By: Jayson Schwarz L.L.M.
Canadian winters being what they are, many of us like to flee for either the short term or long term to the sun, sand and heat whenever we get a chance. While we are enjoying the warmth, we are often drawn to the siren song of home ownership at our favourite destination. Maybe it’s the urge to plan for retirement or the certainty of having a place of your own to come back to year after year, but one thing is for sure, Canadians have never been more interested in owning foreign property than now. Thanks to low interest rates and a stable economy, Canadians have the upper hand and the world knows it.
However, home ownership in another jurisdiction means accessing a slew of considerations that are complex and at times overwhelming. In the U.S., for example there are estate tax considerations that come up, especially in Florida where you may require a specially designed “Florida Trust” to avoid Uncle Sam as a partner with your kids after death. There are issues of law if the country does not have a British system and if it is run on civil or Napoleonic law; Martinique and St Martin are examples. There may be issues of property ownership by foreign nationals requiring some local lawyer to hold your property as trustee.
The next issues relate to the vendor. Are you purchasing from a reputable organization? If it is a condo, how are you sure the developer will be around if things go wrong? What guarantees are there on your deposits if he or she goes broke and does not finish the project?
Hmmm, it sounds like a lot to think about – but it was so easy to sign up during the tour. So, really, what are you buying? Are you buying a timeshare? Outright ownership or a long-term lease? More and more questions.
Here is a list of a few questions that need to be answered on a preliminary basis on a resort or new condo purchase before you dive into an in depth review:
- Location- why are you choosing this location for a second home?
- How much time will you spend in a typical year in your second home?
- Will you typically bring friends and family or not?
- What are the common fees and how are they set and controlled?
- What are re-sales like for the development?
- What is the legal structure and laws that apply in the country you are looking at purchasing?
- Would you rent the property and if yes what are your expectations and needs on rental income?
Here is the first test. How does the resort or sales centre answer those questions? Did they satisfy you with their knowledge and professionalism? Did they try to push you into signing something without the opportunity to consult with a lawyer?
If you have an intention to buy make inquiries and find a lawyer referred to you by your lawyer at home or friends that can satisfy you in protecting you at each level. You need to understand the tax implications to you of a purchase and more importantly the implications if you sell for a profit. As an example Barbados is a Canadian tax treaty partner and you may get favourable considerations on a capital gain or if structured properly on rental income. There is no tax in Turks and Caicos and therefore homeowners are only subject to tax as normal at home. Each country is unique and you need a lawyer or accountant to help you figure it all out.
Buying a second home in a warm local is a dream many Canadians share. If the deal is properly structured, the home you purchase can bring years and years of happy memories and quite possibly a great return down the road. Good luck.