Every year, when the leaves start to fall and winter approaches, thousands of Canadians head south for warmer weather.  In fact, it is estimated that at more than a million Canadians over the age of 55 years head to the U.S. every winter for at least 30 days, with many staying up to six months. 2020 has been a challenging year for travelers and the question about what this means for snowbirds hangs in the air, especially since many rent and/or own property in the U.S.  The Canadian government announced that the partial closer of Canada’s border with the U.S. is expected to extend to the end of October, and there are reports that many of the destinations popular with snowbirds, such as Arizona, California and, are struggling to contain their COVID-19 numbers.  While insurance companies are still wrestling with how to handle the risk factors of travel and how to price it, snowbirds are trying to decide what to do with their once home-away-from-home in the coming months. 

Do you sell or rent out your vacation property?  

This where a financial advisor can be a wealth of information.  Douglas Lochhead of Granite Financial in Winnipeg, Manitoba has this to say about the situation, “ While it’s true the borders are open for flights, the question around whether heading south is a good idea considering there is a pandemic with no real end in sight. “ 

There are several factors that impact snowbirds who decide not to travel.   Owners of property in the U.S. are faced with the maintenance issues.  Most insurance policies state that the owner must ensure that the property is checked on a regular basis and maintained in good order. This means lawns, hedges, and mail delivery must all be taken care of.  The other problem is that the property would remain empty, which could create an opportunity for crime.  One option some snowbirds are considering is renting out the property.   Renting can help offset some of the cost of the property, but maintenance by a property management company costs money. When renting out a property in the U.S., however, snowbirds need to keep in mind that this will have tax implications, as this would now become an income property.  This means remitting a withholding tax of 30% of the grose rental income to the IRS. In addition, the rental income has to be reported in the state where the property is located – and in Canada. The Canada-US Tax Treaty means the U.S. taxes paid will be creditable against the Canadian taxes paid.   

What about selling your property?  

Keep in mind that some areas where the pandemic has hit hard may be suffering from reduced property values because tourism is down, so you may end up with a lower sale amount. While there are, of course, further tax rules and expenses to consider, such as the fact that it is considered a taxable event and must be reported to the Internal Revenue Service.  In fact,  since most snowbirds do not hold U.S. citizenship or pay U.S. taxes, there is a federal withholding tax of 10-15% of the proceeds of any sale of more than $300,000USD.  Less than $300,000USD there are no withholding taxes unless the property is rented out, in which case there is withholding tax.    There are also the import taxes to think about should you decide to move your belongings from your U.S. property back to Canada. 

Confusing? It can be.  This is why reaching out to a financial investor to get the facts is important.  Whether you decide to travel to your U.S. property , rent it out, or sell it completely, you need to know what you’re facing.  A smart advisor will help you make the right moves, help you understand and submit the right forms and understand all the tax laws that come in to play when you are renting or selling a U.S. property. 

Douglas Lochead states, “We talk to clients about these matters every year at this time. Now, considering the political climate in the U.S. and the COVID-19 pandemic concerns, it has been a challenging year of decisions for a lot of snowbirds. We’re always happy to help provide the guidance our clients need to make the best decisions for themselves and their future.”