Tag Archive for Canada

Canada Tax: CRA Revised “Sprinkling” Proposals And What “Kiddie Tax” Really Means

The “sprinkling” proposals issued in July 2017 were amended in December 2017 effective for the 2018 taxation year.

As you may recall, the July proposals were designed to tax at the top rate, individuals now over age 18 who are in receipt on what is called “split income” or TOSI (tax on split income). Before 2018, the TOSI was called a “kiddie tax.”

For 2018, the TOSI rules extend to family members who are not active in the business that are receiving dividend income on any type of shares they hold and on capital gains on the sale of shares that are not qualified small business corporation shares. The pre-2018 rules applying to those under age 18 did not extend to capital gains on the sale of shares. Read More

Written by | Posted in Canada Tax • Tax Split Income

Canada: Inventory Value of Real Estate

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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Written by | Posted in Canada • International • Real Estate

How To File U.S. Tax Return If You Are A U.S. Citizen Living In The UK

Recently we’ve been asked to cover the topic on filing US federal income tax return if you are a US citizen living in the UK. You asked and we delivered! Read further to learn more about your US and UK tax obligations.
The starting point for any US expat tax-related topic is gaining a clear understanding who needs to file US taxes. Individuals, who are US citizens, including the ones with dual citizenship (UK/US in this case), or Green Card holders abroad who earn a minimum threshold for filing a US tax return are required by US tax law to file a tax return and pay taxes you may owe. Below are numbers for 2017:

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Written by | Posted in Tax Return • United Kingdom Tax • US Tax

The Reality Of Owning A Controlled Foreign Corporation After Trump’s Tax Reform

Do you know that owning a Controlled Foreign Corporation got affected by New Tax Bill? In a nutshell, Trump’s tax reform now means that all income is Subpart F income. In addition, all currently untaxed retained earnings will be subject to a one-time tax. Read further if you want to find out what it means exactly and how U.S. expats with CFCs are affected.

Let’s take a quick look at a few changes that were introduced in recent tax legislation. Generally, Trump’s tax reform benefits individuals who are struggling with their finances by doubling standard deductions, i.e. from $6,000 to $12,000 for singles, and reducing the rates for five tax brackets of the existing seven. Read More

Written by | Posted in CFC • Foreign Earned Income Exclusion

Individual Taxpayer Identification Number (ITIN) Reasons And Qualification

You have to meet the return filing reason , or one of the exception-to-return-filing reasons. One cannot just arbitrarily apply for an ITIN as you must include documentation proving that you need one and that your reason aligns with IRS qualification requirements to receive one. The IRS sets out a finite prescribed list of qualification requirements – all split into two groups – IRS-return-filers OR exceptions. One reason that can be used for many applicants when they can’t qualify under other reasons, is owning many but not all types of USA bank accounts (so long as the US bank provides you with the required ITIN letter). Read More

Written by | Posted in IRS • ITIN

Tax Treatment Of Leasehold Improvements

In real estate, property and building leases are common signed agreements between two corporations. Leasehold improvements are generally building additions for the lease space paid for by the tenant (lessee). These costs are considered capital and amortized over the length of the lease.
Discussion:

Common lease periods for real property are 5 to 10 years.

The lease rates are negotiated by the lessor and the lessee at fair market value. The periodic lease payments are a deduction for the corporation. Upon termination of the lease, the leasehold improvements usually revert back to the lessor unless the lessee can remove them. Read More

Written by | Posted in Canada • International • Real Estate

Canada Tax: Qualifying Non-Resident Employer And Withholding Tax

A qualifying non-resident employer can be certified and thus will have to withhold tax from the salary or other compensation paid to qualifying non-resident employees in Canada (to be covered in a future FAQ). This eliminates withholding taxes. Which can be a big cash flow savings. The certification will be valid for up to two calendar years.

To be eligible to be a qualifying non-resident employer, the employer must be a resident in a country that has a tax treaty with Canada. Read More

Written by | Posted in Canada • Canada Tax • International • Withheld Tax

Ownership Structures In Real Estate

The common types of ownership structures in real estate are owned as an individual, in a corporation, in a partnership or in a joint venture. The type of structure generally depends on the purpose of the use.

Individual Ownership

  • Less complexity but income is taxed at personal tax rates which can be the highest rates.
  • Any losses incurred can be offset against any income.
  • There is no liability protection for the individual besides the insurance policy on the property.

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Written by | Posted in Canada • International • Real Estate

Foreign Tax Credit For Individuals Living Abroad

As you know, the United States requires all citizens and permanent residents (Green Card holders) to report income via annual income tax filings regardless of where in the world the money was earned. As the name suggests, the Foreign Tax Credit for individuals is designed to reduce your U.S. tax burden on income that was earned and consequently taxed in a foreign country. In this way, you will not be subject to double taxation on that money.

In addition to foreign earned income (FEI), dividends, interest, and even rental income that come from foreign sources are eligible for consideration with the Foreign Tax Credit if they were taxed by a foreign entity. One benefit to using this credit is that it is available to all U.S. taxpayers who have foreign earned income or investment income from a foreign source. There are no stipulations regarding residency or time spent in a foreign country to take advantage of this reduction in taxes owed at home. Read More

Written by | Posted in Foreign Earned Income • Foreign Tax Credits • Tax Credit

Canada Tax: Capitalization Of Development Cost Under The Income Tax Act

During the development phase or period of construction, there are many costs that are incurred. The majority of these expenditures are added to the capital cost of property or to the cost of inventory.

Soft costs do not have to be capitalized once the construction is complete or on the day that the building is substantially (at least 90%) used for its intended purpose. An occupancy certificate or completion certificate issued by the municipal building department is sufficient evidence that construction is complete. Read More

Written by | Posted in Canada • International • Real Estate

Is Cancelling NAFTA Bad For Canada?

The spectre of NAFTA being cancelled is on many people’s minds since the election of President Donald Trump. Washington has pulled out of the Trans-Pacific Partnership (TPP) and wants a better deal for the U.S. in the NAFTA agreement. The recent possible tariffs coming from the Trump administration is also heightening trade concerns. Is cancelling NAFTA a bad thing for Canada? There are 2 ways to examine this question.

The Current State

The first approach is looking at how things currently are and what is likely to happen using this assumption. Canada is the U.S.’s second largest trading partner and the U.S. is Canada’s largest trading partner by a large margin; the U.S. is Canada’s closest trading partner by physical location. Read More

Written by | Posted in Canada • NAFTA • TPP • Trade

Real Estate Expenses After Acquisition Of Property For Tax Purposes

After a property is purchased, there is generally a time period that a property is held before it is developed. Common expenses that are incurred are property taxes and interest. Other expenses incurred can be classified as an operating expense, added to inventory cost or capitalized for tax purposes.

Property taxes and interest on vacant land are generally capitalized or added to the cost of inventory for real estate. These expenses on vacant land can only be deducted in the same tax year if there is property income received and the corporation is not in the business of development. Read More

Written by | Posted in Canada • International • Property Tax • Real Estate
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