Source: https://uhyvictor.com/faq/
Timestamp: 2019-04-21 10:31:21+00:00

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We have expertise in filing requirements, applying for waivers and filing corporate and personal income tax returns to recoup Regulation 105 withholdings.
Regulation 105 – Withholding Taxes Regulation 105 of the Canadian Income Tax Act imposes a 15% withholding tax on fees, commissions or other amounts earned from services rendered in Canada by non-resident individuals and corporations. If these services are rendered in the province of Quebec, they will be subject to an additional Quebec withholding of 9%. These amounts must be withheld by the Canadian payor even if the non-resident providing the services has no permanent establishment in Canada. However, even if the non-resident has no permanent establishment in Canada, these withholding taxes can be recouped. The non-resident entity must file a Canadian (and Quebec) tax return at the end of the non-resident’s fiscal year and claim a refund to the extent permitted on those tax returns. Purchasers of services from non-residents are relieved from the obligation to withhold taxes only if the non-resident obtains a waiver from the CRA and the MRQ, where applicable. The withholding tax on services is called Regulation 105 withholding. It applies to services only and NOT to the sale of goods (in bundled contracts) or the reimbursement of expenses where no profit is earned. Penalties for not withholding can be high – 10% of the tax (and 20% in cases of gross negligence). Non-residents have to apply to CRA for a business number (BN) and they should receive a tax slip (T4A NR) from each of their Canadian customers showing the gross amounts paid and the taxes withheld on a calendar year basis. The filing deadline for a T4A NR is February 28 of the year following the payment(s).
The non-resident must provide a letter from Canada Revenue Agency authorizing a waiver or reduction of the withholding amount. If you do not receive such a letter, you have to withhold the usual 15%. Form: Regulation 105 Waiver Application Form Use this form if you are a non-resident self-employed individual or corporation and want to apply for a reduced amount of Regulation 105 withholding tax from amounts paid to you for services provided in Canada.
Regulation 105 – Tax Filing Obligations of the Non-Resident Every non-resident providing services in Canada must file a Canadian tax return (and Quebec tax return where applicable) and report the income that it earned in Canada. This obligation is the same whether or not the non-resident has or is deemed to have a PE. If the non-resident is an individual and has or is deemed to have a PE in Canada, then they will pay income taxes based on graduated tax rates without entitlement to any personal exemptions. Corporations pay part I tax (29% to 35%, depending on the province in which they operate) as well as a branch tax (5% for US corporations), with an exemption on the first $500,000 of business profits. Individuals have filing deadlines of June 15 of the following calendar year. Corporations have to file within 6 months after their year-end. Regulation 105 withholding can be refunded by completing a Canadian tax return. The refunds could be received more than 18 months after the taxes are withheld. These taxes are not refundable if tax returns are filed more than 3 years after the relevant taxation year-end.
Regulation 105 – Goods and Services Tax (GST) GST and its provincial counterparts, HST & QST, have to be charged on supplies (goods and services) made in Canada. Non-residents have to register for GST if they have a PE in Canada. PE definition for GST purposes is broader than for income tax purposes – the only criterion which must be met for PE to exist for GST purposes is the existence of a fixed place of business like an office or a workshop. Note that non-residents can voluntarily register for GST if they don’t have a PE in Canada. Registration for GST will entitle the non-resident to claim a refund on GST it incurs in its commercial activities in Canada. In this case, CRA requires the non-resident to post security. The security is waived if the non-resident’s taxable supplies in Canada do not exceed $100,000 annually and whose annual net tax is between $3,000 payable and $3,000 recoverable.
Note that an independent agent who is acting in the ordinary course of his business does not create a PE; PE specifically excludes a fixed place of business used solely for – Storage, display or delivery of goods – Purchase of goods; and – Advertising or supply of information or scientific research.
Services are provided in the other Contracting State for more than 183 days in a 12-month period with respect to the same or connected project for a customer’s PE in the other Contracting State. Collective presence of more than one individual providing services during one calendar day will only count for one day of physical presence by an enterprise in the other state.
Regulation 105- Tips for Non-Residents Providing Services in Canada Review any on-site installation and training activities in Canada to ensure that appropriate Canadian tax filings and payments are made. Review and complete the CRA’s checklist (T2 SCH 91 E) to determine PE status in Canada. If a PE is deemed to exist in Canada consider alternatives for recovering a portion of Regulation 105 withholding tax based on actual income earned on the contract in Canada. Ensure that contracts with Canadian customers clearly distinguish between services provided in Canada and elsewhere. If the distinction is not clear, the entire contract would be subject to Regulation 105 withholding tax. Review the obligation to register for GST/HST and QST where applicable. Given the delay in receiving a refund of Regulation 105 withholding and the fact that the IRS will not grant a foreign tax credit on foreign taxes which should be refunded, the US resident should consider creating a PE in Canada in order to expedite the recovery of its foreign taxes.
Interpretation Revenu Quebec ADM. 7-, “Reduction in Source Deductions in Income Tax in Respect of a Payment for Services Rendered in Quebec by a Person Not Resident in Canada”.
What is a regulation 105 waiver?
Applications for a waiver or a reduction of withholding: The 15% withholding is not the final tax of the non-resident. Canada Revenue Agency considers the withholding to be a payment on account of the non-resident’s potential tax liability in Canada. Generally, non-residents are required to file a Canadian income tax return to calculate their tax liability or to obtain a refund of any excess withholding amounts. Where a non-resident can demonstrate that the withholding is more than their potential tax liability in Canada, either due to treaty protection or income and expenses, Canada Revenue Agency may waive or reduce the withholding. Non-residents who want to request a waiver or reduction of withholding have to submit a waiver application to the Canada Revenue Agency tax services office in the area where their services are to be provided. Waiver applications have to be submitted no later than 30 days before the period of service begins, or 30 days prior to the initial payment for the related services. The non-resident must provide a letter from Canada Revenue Agency authorizing a waiver or reduction of the withholding amount. If you do not receive such a letter, you have to withhold the usual 15%.
