Doing Business with Our Neighbor to the North | Chicago Association of REALTORS®

Canada is a country with unlimited natural resources, beauty and opportunities. Although it’s the second largest landmass in the world, it has a population of only 36 million people. Healthcare is accessible, education is affordable and work-life balance is highly valued. Canadians are kind, innovative, creative and diverse people who represent a mosaic of many cultures.

According to Vicki Heyman from the U.S. Embassy in Ottawa, almost ninety percent of the Canadian population lives within one hundred miles of our shared 5,525-mile border — the longest undefended border in the world — and 400,000 people cross the border each day. This makes Canada an excellent opportunity for REALTORS® who are looking to expand their global experience.

MARKETING TO CANADA

If you’re interested in doing business with Canada, Coldwell Banker Vancouver’s Tina Mak emphasizes a few key things you need to know.

  • Understand the culture. Even though English is a shared language, there are some personality differences for which you need to be prepared. And, there are differences in how each city does it — Toronto may be different from Vancouver, just like LA is different from NYC. Understanding this from the get-go will help you break into the market faster.
  • Business practices are different. It is essential that you understand the differences in lending, taxation and escrow, and explain the processes and differences to your clients before the property search begins so that there are no surprises later. For example, Tina can get a mortgage approved in three days in Vancouver, a process that could take a month or more in Chicago.
  • Have a good team in place. We’re not talking about a buyer’s agent — you need to have an experienced lawyer, a cross-border accountant and a rental agent. It’s also helpful to have a relationship with a lender who has a program for foreign nationals. Have your ducks in a row so that when the investor comes to town, you’re ready to make a deal.
  • Professionalism is key. Understanding what your clients want and delivering top notch service and expertise will help your reputation and your business grow.

CROSS-TIES BETWEEN THE US & CANADA MARKETS

Since the late 2000’s, cross-border flows of spending between Canada and the U.S. have swung dramatically in the southerly direction. However, in the past 4 years, the tables have started to turn. A plunge in the value of the Canadian dollar has shifted the economics of Canada-U.S. travel and purchasing power significantly. Many Canadians will still opt to purchase real estate in prime U.S. markets for lifestyle reasons or to profit on expectations of further home price appreciation.

Carl Labossiere, BMO Financial Group, explains that there are several reasons why it makes sense for Canadians to purchase U.S. property now versus waiting for the Canadian dollar (CAD) to return near parity:

  • Low U.S. interest rates
  • Inventory of affordable houses
  • CAD expected to be challenged through 2018
  • No prepayment penalty if the client decides to pay back once CAD improves

INVESTMENTS IN CANADA

According to Richard Silver of Sotheby’s International Realty Canada, net immigration is a big factor in price increases in Canada — Toronto alone has over 81,000 per year in net immigration. Low interest rates play a factor, as do schools and universities.

It’s important to note that Canada is one of the most stable governments in the world. The Canadian banking system is more conservative than the US, and encourages saving rather than spending. Note that Canadians cannot deduct interest payments from their taxes, unless it is an investment property — although they pay no capital gains on residential properties. All this information impacts investments in the country.

THE TRANSACTION PROCESS

Dr. Margot Weinstein of the Metropolitan Real Estate Group has written a guide to the transaction process for U.S. citizens buying real estate in Canada, and vice versa, exclusively for C.A.R. members. Learn about residency requirements, the transaction process, cultural nuances, banking, currency and mortgage rules, and legal aspects of the transaction. Click here.

TAX LAW

Sunita D. Doobay, U.S. and Canadian Cross-Border Tax Partner, notes that it is important to understand the various tax implications of cross-border purchases. A tax entity that is beneficial to a U.S. taxpayer may not be a beneficial way to hold Canadian real estate. For example, Americans tend to hold real estate assets through an LLC, as the LLC provides liability protection similar to a C corporation and is a flowthrough entity for U.S. purposes. However, for Canadian income tax purposes, an LLC is not treated as a flow-through but as a corporation. So, a U.S. LLC whose units are held by U.S. persons will be deemed to be carrying on branch operations in Canada, and treaty benefits will not extend to the LLC to lower the branch dividend tax. Instead of an LLC, it is recommended to use an S corporation, which enjoys treaty protection unlike an LLC or LLP in Canada.

These are just a few examples of what you’ll need to know to do business in Canada. For more information and for resources, join the Global Real Estate Council.