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Archive for John Richardson

The Moore Case – A Recent Form #T1135 Taxpayer Victory In Canada

John Richardson Form T1135

This post has been submitted by Toronto, Canada lawyer John Richardson and is about the recent Moore Case in Edmonton, Alberta, Canada. Mr. Richardson states “It is a great example of taxpayer victory in resisting the draconian and unreasonable Form T1135 penalties in Canada.”

The taxpayer was employed by GE Capital Canada and participated in their employer sponsored share purchase plan as provided by the company. When GE Capital Canada was acquire by Wells Fargo Canada this ended the taxpayers participation in the share purchase plan. Mr Moore was given the option to sell his shares or place them into a Canadian Brokerage firm. He chose the brokerage firm. It was only after this change that he learned he should be filing a Form T1135.

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Failure To File Canada Foreign Property Returns – Form T1135 – Penalties And Voluntary Disclosure

John Richardson

Introduction – Form T1135 is a “Penalty Jackpot” for the Canada Revenue Agency

Penalties

This provides information (including a table of penalties and frequently asked questions) about penalties for late or improperly filed forms and information returns.

Failing To File

The penalty for failing to file a return is $25 per day for up to 100 days (minimum $100 and maximum $2,500). This penalty does apply to Form T1142.

When failing to file is done knowingly or under circumstances amounting to gross negligence, the penalty is $500 per month for up to 24 months (maximum $12,000), less any penalties already levied. This penalty does not apply to Form T1142.

After 24 months, the penalty is 5% of whichever of the following resulted in the requirement to file the information return, less any penalties mentioned above already levied:

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A Canada Form T1135 Primer – Parsing The Language And Understanding The Basic Reporting Requirement

John Richardson

This is a post about Canada’s foreign asset reporting requirements. Previously, I introduced Canada’s Foreign Asset Reporting Requirements. This post will focus specifically on Form T1135 as it applies to individuals. Individuals are disadvantaged because they may or may not use professional tax advisers.

Form T1135 is a “compliance trap” and can lead to serious penalties for inadvertent noncompliance. (The case of Takenaka v AGC, 2018 FC 347 will be of great interest to U.S. citizens moving to Canada who retain their home in the United States and fail to report its use as a rental property. Ditto for certain U.S. life insurance policies.)

This post is for the purpose of helping individuals understand Form T1135 and the reporting obligations it implies. Obviously this is general discussion and not advice specific to your situation. Form T1135 reporting requirements are surprisingly complex. The Canada Revenue Agency is surprisingly unforgiving for “foot faults” in relation to this form.

Part A: Parsing the language – what is the basic Form T1135 reporting requirement?

If you want to understand the law it’s a good idea to begin with reading the law (make a note of that point). In this case the text of the law is found in Section 233.3 of the Income Tax Act of Canada (a not particularly obscure statute).

This post will guide you through the statute. Please note that all words in italics (whether bolded or not) are my personal commentary/explanation.

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Like FBAR, Form 8938, Form 3520 And Form 5471 – Canada Has Its Own Foreign Asset Reporting Rules

John Richardson

Prologue

Last week I received a call from one of the many Americans abroad living (not hiding out) in Canada. He did NOT know about his U.S. tax obligations. Therefore, he has not been filing U.S. taxes. Interestingly, he had a portfolio of U.S. stocks (foreign to Canada) which were providing him with a consistent dividend stream. He (naturally) had been reporting all of the these “U.S. dividends” on his Canadian tax return. He had never heard of Form T1135 and the relatively new requirement that he report certain “foreign assets” to the Canada Revenue Agency.

Looks like he may have been headed for “double trouble”.

Form Crimes: They’re not for everybody – but they could be for you!