Waiver application form: Regulation 105 Waiver Application Form Use this form if you are a non-resident self-employed individual or corporation and want to apply for a reduced amount of Regulation 105 withholding tax from amounts paid to you for services provided in Canada.
What are the Canadian withholdings on payments to non-residents?
Any person, whether a resident of Canada or not, who pays a non-resident for services rendered in Canada has to withhold a portion of the gross payments and remit this amount to the Receiver General for Canada.
Click here for information regarding withholding taxes for Americans providing services in Canada.
What is an FBAR? An FBAR is the “Report of Foreign Bank and Financial Accounts” that must be filed with the US Department of Treasury. The FBAR is now filed on FinCen Report 114 (formerly form TD F 90-22.1).
Click here for a review of options for Americans who are non-compliant with their FBAR filing requirements.
What is the 2019 filing deadline?
The aggregate value of all foreign financial accounts exceeded $10,000 at any time during the calendar year to be reported.
United States person means U.S. citizens; U.S. residents; Green Card Holders, entities, including but not limited to, corporations, partnerships, or limited liability companies, created or organized in the United States or under the laws of the United States; and trusts or estates formed under the laws of the United States.
Reporting and Filing Information: A person who holds a foreign financial account may have a reporting obligation even though the account produces no taxable income. The reporting obligation is met by answering questions on a tax return about foreign accounts (for example, the questions about foreign accounts on Form 1040 Schedule B) and by filing an FBAR. The FBAR is a calendar year report, which must be filed with the Department of Treasury on or before June 30 of the year following the calendar year reported. Generally, extensions of time to file an FBAR are not granted.
UHY Victor LLP is authorized to file FBAR’s electronically on behalf of the person who has the obligation to file an FBAR. US taxpayers holding foreign financial assets may also need to file Form 8938 (Statement of Specified Foreign Financial Assets) with their 1040 US tax return.
What are the Affordable Care Act (Obamacare) requirements for Ex-Pats?
US expats are asking whether or not they are going to have to purchase health insurance that qualifies under the Affordable Care Act (Obamacare) or be penalized if they do not.
There is an exemption in the law that states that if an American is eligible to take the foreign earned income exclusion (Form 2555) [see: IRC 911] either as a bonafide resident of a foreign country or under the physical presence test, the individual is exempted from the health insurance requirements of the Act. Also, an American who is working abroad and is covered by the US employer Group Plan or covered by medicare is exempt from the Affordable Care Act. Those who only work temporarily abroad for a few months and then return to the US are not exempted from the Acts requirements and must obtain health insurance or suffer penalties Nonresidents who are not in the US long enough to become permanent residents (usually 183 days or more) are not required to obtain health coverage.
Question: Can I still purchase a US health care insurance policy if I reside outside the United States?
Answer: No. In order to buy insurance as an individual, you must be living in the US (2).
Question: How will ObamaCare impact me as an expat? Will I owe taxes?
You will have to pay an additional 3.8% tax on net investment income which includes but is not limited to interest, dividends, capital gains, rental income, royalty income, non-qualified annuities income from businesses involved in trading of financial instruments or commodities, businesses that are passive activities to the taxpayer. It appears that the additional 3.8% tax paid by US citizens residing in Canada will not qualify for a foreign tax credit on their Canadian tax filing.
What are the advantages of the Canada Revenue Agency (CRA) and Quebec Minister of Revenue Voluntary Disclosure Programs?
The Canada Revenue Agency (CRA) and Quebec Minister of Revenue (Revenue Québec) have Voluntary Disclosure Programs (VDP) that allow taxpayers who have not fulfilled their tax obligations to voluntarily rectify their situation without facing penalties and potential legal prosecution. When a Voluntary Disclosure application is accepted, the taxpayer only pays the relevant taxes owed plus interest. These programs are not meant for all situations and have certain restrictions, and taxpayers should consult with a professional before initiating a Voluntary Disclosure. The main advantage of making a voluntary disclosure is that the taxpayer will not be liable for penalties which might otherwise be assessed in respect of unreported income. These penalties can be substantial – often in excess of 50% and even 100% of the taxes owing. In addition, partial interest relief may also be granted. A taxpayer can also obtain protection from criminal prosecution in certain cases through a Voluntary Disclosure.
The disclosure is voluntary: The disclosure must be made before the taxpayer became aware of any compliance action taken against them.
A penalty applies to the undisclosed income: If the taxpayer does not owe any taxes or have any penalties to pay, they may not qualify for the Voluntary Disclosure Program.
The information is at least one year overdue: The Voluntary Disclosure Program is not for current filings, although it can include the current year if it is a part of a disclosure going back multiple years.
The information is complete: When submitting the Voluntary Disclosure, the taxpayer must provide full and accurate facts and documentation for all taxation years or reporting periods where there was previously inaccurate, incomplete or unreported information relating to any and all tax accounts associated with the taxpayer.
You did not report foreign-sourced income that is taxable in Canada.
Post-assessment requests for penalty and interest relief.
Voluntary Disclosures – Assessment Methods (Note – these are only general guidelines) While the CRA and Revenue Québec programs have similar conditions to qualify, the respective agencies have very different approaches when processing Voluntary Disclosures.
Canada Revenue Agency: Generally, the CRA will tax the unreported income going back 10 years plus interest.
Revenue Québec: Normally, Revenue Québec will begin by taxing the taxpayer’s unreported opening capital (with the assumption that it was never reported when it was earned), and then tax any income going back 6 years. However, depending on the scenario other methods of calculating the taxes owing are accepted by Revenue Québec from time to time.
