Canadians Selling U.S. Real Estate

Posted by on Sep 30, 2016 in 2016 Articles | 0 comments

As you may be aware of there is a federal tax withholding requirement on the sale of U.S. real estate by non-U.S. persons. This does not exempt the vendor from filing a U.S. tax return to report the sale and paying any tax payable or requesting a refund for excess federal tax withholding.

There are certain exemptions from the withholding such as if the purchase price is under $300K and the buyer is using the…

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Small business inter-corporate dividends

Posted by on Sep 13, 2016 in 2016 Articles | 0 comments

Revisions to Section 55 of the Income Tax Act (“ITA”) may prevent the tax-free payment of inter-corporate dividends within a related corporate group.
With the exception of Part IV tax where applicable, the related party exemption per S55(3)(a) will no longer be available to allow cash dividends say paid from Opco to Holdco unless there is safe income in the payor corporation at the time of the dividend payment.
A broader “purpose test” in…

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Income from business or from property

Posted by on Sep 9, 2016 in 2016 Articles | 0 comments

The taxation of corporate income from the rental of storage facilities appear to be a common business under regular review just like the motel/hotel and rental management business.

Basic tax rate concepts

The Canadian concept of integration is based on the premise that it should cost more to earn income directly or indirectly through a corporation. Unfortunately, nothing is perfect and the differences in provincial tax rates still cause some discrepancies.

The Canadian corporate tax rate on…

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Extended Filing Requirements for IRS Form 5472

Posted by on Sep 9, 2016 in 2016 Articles | 0 comments

On May 23, 2016, Internal Revenue Bulletin 2016-21 was released which proposes amendments to the regulations governing IRC 6038A.

The regulations are proposed to be applicable for taxable years ending on or after the date that is 12 months after the date these regulations are published as final regulations in the Federal Register.

IRS Form 5472 is filed if there is a “reporting corporation” that has “reportable transactions”.

Presently, regulation 1.6038A-1(c) (1) defines “Reporting Corporation” for purposes…

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IRS Changes the ITIN Process

Posted by on Aug 8, 2016 in 2016 Articles | 0 comments

On August 4, 2016, the IRS released Notice 2016-48 outlining the renewal procedures pertaining to the implementation of the changes to the ITIN process as required by the PATH ACT, passed in December 2015.  There were also changes to requirements for dependents.

Only ITIN holders who need to file a tax return may need to renew. Others with ITINs for information returns or say for certain IRS waiver forms used for a reduction or waiver…

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OVDP & Streamlined Procedure May Not Be Forever!

Posted by on Jul 18, 2016 in 2016 Articles | 0 comments

Recently I heard that U.S. citizens residing in the UK are receiving FATCA letters advising them to get in touch with their financial advisors.

This is a signal that the sharing of information on foreign financial accounts of U.S. persons residing abroad is in full force and that the OVDP or streamlined domestic and foreign offshore procedures could very well be short lived.

This means that the only remaining remedy to avoid certain penalties is to…

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CRA Forms T1134 and T1135 Often Missed by Canadian U.S. Real Estate Investors

Posted by on Jul 18, 2016 in 2016 Articles | 0 comments

The T1134 and T1135 are a sample of Canadian foreign information returns like the U.S. 8938, 5471 or 8865.

A number of Canadians are investing in the U.S. real estate market with a U.S. limited partnership whose limited partners are solely Canadian residents and the general partner is a U.S. C corporation whose shareholders are also Canadian residents.

For those who want limited liability protection, this type of investment vehicle is often proposed because the conventional…

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IRS Increases Tangible Property Expensing Threshold to $2,500

Posted by on Jul 18, 2016 in 2016 Articles | 0 comments

Last fall the IRS announced the increase in the expensing limit with respect to the safe harbor limit contained in Regulation 1.263(a)-1(f) from $500 to $2,500 per substantiated invoice. The increase commences in 2016. The election basically allows taxpayers without an AFS (applicable financial statement) audited by a CPA, to expense items that would otherwise be required to be capitalized and depreciated. There is no change to the $5,000 limit where an AFS is…

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FBARs for Unsuspecting Canadians Present in the United States

Posted by on Jul 18, 2016 in 2016 Articles | 0 comments

FINCEN114 due June 30th for the 2015 taxation year, reporting beneficial interest or signature authority in non-U.S. financial accounts where the annual aggregate highest balance is greater than $10K U.S., may have to be filed by Canadian taxpayers.