I’ve been told, but I don’t know, that single citizenship Canadians are sometimes jealous of dual U.S./Canada citizens. Those dual U.S./Canada citizens living in Canada, are sometimes thought to have more opportunities than “pure Canadians”. With all the media attention on the United States imposing worldwide taxation on (U.S. citizen) Canadian residents, many Canadians pay more attention to how the U.S. tax system affects them, than on how Canada’s tax system affects them. “Pure Canadians” are often in awe of the “form related” penalties to which their dual citizen neighbours are subject. Think of it: A U.S. citizen in Canada can be fined hundreds of thousands of dollars for failing to report (to U.S. financial crimes) his local Canadian bank account. But, this is just one of many opportunities for penalties.

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Proposed U.S. Japan Tax Treaty Enhances Ability Of U.S. To Enforce Taxation On Americans Abroad In Japan

John Richardson Proposed U.S. Japan Tax Treaty

Prologue – Tax Enforcement And The Revenue Rule

The common law revenue rule was designed so that one country will not enforce tax debts owed to another country. There is general agreement that the “revenue rule” is gradually disappearing. Specifically, the United States has negotiated tax treaties with at least five countries (Canada, Denmark, France, Sweden and the Netherlands) which abrogate the revenue rule. To learn more about the Revenue Rule, see the “Appendix” below.

I have previously suggested how the “assistance in collection provisions” facilitate U.S. citizenship-based taxation. My 2016 comment on “assistance in collection provisions” suggested that U.S. citizenship-based taxation gives the United States strong incentives to end the revenue rule. Specifically …

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For The Duke And Duchess Of Sussex And Baby Archie Harrison Mountbatten-Windsor Tax Life Is Complicated

John Richardson Toronto Lawyer

The marriage of Meghan Markle to Prince Harry has generated an awareness of the regulatory requirements on U.S. citizens who live outside the United States. This is only part of the problem. To focus on how U.S. citizenship-based taxation affects ONLY U.S. citizens is selfish and misguided. After all, by marrying Prince Harry, Meghan Markle is now part of a family which includes non-resident aliens.

How do the rules of U.S. “citizenship-based taxation” affect people who are not U.S. citizens, but have chosen to interact with U.S. citizens?

Forget Meghan and the baby. Time to ask: How might being the father of a U.S. citizen and the husband of a U.S. citizen create a link between Harry and the IRS? “American expats hoping global spotlight on royal baby’s U.S. tax affairs will drive change.

My thinking along these lines began with:

What about Internal Revenue Code Section 318? This would deem “Baby Sussex” to be (for IRS purposes) the owner of any the shares of any U.K. corporations that Harry might own. This is only one of many instances where (to put it simply) the U.S. citizenship of one family member can become a problem for the whole family. In any event, this series really needs a post, describing what could happen, when a U.S. citizen becomes part of what is otherwise, a family of “non-resident aliens”.

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Why Section 965 Transition Tax Inclusions Are NOT Subject To The Sec. 1411 Net Investment Income Tax

John Richardson

Recently, I received a message from a person who says that he was assessed a Section 1411 Net Investment Income Tax assessment on the amount of the Section 965 transition tax. Although not intended as legal advice, I would like to share my thoughts on this. I don’t see how the transition tax could be subject to the NIIT.

Let’s look at it this way:

Why Section 965 Transition Tax Inclusions Are NOT Subject To The Sec. 1411 Net Investment Income Tax

A – The Language Of The Internal Revenue Code – NIIT Is Not Payable On Transition Tax Inclusions

I see no way that the language of the Internal Revenue Code leads to the conclusion that the transition tax can be subject to the NIIT.

My reasoning is based on the following two simple points:

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US Treasury Proposes That Foreign Income Subject To High Foreign Tax Be Excluded From Definition Of #GILTI

John Richardson On Foreign Income

In general – Good News For American Entrepreneurs Abroad …

On Friday June 14, 2019 US Treasury proposed in Notice 2019-12436 that any foreign income earned by Controlled Foreign Corporations be (subject to election) excluded from the definition of GILTI income. This will be particularly welcome to Americans living outside the United States, who are attempting to carry on business in their country of residence, through non-U.S. corporations.

