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Investing in U.S. complicated by tax model, access to capital but potential for profits still lure Canadians
January 2011
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| Eddy Burello, Partner, Deloitte & Touche LLP |
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By Clare Tattersall
As the Canadian economy continues to soar and the United States’ lags behind, investing in the multi-residential real estate market south of the border offers an exciting opportunity. However, Eddy Burello, a tax partner with Deloitte & Touche LLP cautions, buyer beware. The taxation of Canadians holding U.S. real estate is complicated and should be evaluated fully before making the investment.
“We foresee U.S. taxation going up under the Obama administration, and there are already signs of changes in taxation rates,” says Burello. “Therefore, as a Canadian investor, you have to be sensitive to the fact that some of your future returns may be eroded by the (new) taxation model that the Obama administration may undertake.”
Besides the tax model, Burello says Canadian investors should also consider access to capital before injecting their dollars into the U.S.
“The U.S. marketplace in terms of financing has been unsettled and therefore access to capital has been somewhat problematic,” he explains. “Canadians can access capital in the Canadian marketplace and use those funds to invest in the U.S.; (however), you have to deal with foreign exchange issues, so where Canadians can access U.S. capital it’s usually the preferred route.”
Despite the perceived pitfalls of investing in the U.S. rental market, there are many perks. Of note, property values are well below their pre-recession levels creating a buyer’s market and leading to higher rates of return.
“There’s tremendous opportunity but to be truly successful you need to stay on top of the developments,” says Burello. "This requires coordinating your strategy with an investment, tax or legal advisor before taking that leap because if done right, it can be very rewarding. However, if done wrong, it can be very damaging."
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