Archive for Michael Atlas, CPA, CA

Special Election For U.S. Expats In Canada With S Corporations Can Avoid Double Tax

Often, U.S. citizens who move to Canada are shareholders of U.S. S Corporations. This can potentially create double tax problems.

Under Canadian tax law, the S Corporation is just like any other foreign corporation. Dividends received are generally fully taxable. In addition, if the S Corporation is a “controlled foreign affiliate”, the shareholder can be taxable on his or her share of underlying investment income and capital gains under Canada’s “foreign accrual property income” (“FAPI”) rules.

Double taxation can arise because of the fact that Canada will generally only grant limited foreign tax credit relief for the U.S. taxes paid by the shareholder on the S Corporation Read More

Written by | Posted in Corporate • Expatriate • Individual

Americans Earning Rental Income In Canada Have To Carefully Follow The Rules!

Many Americans hold interests in income-producing properties in Canada. In many cases, when they acquire them, they do not obtain proper advice regarding the Canadian tax implications and requirements.

This can be quite costly-in the absence of following certain procedures, an American resident earning rents from Canadian real estate can be subject to a 25% Canadian tax on GROSS rents (that is, no deduction for related expenses). This can apply even if no profit is being earned from renting the property.

As a general rule, a non-resident who earns rents for the use of Canadian real estate is subject to 25% tax on the gross rents under Part XIII of the Income Tax Act (“the Act”). This Read More

Written by | Posted in International • Real Estate

Holding Canadian Vacation Properties In A US Entity Avoids Exposure To Canadian Taxes On Death

Many Americans hold interests in vacation or recreational properties in Canada. Often such properties are intended to be passed on from generation to generation.

Canada taxes U.S. residents on capital gains from the sale or other disposition of Canadian real estate, even if such real estate is held for recreational or vacation purposes.

Canada’s ability to tax U.S. residents on gains from the disposition of Canadian real estate is recognized in Article XIII(3) of the Canada-U.S. Tax Convention (“the Treaty”)

In addition, when a U.S. resident dies owning Canadian real estate, that individual will generally be deemed to have disposed of the property immediately before his or her death Read More

Written by | Posted in International • North America • Real Estate

A Sudden Death For The Canadian “Immigrant Trust”!

As a general rule, Canadian residents are subject to Canadian income tax on their worldwide incomes. This is true regardless of whether or not such income is remitted to Canada.

In order to prevent Canadians from deferring or avoiding tax on investment income by forming offshore trusts, there are complex rules in section 94 of the Income Tax Act (“the Act”) that generally come into play whenever a Canadian resident makes a “contribution” to an offshore trust. In general terms, such trusts are deemed to be resident in Canada for most purposes of the Act, and the Canadian “contributor” is jointly liable with the trust for any Canadian tax liability. Read More

Written by | Posted in International

United States LLCs And Canadian Residents – A Bad Combination!

There is a big problem for Canadian residents who use U.S. LLCs- the Canada Revenue Agency (“CRA”) considers them to be corporations, even if they are considered disregarded entities (if only one shareholder) or partnerships (with two or more shareholders) for US tax purposes.

Furthermore, the CRA does not consider the LLC itself to be a resident of the US for the purposes of the Canada-U.S. Income Tax Convention (“the Treaty), since the LLC is not liable to tax (assuming it has not elected to be treated as a corporation under the US “check the box rules”).

In fact, in many cases, US LLCs that are controlled by Canadians will be considered Read More

Written by | Posted in Income Tax • International

Canadian Tax Issues With Foreign Inheritances

Many immigrants to Canada will ultimately inherit substantial wealth from family members who did not follow them here.

Usually, those new Canadians are not aware of the Canadian income tax implications of those future inheritances and the fact that careful planning in that regard can often reap rewards, in terms of savings in future Canadian taxes, that far exceed any related costs.

Firstly, the good news: inheritances, whether from non-resident relatives or from Canadians are never taxable income.

However, the income and capital gains earned from such inherited assets (whether in their original form, or reinvested in other assets) will be subject to tax in Canada. Read More

Written by | Posted in Capital Gains • Income Tax • International

Thousands of Canadian Expats In The U.S. Needlessly Pay Canadian Tax!

Canadian citizens are not subject to Canadian tax on worldwide income if they are not resident in Canada. Rather, a Canadian citizen who is a non-resident of Canada is only subject to Canadian tax on certain Canadian source income (most commonly, rents or capital gains from Canadian real estate; dividends from Canadian companies; income from employment in Canada). This is no different than any other non-resident-citizenship generally is not relevant in determining liability for Canadian taxation.

Every year thousands of Canadians move to the U.S. to continue their careers there. In many cases, these Canadian expats continue to file Canadian tax returns and pay Canadian tax on their U.S. employment income under the assumption that they are still tax residents of Canada. This generally translates into a big tax cost. Even though Canada Read More

Written by | Posted in Expatriate • International

A Pitfall For Americans Using Canadian ULCs

Unless you are very active in Canada-US cross-border tax planning, you probably are not aware of the fact that, a few years ago, the 5th Protocol to the Canada-U.S. Tax Convention (“the Treaty”) created a problem in connection with the ownership of Canadian Unlimited Liability Companies (“ULCs”) by U.S. Residents.

ULCs are a strange feature of corporate law-they are corporations with unlimited liability. At one time, Nova Scotia was the only jurisdiction in Canada that had these entities, and they were modeled after similar entities existing under UK corporate law. However, some years ago Alberta and British Columbia jumped on the ULC bandwagon.

From a Canadian tax perspective, ULCs are taxed in the same way as “normal” Canadian Read More

Written by | Posted in Corporate • International • North America

Canada – A Tax Friendly Destination For Wealthy Immigrants!

Probably more than ever before, Canada is considered to be a highly desirable destination for wealthy immigrants.

Many non-tax reasons can be cited, including Canada’s:

• Healthy diverse economy
• Natural resources that are the envy of the world, including abundant supplies of fresh water, oil and gas, potash, timber and gold
• Banking system that is considered the healthiest in the world
• Stable democratic government
• Highly multi-cultural society that welcomes people of all backgrounds Read More

Written by | Posted in International • North America
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