There are pros and cons with both of the above options, which should be reviewed prior to initiating contact with the CRA and Revenue Québec. For more information about the Canada Revenue Agency (CRA) Voluntary Disclosure Program click here.
For more information about the Revenue Québec Voluntary Disclosure program, click here.
For more information about the recent changes to Revenue Québec’s Voluntary Disclosure program, click here.
Our office has processed a large number of voluntary disclosures with both the Canada Revenue Agency (CRA) and the Quebec Minister of Revenue. We have developed systems to efficiently summarize financial information and create reports designed present information in a format acceptable to Voluntary Disclosure processing officers with both the Canada Revenue Agency (CRA) and the Quebec Minister of Revenue.
Disposition of taxable Canadian property - What are the tax withholdings for a non-resident sale of Quebec real estate?
A non-resident vendor of real estate situated in Quebec must inform the Canadian and Quebec governments of the sale of real estate within 10 days of the sale.
The purchaser of the property (usually via the notary in charge of closing the sale transaction) is required to withhold non-resident taxes of 25% (federal) and 12% (Quebec) of the gross proceeds of sale.
To reduce the withholding of non-resident taxes, the non-resident owner can file forms within 10 days of the sale with both the CRA and Revenue Quebec, together with evidence regarding the sale proceeds and the adjusted cost base of the property. If approved, the forms enable the non-resident taxes withheld to be limited to the tax on the actual gain realized on the sale.
After their review of the non-resident’s forms, the CRA and Revenue Quebec will issue a Certificate of Compliance. This Certificate permits the purchaser to reduce the taxes withheld on the sale. Generally, the notary will issue cheques from their trust account holding the sale proceeds to cover the amounts owing calculated on the certificate requests.
Once the non-resident taxes are paid, the notary will generally distribute the remainder of the proceeds to the non-resident vendor.
Note that this process describes the withholding taxes only. The actual income tax liability is determined by filing Canadian and Quebec tax returns by April 30 of the following year.
Contact us directly if you require assistance with the sale of real estate located in Quebec.
Canada U.S. Transfer Pricing - What are the issues?
Characterization of the entities and comparability of arm’s length with non-arm’s length transactions.
Regulations in Canada: In the absence of proper transfer pricing documentation, the tax auditor is required to assess a penalty of 10% of the net adjustment of the transfer price. In addition, companies are required to have transfer pricing documentation that is current, and it must be provided to the CRA within three months of a written request to do so.
Transfer of tangible products such as inventory.
Transfer of services such as management and administration services.
Transfer of intangible assets such as the use of a patent or copyright.
Transfer of tangible capital assets such as machinery and equipment.
Market size and level of concentration.
General profiles of competitors, their size, strategies and market shares.
Current trends in the industry.
Transactional Net Margin Method (TNMM).
The CRA requires that the CUP method is used if possible. In cases where the CUP method is not feasible, one of the remaining four methods is to be used. In the rare case that it is not possible to use any of the above methods, other unspecified methods may be used. However, in general, it is not advisable to use unspecified methods. The selection of a method will depend on the functional analysis and availability of comparable transactions. If it is possible to use the internal CUP method, then the selection of a method can be relatively straight-forward.
Recommendation The recommendation is a clear statement of the recommended transfer pricing policy.
Implementation & Monitoring This section details the most efficient method of implementing the selected transfer pricing policy. A transfer pricing study should be updated each year to reflect any material changes in the transactions under consideration. Provided that no material changes have occurred, an update is generally simple and straightforward. Since every study must be prepared by the filing due date (generally 6 months after the corporate year-end), it is advisable to monitor and document all the changes as they occur during the year. If circumstances change such that some or all transactions did not represent an arm’s length price, it is possible to record a compensating year-end adjustment. This adjustment should be fully documented.
Disclaimer: While every effort has been made to ensure that this site contains accurate information, it is possible that errors do exist in the materials presented. All of the information provided here is provided “as is”, with no guarantees of completeness, accuracy or timeliness, and without warranties of any kind, express or implied. The information presented on this site should not be considered to be or construed as legal, economic, tax, or accounting advice.
How can I make my IRS payment?
If you owe the IRS taxes on your 1040, there are several payment options available to you including electronic payments.
Direct Pay: This free online tool allows individuals to pay their income tax directly from bank accounts without any fees or pre-registration. Any taxpayer who uses the tool receives instant confirmation that their payment was submitted.
Electronic Federal Tax Payment System: This free service gives taxpayers a safe and convenient way to pay individual and business taxes by phone or online. To enroll or for more information, call 800-316-6541 or visit www.eftps.gov.
Electronic funds withdrawal: E-file and e-pay in a single step.
Check or money order: Make your check or money order payable to “U.S. Treasury”. Also, print on the front of the check or money order: “2016 Form 1040”; name; address; daytime phone number; and Social Security number. To help ensure that the payment is credited promptly, also enclose a Form 1040-V payment voucher.
Cash: It can take up to seven days to have yourself set up to make a cash payment. Please read all the steps carefully on the IRS site.
The limit on the deduction of tax-exempt allowances that are paid by employers to employees who use their personal vehicle for business purposes for 2019 will be increased by 3 cents to 58 cents per kilometre for the first 5,000 kilometres driven, and to 52 cents per kilometre for each additional kilometre.
The general prescribed rate that is used to determine the taxable benefit of employees relating to the personal portion of automobile operating expenses paid by their employers will be increased by 2 cents to 28 cents per kilometre. For taxpayers who are employed principally in selling or leasing automobiles, the prescribed rate used to determine the employee’s taxable benefit will be increased by 2 cents to 25 cents per kilometre. The additional benefit of having an employer-provided vehicle available for personal use (i.e., the automobile standby charge) is calculated separately and is also included in the employee’s income.
