International Tax Evasion

A globally coordinated day of action to put a stop to the suspected facilitation of offshore tax evasion has been undertaken this week across the United Kingdom (UK), United States (US), Canada, Australia and the Netherlands.

The action occurred as part of a series of investigations in multiple countries into an international financial institution located in Central America, whose products and services are believed to be facilitating money laundering and tax evasion for customers across the globe.

It is believed that through this institution a number of clients may be using a sophisticated system to conceal and transfer wealth anonymously to evade their tax obligations and launder the proceeds of crime.

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Canada Flag

A Federal Court in Ottawa on Monday dismissed the latest legal effort by two dual Canadian/U.S. citizens to block Canada’s implementation of the U.S.’s Foreign Account Tax Compliance Act, dealing a blow to thousands of Americans with dual citizenship and consequent tax obligations not just in Canada but, supporters of the plaintiffs argue, around the world.

Monday’s ruling, by Federal Court of Canada Justice Anne Mactavish, was the latest in a series of court setbacks for opponents of FATCA since the tax-information-gathering law came into force around the world in 2014, and comes some six months after a five-day trial in the matter, which took place in Vancouver in late January and early February.

The ruling also comes just three days after a French court decided in favor of allowing France’s FATCA implementation regime to stand.  As reported, that decision sparked a social media storm on the part of Americans with dual nationality in France as well as abroad.

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Grant Gilmour, Speculation Tax, Canadian Tax Help

What Is The Speculation Tax?

The 2018 budget released by the B.C. Government introduced a new tax on Real Estate effective in the 2018 tax year called Speculation Tax.

Real estate prices in B.C. have increased substantially in the last couple of years and there is increased interest and ownership of B.C. real estate by foreign parties. The speculation tax has been introduced by the B.C. Government as an attempt to help address this. The speculation tax is designed to target foreign and domestic home owners in B.C. who hold non-owner occupied properties which are not qualifying long-term rental properties. This tax will initially apply to homes in Metro Vancouver Regional District (excluding Bowen Island), the Capital Regional District (excluding the Gulf Islands), Chilliwack, Abbotsford, Mission, Nanaimo, Lantzville, Kelowna and West Kelowna.

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Grant Gilmour- Goods And Services Tax

In real estate, the beneficial owner of the property has the responsibility to collect GST and remit to Canada Revenue Agency (CRA). If the property is held “in trust” by another corporation or entity, the beneficial owner is still required to register and file GST returns. It is common for third parties such as agents or property managers to be designated to collect GST on rental income. There is a special election that allows the agent to remit GST on behalf of the owner, but responsibility is still on the beneficial owner.

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How can being late be more costly than being wrong?

There are trade offs in taxes. Being wrong (filing on time but not having all the information to file 100% correct) can be a trade off you have to make versus filing late when all the information is assembled.

Tax is full of trade offs. Many times people don’t realize there is a trade off available to them. They think they must do a certain thing or file a tax return a certain way. When in fact there are options. Knowing your options is critical to long term tax reduction.

Here is what we consider a classic example:

Let’s say your business has a Goods and Services Tax (GST) return due today. You do not have all the information to complete it correctly. Maybe an invoice you know that should be printed and sent to the client is missing. There is some GST on that invoice. Or maybe you know you are missing some expenses and the GST on those expenses. You also know that it is impossible today to get that information in time to meet the filing deadline. The people that have that information are away or just not responding to your questions.

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IRS says it now plans to invest time and resources catching non-compliant Canadians and taxpayers abroad elsewhere with regards to forms commonly applicable to that specific group of taxpayers – ones unfortunately also commonly missed. It will focus on:

  • Form 3520/3520-A annual return to report transactions with foreign trusts and receipt of certain foreign gifts (a gift of more than $100,000 from a non-resident alien individual)
  • Forms 1042/1042-S Withholding – such as on payment from renters of USA property
  • Nonresident Alien Tax Treaty Exemptions – Improperly claim treaty benefits and exempt U.S. source income from taxation
  • Nonresident Alien – Proper deduction of eligible expenses including Sch A itemized
  • NRA Tax Credits – Erroneous claims of dependent (e.g., kids, spouse) tax credits or education credits only available to U.S. persons

Have questions? Contact Daniel Gray.

 

What do they mean when they say avoid tax? Can it really be avoided or is tax just a zero sum game like accounting?

The Income Tax Act has options for calculating and paying income tax. Tax is not a zero sum game. There are options to what rates are used. There are options to what number is used to calculate the tax. These options can reduce your taxes paid.

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A disposition of property can be categorized as business income or as a capital gain or loss. There are various factors to consider in determining if the disposition is business income or capital for a corporation.

As capital gains are only 50% taxable in Canada, it is generally more favorable for the taxpayer. However, capital losses are only deductible against capital gains. The capital losses can be carried back 3 years and carried forward against future capital gains. Therefore, your tax advantage may vary depending on the situation. Read More

If you are a certified qualifying non-resident employer, then you do not have to withhold taxes from the salary or other compensation paid to employees that are qualifying non-resident employees in Canada.

Discussion:

In order to be a qualifying non-resident employee, the employee must meet the following criteria:

  • Be a resident of a country that has a tax treaty with Canada at the time of the payment;
  • Not be liable for income tax in Canada due to the tax treaty and the type of payment received; and
  • Either works less than 45 days in the calendar year in Canada or is present less than 90 days in any 12 month period in Canada.

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In real estate, once a property is being developed or held for resale it will generally be classified as inventory. It is important that inventory is valued properly as it can have a significant impact on net income year to year.

Real property can be valued at the lower of cost or market value. The method used in valuing a corporation’s inventory must be consistently applied year to year. There must be an acceptable reason for changing methods and it must be acknowledged by Canada Revenue Agency (CRA).

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Capital cost allowance (CCA) is the tax term in Canada for the deduction of amortization on capital assets. There are separate classes of CCA for property, plant and equipment and different rates that apply to each class. There are some specific rules for claiming capital cost allowance related to real estate.
Discussion:

Once construction is complete, a building can be sold as inventory and earn business income, used to earn property income, or used to operate an active business. If the building is not being sold, then it will generally become depreciable property for the corporation. In order to be classified as depreciable property, the building must meet the following conditions:

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