For those who are concerned with understanding the hows and whys, I suggest you read Treasury’s Notice which includes a good history and description of the Subpart F rules, some Legislative History leading to the GILTI rules, and Treasury’s attempt to piece it all together. You will find it all here.

Treasury Notice 2019-12436

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How Do U.S. Tax Rules Constrain The Investment Choices Of US Taxpayers Living In Australia?

John Richardson 4

Before moving to the post, if you believe that Americans abroad are being treated unjustly by the United States Government: Join us on May 17, 2019 for a discussion of U.S. “citizenship-based taxation” as follows:

Think of it! With the exception of the United States, when a person moves away from the country and establishes tax residency in another country, they will no longer be taxed as a resident of the first country.

But in the case of the United States: If a U.S. citizen moves from the United States and establishes tax residency in a new country: (1) they will STILL be taxable as a tax resident of the United States (2) they will be subjected to a separate and more punitive system of taxation! (3) they will have to engage in financial planning according to the rules of the tax system where he resides.

We will now see how being subject to the U.S. tax system disables the individual, from being able to engage in the normal financial planning, that is optimal under the tax system where he resides. In effect, he will lose the tax benefits which are available to “non-U.S.” residents of his country of residence. The biggest cost of this is NOT the additional tax. The biggest cost is the opportunity cost of being disabled from normal financial planning. A discussion of “lost investing opportunity” in Canada is here. Dr. Karen Alpert will now explain how the “loss of opportunity” works in an Australian context.

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Former ACA Tax Director Jackie Bugnion Recalls The 2014 Kirsch Schneider Debate On Citizenship-Based Taxation

John Richardson CBT

Before moving to the post, if you believe that Americans abroad are being treated unjustly by the United States Government: Join us on May 17, 2019 for a discussion of U.S. “citizenship-based taxation” as follows:

This is part of a series of post I have written as a run up to the May 17, 2019 Tax Connections discussion about U.S. citizenship-based taxation.

Introducing Jackie Bugnion …

Jackie Bugnion was an important part of “American Citizens Abroad” for many years. She has an unusually nuanced understanding of the problems that citizenship-based taxation inflicts on Americans abroad. She was (and continues to be) a tireless advocate for the principle that the United States must transition to a system of residence-based taxation. When she retired she was the Tax Director at ACA. She was the author of some of the very best articles about citizenship-based taxation.

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What Does U.S. Citizenship-Based Taxation Actually Mean And To Whom Does It Actually Apply?

John Richardson - Citizenship Based Taxation

Before moving to the post, if you believe that Americans abroad are being treated unjustly by the United States Government: Join me on May 17, 2019 for a discussion of U.S. “citizenship-based taxation” as follows:

You are invited to submit your questions in advance. In fact, PLEASE submit questions. This is an opportunity to engage with Homelanders in general and the U.S. tax compliance community in particular.

I hope that this series of posts will give you ideas for questions and concerns that you would like to have addressed in the May 17, 2019 Tax Connections – Citizenship Taxation discussion.

Laura Snyder has graciously contributed four posts of this series. In her series of four posts, she has outlined the origins and requirements of U.S. citizenship-based taxation.

Ms. Snyder grew up in the United States and moved to Europe as an adult. The tone and pain reflected in her writing suggests that she truly identifies as being a citizen of the United States.

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It Hurts My Heart: The Case for Fairer Taxation of Non-Resident US Citizens (Part 4 of 4)

John Richardson part 4

Before moving to the post, if you believe that Americans abroad are being treated unjustly by the United States Government: Join me on May 17, 2019 for a discussion of U.S. “citizenship-based taxation” as follows:

You are invited to submit your questions in advance. In fact, PLEASE submit questions. This is an opportunity to engage with Homelanders in general and the U.S. tax compliance community in particular.

Thanks to Professor Zelinsky for his willingness to engage in this discussion. Thanks to Kat Jennings of Tax Connections for hosting this discussion. Thanks to Professor William Byrnes for his willingness to moderate this discussion.

Tax Connections has also published a number of posts written by Professor Zelinsky (who apparently takes a contrary view).

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