For the Northwest Territories, Nunavut and Yukon, the tax-exempt allowance is 4 cents higher and will be increased to 62 cents per kilometre for the first 5,000 kilometres driven, and 56 cents per kilometre for each additional kilometre. These allowances are intended to reflect the main costs of owning and operating an automobile, such as depreciation, financing, insurance, maintenance, and fuel.
The ceiling on the capital cost of passenger vehicles for capital cost allowance (CCA) purposes will remain at $30,000 (plus applicable federal and provincial sales taxes). This ceiling restricts the cost of a vehicle on which CCA may be claimed for business purposes.
The maximum allowable interest deduction for amounts borrowed to purchase an automobile will remain at $300 / month for loans related to vehicles acquired after 2016.
The limit on deductible leasing costs will remain at $800 / month (plus applicable federal and provincial sales taxes) for leases. This limit is one of two restrictions on the deduction of automobile lease payments. A separate restriction prorates deductible lease costs where the value of the vehicle exceeds the capital cost ceiling.
For more information about the 2019 Automobile Deduction Limits and Expense Benefit Rates, click here.
For more information about Automobile Deduction Limits and Expense Benefit Rates, click here.
What is the FBAR filing deadline for 2019?
The U.S. person has either a financial interest in or signature authority over at least one financial account located outside of the U.S.
Entities which include: Corporations, Partnerships, Limited Liability Corporations, Trusts or Estates formed under the laws of the U.S.
FBAR- What should a non-compliant American do?
On what dates are personal income tax installments due?
For more information on Personal Income Tax Installments, click here.
What is the TFSA and how much can I contribute to it?
All Canadian residents aged 18 and over can contribute to a TFSA.
The full amount of withdrawals can be put back into the TFSA in future years. Re-contributing in the same year may result in an over-contribution amount which would be subject to a penalty tax.
The annual TFSA dollar limit for 2018 is $5,500.
The annual TFSA dollar limit for 2016-2017 is $5,500.
The annual TFSA dollar limit for 2015 was $10,000.
The annual TFSA dollar limit for 2013 and 2014 was $5,500.
The annual TFSA dollar limit from 2009-2012 was $5,000.
The current cumulative total contribution limit is $46,500.
U.S. Citizens Please note that the TFSA does not exist in the US and is taxed and treated as a foreign trust by the IRS which requires certain foreign reporting forms to be filed which involve large penalties if they are filed late.
Due Date The annual due date for filing Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR), is June 30. The FBAR must be received by the IRS on or before June 30. Unlike tax returns, the FBAR is considered filed on the day it is received by the IRS. Postmarks are not considered evidence of timely filing.
For more information on the TFSA, click here.
What is the penalty for filing your personal income tax return late?
The late-filing penalty is 5% of the balance owing and an additional 1% of the balance owing for each full month that your return is late, to a maximum of 12 months. Note: The penalty may be higher if you’ve already been charged the late-filing penalty in any of the three previous years. If you missed the tax-filing deadline because of circumstances beyond your control, Canada Revenue Agency (CRA) may waive the penalty and applicable interest.
When is my 2018 personal income tax return due?
For more details please visit the Canada Revenue Agency (CRA).
What are the new cheque-printing standards?
The Canadian Payments Association (CPA) has announced new specifications which all cheques must conform to by December 2006. The new cheque specifications are in effect right now. Printers and companies that print their own cheques are encouraged to begin making the required system changes as early as possible. All Canadian business cheques should conform with the new specifications by December 31, 2006.
What is the difference between an audit, a review and a compilation engagement?
Each year businesses face a choice – what report do they want on their year-end financial statements. There are several types of financial statements that we can prepare, including the following: audited financial statements (most costly), reviewed financial statements, compiled financial statements.
Audit Report: We give an opinion as to whether the financial statements, taken as a whole, are fairly presented. This opinion is given after extensive tests of the accounting records are made. The tests include confirmation with outside parties, analytical procedures, the inquiry of client personnel and a detailed study of the accounting records.
Review Engagement Report: We express limited assurance that we have not noted any items that would require adjustments that should be made to the statements in order for them to be in conformity with accepted standards. The accountant must conduct a review and be satisfied as to the reasonableness of the statements through inquiry and analytical procedures.
Compilation Report: We expresses no assurance on the correctness of the financial statements. We only disclose, in the form of financial statements, information that is the representation of the management of the business entity. The most common reason for obtaining the more costly audited financial statements include the requirements of outside parties (such as banks, bonding companies, creditors, absentee owners, or potential purchasers). Reviews are adequate for many businesses because they give us enough familiarity with our clients to provide tax planning advice and a consulting perspective where appropriate. Compilations are generally appropriate for simple situations where limited business and tax advice is required.
When is a business required to register for GST and QST?
If you operate a sole proprietorship, a partnership, or a corporation that has gross sales over $30,000 in a fiscal year, you are required to register for and collect GST and QST. If your sales are less than $30,000, registration is optional.
Sole proprietors operating more than one business must combine the income from all businesses when determining if they need to register.
If you are a public service body, such as a charity, you do not have to register for the GST/QST until your total revenues exceed $50,000.
If your income exceeds the $30,000 threshold for any four consecutive quarters, or in any quarter, you must register. You have 29 days from the time that your revenues reach $30,000 to register with Canada Revenue Agency (CRA) so that you can charge GST/QST.
Pros: Often businesses that are not yet required to register for the GST/QST do so anyway. One benefit of registering early is that you can claim back the GST/QST you paid for start-up purchases. For some businesses charging the GST/QST adds credibility, as customers won’t know that the company is earning less than $30,000 a year.
