Tag Archive for The Act

Canada-US Cross Border Tax Issues In Connection With Employee Stock Options

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Canada and the US both tax employees who receive benefits from options they are granted to acquire shares in their employer or a related entity. This article will focus on the Canadian tax implication of employee stock options (“ESO”), and how these rules apply in certain Canada-US cross-border situations.

As a general rule, stock options benefits are taxed under section 7 of the Income Tax Act (“the Act”). No taxation results at the time that the ESO is granted-rather taxation results at the time the ESO is exercised. The amount taxable will be equal to the excess of the fair market of the stock at that time over the exercise price.

In cases where the ESO was not “in the money” at the time of grant (i.e. exercise price no Read more

The Implications of Spin-off Reorganizations by U.S. Public Companies for Canadian Residents

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It is very common for U.S. public corporations to “spin-off” their holdings in other US corporations, so that their shareholders own such holdings directly.

If properly implemented, a reorganization of this nature should be tax-free for US tax purposes as result of the application of IRC Sec. 355.

The Canadian Income Tax Act (“the Act”) has its own system for allowing “divisive reorganizations” to be implemented on a tax-free basis. In this country, they generally have to be structured as a “butterfly reorganization” under complex rules in paragraph 55(3)(b) of the Act, and related section. The shares to be spun-off would not be directly transferred to the shareholders of the distributing company. Instead, a more complex series of Read more

How Canada Taxes Real Estate Gains of Non-Residents

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Like many countries. Canada taxes non-residents who realize gains on real estate located within its borders(1).

This will be true whether the real estate is capital property that is held for the purposes of earning from rental or a business; capital property held for personal use; or inventory of a business (e.g. where it is held for resale).

This article will focus on situations where the real estate is capital property.

The Income Tax Act (“the Act”) provides that non-residents are subject to tax in Canada on taxable gains from the “disposition” (which can include sales, as well as other events deemed to be dispositions, such as death) of “taxable Canadian property” (“TCP”)(2). TCP Read more