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Tag Archive for Canada

IRC Section 965 Transition Tax: Resistance Is Futile

transition tax, americans abroad, expatriate, canada

“This legislation is being interpreted by a number of tax professionals to mean that individual U.S. citizens living outside the United States are required to simply “fork over” a percentage of the value of their small business corporations to the IRS. Although technically “CFCs” these companies are certainly NOT foreign to the people who use them to run businesses that are local to their country of residence. Furthermore, the “culture” of Canadian Controlled Private Corporations is that they are actually used as “private pension plans”. So, an unintended consequence of the Tax Cuts Jobs Act would be that individuals living in Canada are somehow required to collapse their pension plans and turn the proceeds over to the U.S. government” Read more

Canada: Speculation Tax On Real Estate

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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Security Deposit Required By Canadian Revenue Authority For Non-Resident Corporation

Grant Gilmour- Canada Revenue Authority Requires Security Deposit For Non- Resident Corporations

A non-resident corporation who is registered for GST/HST is required to provide and maintain a security deposit with the Canada Revenue Authority (CRA). However, if under a specified threshold of sales and net tax payable or refundable, a corporation may be exempt.

Discussion

The minimum amount of security is $5,000 CAD, but can be as a high as $1 million CAD. The initial security deposit amount is based on 50% of the estimated net tax for the year. Net tax is calculated using the company’s Canadian net profit (Canadian sales less Canadian expenses) for the year, multiplied by 5% GST rate (or HST if selling in provinces with HST — see International FAQ #39). Then 50% of the net tax amount is your required security deposit.

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Canada: Goods And Services Tax On Residential Real Estate

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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Tax Obligations For Holding Foreign Real Estate

Grant Gilmour, Canadia Tax Expert

If a Canadian corporation holds foreign real estate, there are certain reporting requirements:

  • T1135 return must be filed if you own property with a cost of $100,000 Canadian dollars or more (see International FAQ #12).
  • If a Canadian corporation owns 10% or more in shares of a non-resident corporation (foreign affiliate), then there is a requirement to file a T1134 return (see International FAQ #34).

These reporting requirements are just information returns. Any additional tax liabilities are reported on corporate or personal tax returns.

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Unexpected Tax Bill For Canadian Professionals

Grant Gilmour, Canada, Work In Progress

In Canada, under a provision in the Income Tax Act, in previous years professionals did not pay tax on work in progress (WIP). Instead it was deferred as unearned income until the work had been completed and invoiced. The 2017 budget has proposed to do away with this provision for WIP of professionals for tax years beginning after March 22, 2017.

The removal of this provision will likely result in an unexpected tax bill for most professionals. To help soften the tax impact for these professionals, draft legislation was released in September 2017 which allows for transitional relief. Professionals can choose to phase-in their WIP earnings over 5 years by adding their WIP into taxable income at 20% each year until the full amount is included in taxable income in the fifth year.

WIP can be valued at either the fair market value or the lower of cost and fair market value. As WIP for professionals is typically based on charge-out rates or fair market value, professionals will have the option of declaring their WIP at cost instead. Presumably, cost would be the lower value and would therefore result in less taxes. However, there is no legislative guidance on how to cost WIP for professionals.

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Penalty Relief For The Procrastinating US Rental Property Owners Return Filing

So, you’re a Canadian, or other non-US citizens, who own and rents out US property, hasn’t yet obtained an ITIN and you don’t expect to make your June 15, 2018, 1040NR filing due date. No worry, go ahead and file an extension request on Form 4868 by writing “ITIN to be requested” on SSN line of the form.

Note – if US tax is due and paid after June 15, then the late payment penalty (usually ½ of 1% of any tax) and related interest does arise. But your extension is assisting you regarding the late filing penalty (usually 5% of the amount due for each month or part of a month your return is late; the maximum penalty is 25%) that is usually charged if your return is filed after the due date – as such due date includes extensions. Read more

Canada: IRS Is Going After Taxpayers Abroad

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.

 

Taxes For U.S. Expatriates Living In Mexico

Olivier Wagner, Tax Blog, Tax Nomad, Vancouver, Canada, TaxConnections

What U.S. citizens in Mexico need to know about their tax obligations?

Are you one of the more than 1 million expats living out your golden years in Mexico? Social Security and pension checks certainly go far in this tropical paradise, but there are two important things for US expats in Mexico to remember to do in the spring of each year: file a US tax return, file a Mexican tax return. You want to stay tax compliant no matter where you choose to spend your time. Read more

Canada Tax: Disposition Of Real Estate For Business Income Vs. Corporation Capital

Grant Gilmour, Tax Advisor, Tax Blog, Vancouver, Canada, TaxConnections

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

Expatriate Offshore Banking: Best Overseas Banks For US Citizens

Olivier Wagner, Tax Nomad, Tax Blog, Vancouver, Canada, TaxConnections
About Expatriate Offshore Banking For US Citizens
As a US expat tax firm, we are regularly asked about expat offshore banking, best overseas countries, and banks for US citizens and incorporation. It’s a well-known fact that a right bank can save money for full-time US expats and US citizens traveling abroad over an extended period. Many Americans living (semi-)permanently abroad are looking into ways to invest through financial institutions either in their place of residence, in popular financial city centers or in offshore destinations. When choosing a bank, everyone usually pays attention to following criteria:

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Canada Tax: Qualifying Non-Resident Employee And Withholding Tax

Grant Gilmour, Tax Advisor, Tax Blog, Vancouver, Canada, TaxConnections

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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