Cons: Being registered means that you have extra paperwork to do. And of course, you also have to charge and remit the tax.
One of the most popular year-end tax-planning strategies is tax-loss selling, which can help you reduce your capital gains tax. Particularly with the recent strong performance in the Canadian stock market, you may have significant taxable capital gains, triggered by selling stocks at a profit. Half of your net capital gain is taxable at your marginal rate. However, you can offset your capital gains with capital losses. While no one likes selling a stock at a loss, it can make sense when the stock no longer meets your investment objectives – and you can use the loss to reduce your taxes.
Your investment advisor can help you identify which stocks are suitable candidates for tax-loss selling.
Key dates: For Canadian tax purposes, a sale takes place on the “settlement date” – normally three days after you initiate the sale. If you are considering a tax-loss sale, make sure you allow enough time for the transaction to settle in 2018.
Offsetting gains in past or future years: Capital losses have to be used to offset capital gains the current year first. If the losses exceed the gains, then you can apply the excess amount against capital gains in the three previous years (2016, 2017, or 2018) or you can carry it forward indefinitely.
Superficial losses: Simply selling stock to trigger a loss, and then buying it back within 30 days is considered a “superficial loss” by the Canada Revenue Agency, which means that the loss will be denied. The superficial loss rule also applies when your spouse or a corporation controlled by either you or your spouse acquires or reacquires the same security 30 days before or after the sale.
Is it better to lease or buy a new vehicle?
This is a common dilemma and for many people, it can be unclear which option is better.
Leasing is really a form of automobile financing, and therefore the real comparison is between leasing and taking out a car loan to buy the vehicle. The lease payments are generally lower than the car loan payments because a lease only finances the use of the vehicle for a few years, rather than the purchase of the entire vehicle. Some people prefer to lease because you can get a more expensive car for lower monthly payments. However, this ignores the “payment-free” period you benefit from when buying.
Buying after you pay off the car loan. If you crunch the numbers, purchasing and holding the vehicle for a longer period of time is almost always less expensive than leasing in the long run. The benefit of leasing is that most people lease a new vehicle every two or three years, and therefore have no major repair risks, and also enjoy the pleasures of a new car more often. The tax rules for deducting the use of a vehicle are complex, whether leased or purchased. However, Canada Revenue Agency (CRA) attempts to structure the tax rules so that the tax savings will be similar whether you lease or buy a vehicle. Overall drivers looking for a less expensive option will come out ahead in the long run if they purchase. However, some people are willing to pay more to change their vehicle every two or three years, and this is easier to do with a lease.
Should GST and QST be charged on the sale of a part residential and part commercial (split-use) property?
(Note-that the zoning of the listing is not a relevant factor in determining the answer to this question).
The key factor is how the building was used by the present owner (ie – the seller). If the building was used primarily as a place of residence then the sale is exempt from GST and QST. In the case of a split-use property (part residential and part non-residential) then GST and QST would apply to the value of the non-residential portion. If the buyer requests it, the seller must provide a statement when the sale occurs, as to whether all or any part of the property is exempt from GST and QST. This statement is generally found in the deed of sale, but should also be sought in a binding offer to purchase.
Note: that if the buyer is registered for the GST and QST, then GST and QST does not have to be charged on the transaction. It is the duty of the notary to ensure that the GST and QST are charged if required, and they will do this at or before the closing.
Should a student file a personal income tax return?
For more information regarding Students and Income Tax Returns, click here.
When does a Canadian corporation have a permanent establishment in the US?
Provides services in the United States for an aggregate of 183 days or more in any given twelve-month period with respect to the same or connected project for US customers.
If a Canadian corporation has or is deemed to have a permanent establishment in the United States, the Canadian corporation will be subject to US tax return filing obligations and will be required to pay US tax on business profits attributable to that permanent establishment. If profits of a permanent establishment that are taxed by the United States are also taxed in Canada and foreign tax credits are unavailable to offset the full amount of the US tax payable, double taxation on the US source income of the Canadian resident may result. Moreover, if a Canadian corporation fails to file a US tax return because it believes its US activities do not constitute a permanent establishment, that Canadian corporation (if it is later found to have had a US permanent establishment during taxable periods for which a US return was not filed) may be denied the ability to subsequently claim any deductions against income attributed to its US permanent establishment.
Why use a holding company?
Corporate Planning: If you are a business owner you transfer the shares of your operating company (Opco) to a holding company (Holdco) and then you can pay part of the earnings of Opco to Holdco as a dividend each year. This is generally a tax-free, intercorporate dividend. Holdco then uses that money to purchase investments such as real estate, marketable securities, and other private businesses. If Opco requires more cash for any reason, Holdco can lend the money back to Opco. If the business owner personally withdraws the same earnings from Opco, the dividend will be taxable. However since the dividend to the holding company does not trigger any taxes, more funds are available to invest, and therefore more investment income can be generated. In addition, a Holdco can pay income to the business owner and other family members. If other family members are in low tax brackets, they will pay less tax on the income distributions than the major shareholder would. One can consider a holding corporation as a private pension plan. The owners can accumulate funds in a holding company during high earning years, and then withdraw these funds when they are required, often when they are taxed in lower brackets. Another benefit is the excess earnings are transferred out of the operating company every year. As a result, these amounts are generally protected from the creditors of the operating company. If necessary, Holdco can lend that money back to Opco on a secured basis to retain that protection from creditors.
