2015 TAX RATES
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2014 TAX RATES Quick TaxFacts (US)
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Reporting Requirements of U.S. Direct Investment Abroad: 2014 Benchmark Survey
The US Department of Commerce’s Bureau of Economic Analysis (“BEA”) under the authority of the International Investment and Trade in Services Survey Act conducts the BE-10 survey every 5 years. The survey is used to collect data for analytical purposes to generate comprehensive statistics on the direct investment abroad by US individuals and entities (collectively referred to as “US person”). For this purpose, a US person means any individual, branch, partnership, associated group, association, estate, trust, corporation, or other organization, who is resident of the United States or subject to the jurisdiction of the United States, who held at least 10% of the voting stock of an incorporated foreign business or an equivalent interest in an unincorporated foreign business in 2014, including if the foreign business began, was acquired, got terminated or liquidated during that year. The 2014 BE-10 surveys are due May 29, 2015, and June 30, 2015, depending on the quantity of the BE-10 surveys filed by the US person.
The BE-10 surveys are mandatory, even if not contacted by BEA. They carry hefty non-filing penalties in the form of civil penalties ranging from $2,500 to $25,000, and a requirement to comply with mandatory filings for those who failed to do it in the first place. Those who willfully fail to comply may face either $10,000 penalty or a year of imprisonment, or both.
For more details, please go to https://www.bea.gov/surveys/pdf/be10/BE-10%20Instructions.pdf
Having assets or family abroad or being an American citizen and residing outside the US may create cross-border wealth transfer issues either during life-time or upon death. Even a straightforward arrangement under a single country tax law, may involve numerous complexities and produce negative tax consequences when non-residents are involved. Whether dealing with foreign estates, trusts or outright gifts which involve US citizens or Canadians, careful planning, drafting and administration must be observed. Each complexity should be balanced against the benefits in light of other less complicated and less expensive planning alternatives.
We have experience with tax planning and compliance related to the following:
- Trust and estate planning for Canadian snowbirds
- US real property owned and sold by Canadian residents
- US real property held by a trust or a foreign partnership
- US real property held by a single purpose corporation
- US securities, US debt or US partnerships investments held through Canadian custodians
- Canadian children living in the Unites States
- Estate planning if spouse or both spouses are US citizens and residents of Canada
- Canadian residents receiving US gift or bequest
- US citizens or green card holders receiving Canadian gift or bequest
- US citizens with share-ownership in Canadian corporations
- An insurance policy held in an Irrevocable Life Insurance Trust
- Canadians moving permanently to the US
- Former Canadians repatriating and new Canadians moving to Canada
With globalization of the workforce it is not uncommon for Canadians to spend a portion of their working life abroad and return to Canada for retirement. Likewise Canada, being a hub for many multinational companies, hosts a large number of foreign employees who may contribute into a Canadian retirement plan and collect pension income once they leave Canada. Furthermore, considering the close proximity of the Canada-US border, Canadian and US commuter-employees may contribute to a pension plan of the country of their employment. The requirements for reporting, deductibility and income recognition of each type of a retirement arrangement may differ. The rules are typically driven by the tax laws of both the country where the plan is domiciled and where the participant resides. In addition, relieving provisions of a bi-lateral income tax treaty may also be relevant. With an accurate classification of the plan, timing of income recognition and an adequate disclosure, participants can achieve the most tax efficient results on both events at the time of contribution and distribution from a foreign pension plan.
There are lot to consider for non-residents when investing into US or Canadian real property. Both countries impose unfavorable income tax default rules in relations to rental income generated by non-residents. Such rules can be mitigated by an appropriate election and annual filing obligations. In addition, tax compliance requirements and tax cost may significantly differ depending on the structure of the ownership, i.e. whether the property is held individually or through an entity. Considering that rental income earned in another country is also subject to reporting and taxation in the investor’s home country, it is important that expenses are optimized (to avoid timing difference of income recognition) and a foreign tax credit is utilized. Finally, if a property is gifted or held by the investor at death, it may become subject to additional taxes, including gift, estate, generation-skipping, inheritance and capital gain on deemed disposition and probate/stamp tax.
The domestic tax rules and actual tax consequences related to various types of investment income (interest, dividends, capital gains, rentals, and royalties) are often misaligned which may even lead to double taxation. Tax relief available in one country can be construed as tax evasion in the other. It is therefore critical that a person who assists you with your cross-border tax compliance needs to understand your residency status, classification of income where it is domiciled, classification of income in your country of residency, and is able to apply any relevant tax treaty benefits. There is a large number of business strategies and vehicles available to maximize tax efficiency for individuals and business entities with foreign investments. We prefer to work with your investment advisor to ensure that all your objectives, whether tax ramifications or cash flow, are achieved
Business Travelers and Employees on International Assignments
Many Canadian business owners either personally go or send their employees on business trips to the US often forgetting that such movements can unintentionally trigger taxation requirements, particularly in the areas of employment and social security taxes. In addition, workforce border-crossing activities can increase the company’s exposure to US federal and state taxation at a corporate level. Finally, an extended business travel can spill over into the area of immigration, with local government barring that employee from future visas and even blocking the entire firm from receiving visas.
Similar issues exist on the flip side, when foreign nationals come to provide services in Canada even on short-term basis.
