Real Estate Articles

Learn About buying and selling real estate on maui

Canadian Tax Issues

Canadian Tax Concerns for Owning Property on Maui

Much of Maui’s vacation rental market, particularly in Kihei, was built on the back of the Canadian dollar. Our island continues to be a favorite vacation and investment spot for Canadians, who remain active in the market today.

If you’re Canadian, Maui remains a great investment. But there are financial considerations that go along with this decision.

First, I am a Realtor, not an accountant or lawyer – consult either or both for an in-depth explanation of tax laws and codes. That is my official disclaimer.
Canada is the land of hockey, maple syrup and cold winter weather. If you are looking to escape the doldrums of winter, there is no better place to have as a second home than Maui. The white sand beaches, world class golf courses, and 80 degree weather is heaven for the snow birds.
Now that you are considering making Maui a second home, what do you have to plan for in regards to taxes as a Canadian citizen? How do you know if you have to pay U.S. income tax?

Becoming a U.S. Taxpayer Inadvertently

The test lies in your Green Card, or in the Substantial Presence Test.

If you have a Green Card, you are a resident of the US.

Substantial Presence Test: In short if you are in the U.S. for 31 days in the present year and at least 183 days during the present year and preceding two years, you have Substantial Presence and are taxable for US income, on your worldwide income, regardless of where that income was earned or paid.
That statement sounds very scary! Because of a treaty between the U.S. and Canada, the income earned in the source country will be taxable in that country first but will be given a tax credit in the non-source country. The amounts and timetables may not correlate directly but some relief is better than no relief.

Taxation of a Non U.S. Resident
When income is not directly connected with a trade or business, a general rule of thumb is that 30% of gross revenue earned will be withheld. Examples of income effectively connected with a business or trade would include such things as compensation for services rendered in the US, Real Property tax income, and business operations.
General Excise Tax

If you are earning income, you must obtain and file general excise tax returns. More information can be obtained by going to the state of Hawaii’s website: http://www6.hawaii.gov/tax/a7_faq.htm

Most likely you will have more questions regarding taxes as a Canadian citizen. This article was designed to get your mind thinking about the boring side of the excitement of purchasing your Maui home. Consulting with your lawyer or accountant is the best source of information.

---