Estate Planning: If you die with many investments owned as an individual, each asset will have to be re-registered in the name of an heir, unless they are held in joint ownership with the intended heir. However, if you own the same investments in a company, transferring assets to an heir can be accomplished by simply transferring the shares of the holding company to the beneficiary. If you own investments personally, the use of a holding company can allow you to do an estate freeze so that future growth accrues to your intended heirs, perhaps children or grandchildren. Properly structured, future growth goes to your heirs’ common shares, but voting control stays with you. Your estate’s potential tax liability will be limited to the value of the investments at the date of the freeze – the taxes on the future growth will be deferred to sometime in the future. If you reside outside of Quebec, there may also be some advantages in using a holding company to reduce probate fees.
U.S Estate Tax: Canadian residents could be subject to US estate tax if they own “US sites property,” which includes shares in US corporations, among other things. If you’re otherwise subject to US estate tax on those securities, you can hold these investments in a Canadian holding company to avoid the estate tax.
OAS Claw-back: Taxpayers start to repay any federal OAS received when their income exceeds $67,668. If the individual can transfer investments to a holding company, the individual’s personal income may be reduced below the level where the OAS claw-back applies.
Notice: While holding companies offer excellent planning opportunities for many individuals, this route should not be taken without first consulting with a qualified tax adviser.
Why set up a family trust?
A family trust is established when legal title to property is transferred by a person (the “settlor”) to a trust, that is created for a particular purpose. A wide variety of assets can be held by family trusts, including real estate, cash, a portfolio of securities such as shares, bonds and mutual funds, and the shares of privately held corporations. Once the assets are transferred to the trust, they are then administered by one or more trustees for the benefit of the beneficiaries, who have an interest in the trust’s property and/or income. The beneficiaries may be individually listed when the trust is formed or may be identified later as part of a specified group (such as “children” or “grandchildren”). The settlor and trustees execute a trust deed evidencing the settlor’s intention to create the trust, as well as setting out the rights, duties, and obligations of the trustees, and the principles governing the trust. Once the assets are transferred to a trust, they are legally separate and distinct from the assets of the settlor, trustees and beneficiaries.
The owner/manager of a business who would like to split income with a spouse and adult children with low incomes (for example, university students) in order to reduce taxes.
For those who own significant investment assets or have an investment corporation, family trusts can be used to split income from the investment assets or corporation among adult children.
A Family Trust can be a tax-effective way to provide for a former spouse and/or children of a previous marriage.
A Family Trust can be a tax-effective vehicle for providing for elderly parents or other adult relatives who require financial support.
Succession Planning: For an owner of a business with children who may or may not be interested in becoming active shareholders, Family Trusts can be a very useful succession-planning tool, providing a vehicle for ongoing management and control of the business. In this case, the trustees of the Family Trust could hold the shares of the corporation for the benefit of the entire family until the succession of the business has been determined.
Creditor Proofing: For someone who is concerned about possible financial difficulties in the future, a Family Trust can help to provide creditor proofing and financial security for his or her family. If all income and capital distributions are at the discretion of the trustees, the beneficiaries’ creditors generally cannot seize any of the Family Trust’s assets. In addition, under an appropriately established Family Trust, the Trust may help to provide some protection of assets from future marital property claims involving a beneficiary.
Tax Planning for the sale of a business: Beneficiaries may be eligible to claim the $750,000 enhanced capital gains exemption on the capital gain allocated to them from the disposition of the shares of a Canadian business. As a result, the $750,000 capital gains exemption may be multiplied by the number of family members who are beneficiaries of the trust.
Reduction of taxes on death: A Family Trust could be used as a means of transferring the growth in the value of a family business to the next generation on a tax-deferred basis.
Support for Elderly or Special Needs Individuals: A Family Trust can be an effective way to provide for their ongoing financial needs. By holding assets in a family trust the above benefits can be achieved while the trustees maintain full control (subject to their fiduciary duties as trustees) over the trust property. It is important to note that it is the trustees who control the trust property and not the settlor. The settlor, however, sets the terms of the trust in the trust deed and the trustees are bound to act according to the terms of the trust deed as well as general trust law. In addition, the settlor can be a trustee of the Family Trust.
Notice: While family trusts offer excellent planning opportunities for many individuals, this route should not be taken without first consulting with a qualified tax adviser.
What are the benefits of holding life insurance in a company?
The main benefit is cost. Life insurance premiums paid by a corporation are generally not tax deductible. However, it is generally cheaper to have a corporation pay the premiums than to withdraw funds from a corporation and to pay the premiums personally.
When a corporation receives life insurance proceeds upon a person’s death these amounts are generally received non-taxable to the beneficiary corporation.
The life insurance proceeds can generally be withdrawn tax-free from the company. This is achieved by making use of the Capital Dividend Account (CDA) mechanism to declare a capital dividend, which will be received tax-free by shareholders resident in Canada for most or all of the insurance proceeds.
In addition, many shareholders prefer to spend corporate funds for life insurance premiums and save personal dollars for other purposes.
Some individuals prefer having the life insurance in a company, which gives increased assurance that funds are available to pay required premiums and that these premiums are paid on a regular basis.
Notice: While corporate-owned life insurance can make sense for certain situations, the rules can be complex and this route should not be taken without first consulting with a qualified tax adviser.
Why create a spousal trust in a will?
A trust is a legal entity which is separate from its settlor (the person transferring property to the trust), its beneficiary (the person who can benefit from the transferred property) and its trustee (the person who controls and administers the trust property).
Spousal Trusts: A trust that is set up through a will upon one’s death is called a testamentary trust. A spousal trust is a form of a testamentary trust whereby specific property is set aside from the estate to be used to provide for the maintenance and support of the deceased individual’s surviving spouse. Generally, the income earned on the assets is paid to the surviving spouse, who also has the right to encroach upon capital if required. Upon death, Canadian tax laws deem that a disposition of one’s property occurs at its fair market value as at the date of death. As a result, the appreciation in value of a deceased person’s assets can trigger income taxes payable on the deceased’s final return. However, if certain conditions are met, the assets transferred directly to a testamentary spousal trust are deemed to be disposed at their original cost, which defers the income taxes otherwise payable on their unrealized gains.
