction on Schedule A.

                If it matters, he was a Canadian citizen but a US resident.
                If he was not a Canadian resident (and he could be a resident of both countries) and he did not file a Section 216 application, he would owe a flat 25% of gross on his rental income. CRA is being very aggressive on non-resident rentals.
                Christopher Mewhort, EA
                mewhorttax.com

                Comment

                • tacks
                  Senior Member
                  • Feb 2009
                  • 276

                  #9
                  Originally posted by Burke
                  Yes, since they also call their currency "dollars" it is often easy to forget that. I use www.x-rates.com and ask for historical data (by the year) which comes up monthly that I then average by 12. This gives me an average single exchange rate I can use for all the figures that I need to put on the return, since the income (and in your case, expenses) are accrued all year long.
                  Thanks for posting, Burke. That's more or less what i am doing and it's good to know that others handle it the same way.

                  By the way, i saw an old friend at a barbeque. I asked her how her old computer was holding up. She said it ran three times faster after we used the configuration utility. But she also said she majorly screwed up her computer after attempting this on her own. (and again, i believe that most on here could speed up their computers significantly and safely by folling the instructioins)

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