Those who meet the substantial presence test for residency in the U.S., regardless of a claim under Article IV of the Canada/U.S. tax treaty that results in only certain U.S. source income being taxed by the IRS…

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U.S. Expatriates with RESPs

Posted by on Jul 18, 2016 in 2016 Articles | 0 comments

U.S. citizens (or even green cardholders) resident in Canada who are contributors (or a joint contributor) to their children’s RESP (“registered educational savings plan”) may have U.S. reporting issues.

Should the RESP be regarded as a foreign trust by the IRS (as they do with RRSPs), then the RESP would be regarded as foreign grantor trust. In this regard the annual income realized in the RESP including the grants received from the federal government (called…

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Sending Non-Canadian Resident Employees to Canada

Posted by on Jul 18, 2016 in 2016 Articles | 0 comments

Regulation 102 of the Income Tax Act (“ITA”) requires payroll withholding on income derived by virtue of employment. This applies to say a U.S. employer sending its employee to Canada to work on an assignment.

Withholding would include income tax and contributions to the Canada Pension Plan (“CPP”) and Employment Insurance (“EI”).

CPP is not required if the employer does not have an establishment in Canada or if the employee has a certificate of coverage under…

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Limitation period for objection not running where Notice of Assessment sent to wrong address

Posted by on Jul 18, 2016 in 2016 Articles | 0 comments

The Income Tax Act provides a time period in which one may appeal a notice of assessment or reassessment. It is not unusual for a taxpayer not to have received the NOA. Although the taxpayer should advise CRA of any change in addresses or to correct an incorrect address on file, this case was decided on the premise of the lack of communication to the taxpayer of CRA’s assessment of tax payable for a…

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NEW IRS FORM 8971 “INFORMATION REGARDING BENEFICIARIES ACQUIRING PROPERTY FROM A DECEDENT”

Posted by on Jul 18, 2016 in 2016 Articles | 0 comments

Section 2004 of the “SURFACE TRANSPORTATION ACT OF 2015” implements new reporting or what may otherwise be called “stepped up basis conformity”, for executors to ensure basis of assets inherited by heirs of an estate is in agreement with the value determination for federal estate tax purposes.

Section 6035 of the IRC is the NEW provision that outlines the requirement to provide basis information to persons acquiring property from decedents. Domestic estates filing…

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STREAMLINED PROGRAM WILL EXPIRE!

Posted by on Jul 18, 2016 in 2016 Articles | 0 comments

The updated Streamlined Program that was revised in June 2014 is a simplified method of allowing delinquent U.S. taxpayers to become tax compliant. If certain conditions are met, tax and information return penalties could be waived. Refer to my article on the website and the IRS site for additional information on the program.

On December 17th at the George Washington University Law conference on international taxation, the Commissioner of the IRS John Koskinen…

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INCREASE IN RATE OF WITHHOLDING OF TAX ON DISPOSITIONS OF UNITED STATES REAL PROPERTY INTERESTS

Posted by on Jul 18, 2016 in 2016 Articles | 0 comments

On December 18th, President Obama, signed H.R. 2029, the tax (the “Protecting Americans from Tax Hikes Act of 2015”) and spending bills (Consolidated Appropriations Act, 2016) to fund the government for its 2016 fiscal year.

The December The Act increases the rate of withholding from dispositions of U.S. real property interests under §1445 from 10% to 15%, but remains at 10% for residences sold for less than $1 million.

The withholding exemption where the…

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REQUIREMENTS FOR THE ISSUANCE OF ITINS

Posted by on Jul 18, 2016 in 2016 Articles | 0 comments

On December 18th, President Obama, signed H.R. 2029, the tax (the “Protecting Americans from Tax Hikes Act of 2015”) and spending bills (Consolidated Appropriations Act, 2016) to fund the government for its 2016 fiscal year.

The Act requires individuals who were issued Individual Taxpayer Identification Numbers (ITINs) before 2013 to renew their ITINs on a staggered schedule between 2017 and 2020 either in person before an IRS employee or a certified acceptance agent or by…

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