Defers the income tax on the deceased’s unrealized capital gains until the death of the surviving spouse.
Creates a separate entity for tax purposes which allows income generated from the transferred property to be taxed in the trust. This effectively doubles the lower income brackets available to each individual thereby reducing the income taxes on income generated by the transferred property.
Protects the deceased individual’s capital from exposure to potential creditors of the surviving spouse.
Allows the deceased to appoint responsible trustees to safeguard the capital in the Spousal Trust from inappropriate investments and risks.
Helps ensure payment of the income generated by the assets in the trust to the surviving spouse.
Helps ensure that the deceased’s capital is protected and will eventually be transferred to the deceased’s chosen beneficiaries after the death of the surviving spouse. This may be important in second marriages where the spouses have children from a prior marriage.
Notice: While spousal trusts can make sense in certain situations, the rules can be complex and this route should not be taken without first consulting with a qualified tax adviser.
Please contact Ken Shemie if you have any questions or comments.
For technical details refer to the CRA’s IT305R4 “Testamentary Spouse Trusts”.
There are many reasons why one might decide to incorporate a business, which includes: Limited liability: A corporation is a legally separate entity from the owners. Accordingly, the shareholders’ personal assets can be protected from claims made by creditors of the business.
Business and professional incomes are generally taxed at lower income tax rates if they are earned by a corporation rather than earned personally.
Substantial income taxes can be deferred if the owner-manager does not require all of the earned income for personal needs.
Taxes can also be reduced by choosing to draw a calculated mix of salary and dividends.
Income splitting: Family members can also own shares of a corporation, which can allow for the payment of dividends (directly or through a family trust) to other adult family members who are in lower tax brackets.
Estate planning: Incorporating a business enables the owner-manager to freeze the value of the assets of the company so that the taxes on future increases in the value of the business can be deferred.
Small business capital gains exemption: The tax authorities permit the first $750,000 of capital gains on the sale of Canadian business to be tax-free.
Succession planning: The use of a corporation can enhance the orderly transition of a business to family members or to acquirers of a business.
Continuity of existence: A corporation is a legally separate entity from the owners. Therefore the death of a shareholder does not bring about the end of a business. The businesses activities can continue uninterrupted, and the new owner will be the party that inherits the companies shares from the deceased individual’s estate.
Other considerations: The benefits of incorporation must be weighed against the additional costs and effort that are required to set-up and administer a corporation.
Notice: While the use of corporations offers excellent planning opportunities for many individuals, this route should not be taken without first consulting with a qualified tax adviser.
Please contact Sylvie Plante if you have any questions or comments.
Are you exposed to U.S. Federal Estate Taxes?
U.S. Citizens and U.S. Permanent Residents in Canada A U.S. citizen is subject to U.S. federal estate taxes no matter where s/he lives in the world. Upon death, US federal estate taxes are calculated based on the fair market value of worldwide taxable assets, which generally includes the value of all of one’s property interests at the time of death. Under current rules, estate taxes are calculated on an American’s taxable assets at rates of 18% up to 40%. However, the estate taxes payable amount is reduced by an exemption on the first USD $5.6 million of assets, which means that US taxpayers are only subject to estate taxes if their worldwide taxable assets exceed $11.2 million.
Gifts are integrated into the estate tax regime, and the USD $5.6 million estate tax exemption is reduced by any gifts which exceed USD $15,000/year made during a US citizen’s lifetime. Note that the threshold for gifts to a non-resident alien spouse is USD $152,000/year. The gift tax is designed to prevent individuals from gifting assets during their lifetime to their heirs, thereby reducing the estate taxes due on their death. Relatively new rules (referred to as “portability”) permit any unused portion of an individual’s USD $5.6 million exemption to be transferred to a surviving American spouse, which then gets added to their own USD $5.6 million exemption.
Note that this provision applies to the exemption amount for estate taxes only. In addition, an individual who has been widowed more than once may only use the most recent spouse’s available exemption amount.
Canadians who die holding U.S. situs assets in excess of USD $60,000 are subject to U.S. federal estate taxes, which are calculated on the total value of their U.S. situs assets at a rate of 18% up to 40%.
However, the estate will be reduced by an exemption of USD $5.6 million x the ratio of U.S. situs gross assets over worldwide assets. Therefore if a Canadian dies with US situs assets making up 50% of their USD $8 million of world assets, they will have an exemption of USD $5.6 million x $4 million/$8 million = USD $2.8 million. On death, a Canadian will generally pay taxes in Canada on any accrued gains on U.S. assets on their terminal Canadian income tax return. Depending on the specifics, the Canadian Revenue Agency (CRA) will permit a foreign tax credit to be claimed and applied in Canada for the U.S. estate taxes paid on those assets.
However the provinces generally do not allow a foreign tax credit for U.S. estate taxes paid and, as a result, the estate may be subject to some double taxation at the provincial level. The filing deadline for a U.S. estate tax return is generally nine months after the date of death. The 2018 exemption od US$11.2 million, you should be aware that the double exemption is only temporary and effective if you die between 2018 through 2025.
Planning for Estate Tax Liabilities: If your estate is potentially subject to US estate taxes, there may be planning strategies available to reduce your US estate tax exposure.
Notice: U.S. estate tax rules are complex and no planning actions should be taken without first consulting with a qualified tax adviser.
Contact us if you require assistance analyzing your exposure to U.S. estate taxes, and how this liability can be reduced.
FBAR - what should a non-compliant American do?
This is a complicated and often challenging question!
Click here to find out what is an FBAR.
