Direct Investment In Canadian Real Estate

Article by Kenneth Snider, Blake, Cassels & Graydon LLP

This article was originally published in Blakes Bulletin on Cross Border Taxation - November 2004

A U.S. taxpayer (UST) making an investment in Canadian real estate is faced with the decision of direct ownership (or through a U.S. entity) or interposing a Canadian entity. Direct ownership can, in some instances, provide certain Canadian tax advantages as outlined below, compared to using a Canadian corporation.

There is a fundamental difference in the Canadian tax treatment of a non-resident depending on whether the income is from carrying on a business or is income from property (that is not business income). First, subject to the Canada-U.S. Tax Convention (US Treaty), a UST that carries on business in Canada for Canadian tax purposes will be subject to tax under the Income Tax Act (Canada) (Act) and will be entitled to claim deductions in computing its Canadian