With increased business globalization and a desire to boost tax revenue on the part of the taxing authorities, it is important to be cognizant of the tax and other compliance-related issues to minimize any potential risk to both the employees and the company. We can assist you with both the advance planning as well as an annual tax compliance maintenance.
The US market offers enormous opportunities for foreign investors and ambitious business owners. Canadian or other foreign businesses may operate in the US through a variety of legal forms, including self-proprietorships, corporations, general and limited partnerships, limited liability companies (LLCs) and US branches. A choice of a business structure is often influenced by tax and non-tax reasons, which may include legal, fiscal, and financial considerations.
The US rules regarding the formation, operation and dissolution of a business are generally defined by the state rather than federal law. This often increases the administrative burden and the tax cost for non-US businesses as bi-lateral tax treaty protection designed to mitigate taxation at the federal level may not be recognized at the state level. Considering that there are 50 states and the District of Columbia with their own income, property and sales tax provisions and practices often with a lack of integration amongst them, careful attention to each specific rule and each appropriate jurisdiction may be required.
A foreign investor doing business or expanding into the US should have advanced knowledge to properly plan and execute their investment strategy as well as the willingness to face rigorous US tax obligations.
To read more about this topic see What is a Treaty-Based Return and Why Shall I File It?
If you are one of the Canadians who make an annual pilgrimage to avoid Canadian winters you may be aware that starting June 30, 2013 both Canada and the US began the second phase of their Entry/Exit Initiative under the Beyond the Border Action Plan for Perimeter Security and Economic Competitiveness which is designed to share information on certain categories of people entering and exiting the respective countries. One of the primary objectives of the Initiative is to identify persons who potentially overstay their lawful period of admission. And even though the Government of Canada through its Canada Border Service Agency website assures that Phase II is restricted to non-Canadian and non-US citizens, it may be a matter of time when such restrictions are lifted.
Consider it as a warning and start paying closer attention to the rules which you may have ignored in the past. This includes potential US tax compliance if you spend at least 4 months or 121 days on a calendar-year basis in the US. The four months do not have to be consecutive, the days do not have to be full and it is irrelevant whether the US presence is business or personal.
US tax compliance will likely increase if your annual presence in the US exceeds 182 days. You may also be at risk losing a provincial health coverage, becoming liable for US taxes on a worldwide basis, facing Canadian departure tax and even being banned from entering the US for at least 3 years.
There are several types of tax identification numbers available in the US. The most commonly used are social security numbers (SSNs), individual tax identification numbers (ITINs) and employer identification numbers (EIN). All three types are jointly known as taxpayer identification numbers (TINs) and contain nine digits. EINs have a slightly different format than the other two assigned to individuals. EINs take the form XX-XXXXXXX whereas SSNs and ITINs take the form XXX-XX-XXXX.
Any person other than an individual, such as corporations, partnerships, non-profit associations, trusts, estates, whether foreign or domestic, must use an EIN. In addition, an individual who is either a US or non-US citizen and is either an employer or self-employed must also use EIN on the returns, schedules, forms and documents with respect to his/her employer and self-proprietor role. EIN is necessary for completion of any certificates under the Tax Withholding and Reporting Requirements and FATCA (e.g., W-8BEN-E, W-8ECI, etc.).
Foreign individuals who are not eligible to receive a US SSN must obtain a US ITIN when filing a US tax return or complete certain certification forms. There are a number of options of how an ITIN can be obtained, including the one through an acceptance agent, who is authorized to do so under a written agreement with the IRS. We have been authorized by the IRS to act as a Certifying Acceptance Agent to facilitate the processing of ITIN applications.
CRA mandates that all non-resident individuals, corporations and trusts who are either subject to filing of a Canadian income tax return, Canadian tax withholdings waiver or Taxable Canadian Property disposition reporting, must obtain a Social Insurance number (SIN), an individual tax number (TIN) or a temporary taxation number (e.g. business number (BN) for business entities). For individuals, a number can be obtained through completion and filing of Form T1261 and accompanied by certain proof of identity. For businesses, a number can be obtained through either the Business Registration Online (BRO) application or directly by visiting one of the designated tax service offices. We would be happy to assist you in obtaining an applicable taxpayer number.
To read information on the IRS and CRA website use the links below
Both US and Canadian tax systems are based on self-assessment when individuals voluntarily complete their income tax returns and make applicable disclosures. When a taxpayer has previously filed an incorrect or incomplete tax return or failed to disclose certain tax details, the taxpayer may under certain circumstances be permitted to come forward and voluntarily disclose past reporting errors or omissions in exchange for partially or completely reduced penalties and occasionally, interest. The relief is available under voluntary tax amnesty programs offered by the CRA and the IRS. Some of these programs are permanent while others are offered on a temporary basis with or without a definitive timeline.
A disclosure will not be considered to be voluntary where, prior to making the disclosure, a taxpayer was aware of, or had knowledge of the enforcement action set forth by the tax authorities with respect to the information disclosed. In addition, no partial or complete penalty abatement is available to a taxpayer who gets approached with respect to an error by the government body first.
Currently the IRS is administering several tax amnesty programs allowing American citizens, Green card holders and American residents to come forward with previous inaccuracies and omissions related to their foreign income, accounts and assets. These programs are called Offshore Voluntary Disclosure Program, Offshore Streamline Procedures and Domestic Streamlined Procedures.
We have experience assisting taxpayers who wish to come forward with US tax delinquent compliance from the time the IRS introduced the first offshore program in 2009.