If the US tax returns were filed, were they deficient in some way? Problematic and often overlooked forms/issues can include form 3520, 3520a, 8891, 5471, sub-part “f” income, US Income Sourcing, etc.
What is the nature/location/magnitude of the accounts to be reported on the FBAR?
Has all income been reported completely/correctly on the Canadian tax returns?
FBAR – Streamlined Program: The IRS “Streamlined Program” commenced in September 2012. This program is designed to facilitate the process for non-compliant individuals who are considered to be “low-risk” to bring their US tax filings up-to-date and potentially avoiding late filing penalties. This program requires filing 6 years of FBAR’s and 3 years of tax returns, and can resolve the FBAR issue at the same time as the unfilled US tax returns.
Many individuals do not qualify for the “Streamlined Program” because they do not meet the criteria for “low risk“. For instance, if their US tax returns reflect taxes payable of greater than $1,500/year, the submission is not considered “low risk”.
Clearly, most Americans who are not compliant with their FBAR filings are concerned with the penalties that can be levied on late FBAR’s. While the Streamlined Program does not provide any guarantees, it can be an attractive option for those who are US tax returns meet the IRS criteria of “low risk”.
However many US and Canadian tax attorneys still recommend using the OVDI program because this FAQ appears to be IRS “policy” only, and is not actual law. The OVDI is an option which should be considered, but keep in mind that the voluntary disclosure process can be expensive and arduous. Our experience is that the IRS OVDI program is backlogged with files, and processing a file can take several years.
FBAR – Quiet Disclosure: Another option is the “Quiet Disclosure”, which consists of quietly mailing in late filings with no special program or cover information. Quiet Disclosures were often successful in the past based on the experience that the IRS processed these tax filings and penalties were rare. We do not recommend this option because the IRS has been alerted to this issue, and we have been informed that their ability to identify late-filings has increased, and they are intending to assess been late-filing penalties.
FBAR – Noisy Disclosure: Some practitioners are still advocating the “Noisy Disclosure” approach, which involves bringing taxpayers through the normal filing process, but with a carefully worded legal letter and personal contact with the IRS. The “Noisy Disclosure” option has not been endorsed by the IRS, and therefore there is little comfort that it avoids late filing penalties.
FBAR – New Filing Procedures: Effective July 1, 2013, FBARs must be filed electronically using the E-Filing System maintained by the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”). This mandatory electronic filing requirement applies to all FBARs, and to amendments of previously filed FBARs, that are submitted by individuals or by entities on or after the effective date.
Final Comment: American residents in Canada and elsewhere are becoming increasingly aware of FBAR filing issues. Great care should be taken when the filing late FBAR’s because the penalties can be onerous. Note that in extreme cases individuals can be subject to criminal prosecution with jail sentences as well as high financial penalties.
Willful – Failure to File FBAR or retain records of account Up to the greater of $100,000, or 50 percent of the amount in the account at the time of the violation. Up to $250,000 or 5 years or both 31 U.S.C. § 5321(a)(5)(C) 31 U.S.C. § 5322(a) and 31 C.F.R. § 103.59(b) for criminal. The penalty applies to all U.S. persons.
Willful – Failure to File FBAR or retain records of account while violating certain other laws Up to the greater of $100,000, or 50 percent of the amount in the account at the time of the violation. Up to $500,000 or 10 years or both 31 U.S.C. § 5322(b) and 31 C.F.R. § 103.59(c) for criminal The penalty applies to all U.S. persons.
Knowingly and Willfully Filing False FBAR Up to the greater of $100,000, or 50 percent of the amount in the account at the time of the violation. $10,000 or 5 years or both 18 U.S.C. § 1001, 31 C.F.R. § 103.59(d) for criminal. The penalty applies to all U.S. persons.
Tax Cuts and Jobs Act: IRC Section 965 “Repatriation Tax” Newly enacted section 965 imposes a “Repatriation Tax” on certain previously untaxed earnings of specified foreign corporations (SFCs) of U.S. shareholders by deeming those earnings to be repatriated.
Remaining earnings: taxed at an 8% rate.
The repatriation tax generally may be paid in instalments over an 8 year period.
Controlled Foreign Corporations (CFC’s) subject to the “Repatriation Tax” Under the “Repatriation tax” rules, a US shareholder of an SFC must include in its/his/her income the pro rata share of the accumulated post-1986 deferred foreign income of the corporation for the last taxable year beginning before Jan. 1, 2018. Guidance provided by the IRS (Notice 2018-07) and the Tax and Jobs Cuts Act indicates that the repatriation tax on deferred foreign income is applicable to all US shareholders (including individuals, LLC’s, partnerships and corporations) who own a 10% or more voting interest in SFC’s. SFC’s include controlled foreign corporations (CFCs) and 10/50 companies, but not passive foreign investment companies (PFIC’s) that are not CFC’s.
Controlled Foreign Corporations (CFC’s) subject to the “GLITI” The “global intangible low-taxed income” (GILTI) imposes a tax on the excess income of CFC’s over a 10% rate of routine return on tangible business assets. This restricts the benefits of the tax deferral that could exist in CFC’s.
Americans residing in Canada who owns Canadian Corporations The “Repatriation Tax” and GILTI applies to Americans residing in Canada who own Canadian corporations. These individuals must carefully consider the implications of the “Repatriation Tax”. Our Canada-US Tax Team has established a “Repatriation Tax Task Force’, which has identified a number of methods of reducing the “Repatriation Tax” amount payable.
Note: This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.
Tax Cuts and Jobs Act: Section IRC 965 “Repatriation Tax” and GILTI applies to Americans who reside in Canada and own Canadian Corporations.

References: § 5321
 § 5322
 § 103
 § 5322
 § 103
 § 1001
 § 103