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Estate Planning for U.S. Expatriates

Estate Planning for U.S. Expatriates

As U.S. persons residing in Canada are subject to the federal U.S. estate rules, the provisions become more complicated when one spouse is not a U.S. person. The IRS code and regulations need to be examined in conjunction with Article XXIX-B of the Canada/U.S. Tax Treaty to determine the tax effective manner to transfer wealth.

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Deferring your Old Age Security pension

Deferring your Old Age Security pension

As of July 2013, you can defer receiving your Old Age Security (OAS) pension for up to 60 months (5 years) after the date you become eligible for an OAS pension in exchange for a higher monthly amount. If you delay receiving your OAS pension, your monthly pension payment will be increased by 0.6% for every month you delay receiving it, up to a maximum of 36% at age 70.

If you choose to defer receipt of your OAS pension, you will not be eligible for the Guaranteed Income Supplement, and your spouse or common-law partner will not be eligible for the Allowance benefit for the period you are delaying your OAS pension.

In deciding when to start receiving your OAS pension, you should consider your personal situation, taking into account such things as:

current and future sources of income employment status now and in the future health, and plans for retirement

There is no financial advantage in deferring your OAS pension after age 70. In fact, you risk losing benefits. If you are over the age of 70, apply now.

YOU MAY REFER TO THE FOLLOWING LINK FOR ADDITIONAL INFORMATION:

http://www.servicecanada.gc.ca/eng/services/pensions/oas/changes/deferral.shtml

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New Proposed Regulations For Covered Gifts/Bequests From Expatriates

New Proposed Regulations For Covered Gifts/Bequests From Expatriates

U.S. citizens or long term residents who are covered expatriates who gift property during their lifetime or have bequeathed property upon their death, to a U.S. citizen or U.S. resident will cause the recipient of the gift to pay gift tax to the extent that the taxable gift exceeds the annual exemption. For 2015, the annual exemption is $14K. For this purpose, resident is one who is domiciled in the United States.

There are also similar rules or application where the recipient is a U.S. trust. Recipients of a “covered gift” or of a “covered bequest” who are charities are exempt from paying the gift tax.

Therefore, any U.S. citizen or long-term resident who has expatriated under S877 of the IRS Code AND who is classified as a “covered expatriate” under S877A of the IRS Code will cause the recipient to pay this tax. The tax legislation applies whether or not the assets gifted or bequeathed were acquired before or after the expatriation event.

Reference may be made to IRS Form 8854 with regards to expatriation by a U.S. citizen or long-term resident who may be a “covered expatriate”. Note that a long-term resident will include a green card holder who expatriated (gave up the card and have an I-407) or have made a Treaty declaration on their U.S. tax return filing (per IRS Form 8833) that they are resident of another country for taxation purposes after possessing the green card for at least 8 out of the last 15 years. A “covered expatriate” will be one whose net worth at the time of expatriation is at least $2M, or, whose average annual U.S. tax liability is $160K (2015), or, who is not able to certify under penalties of perjury, that they have been tax compliant for each of preceding 5 years. Tax compliant would also include filing all of the required international foreign reporting forms.

New IRS Form 708 is filed for recipients of a covered gift or bequest to report the transaction and pay the tax.

Tax planning is necessary for those who are considering expatriating and desire to gift or bequest assets to a U.S. citizen or resident and especially for the many green card holders residing in Canada who may become long-term U.S. residents and possibly covered expatriates.

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Canadians Selling Goods or Providing Services in or to the United States

Canadians Selling Goods or Providing Services in or to the United States

If you have accounts receivables from a U.S. entity, you may get the request for a W8-BEN or a W8-Ben-E form. Without this form, the U.S. entity that pays your accounts receivable will withhold a non-resident tax. The only way to get the refund of the tax is to file a U.S. non-resident return, either a 1040NR for individuals or a 1120F for corporations. The waiver form indicates to the payor that you are exempt from U.S. taxation under the Canada/U.S. tax treaty.

Note that if you are considered to be carrying on business in the United States, by virtue of selling or marketing your products in the United States or providing services in the United States (such as engineers, consultants, etc.),then a waiver may not apply or be available to you if it is considered that you also have a permanent establishment in the United States by virtue of Article V of the treaty. In this regard you should obtain professional advice on you U.S. tax and compliance obligations. Generally a protective tax return is filed to ensure you avail yourself of available deductions against US source gross income should the IRS take a contrary view.

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Fbar Due Dates Align With Tax Returns

Fbar Due Dates Align With Tax Returns

Confirmation that the “SURFACE TRANSPORTATION ACT OF 2015” in Section 2606(3)(11) makes reference to Regulation 1.6081-5 of the IRC which confirms that the due dates will conform to the June 15th automatic extension if one resides outside of the U.S. on April 15th. One may file IRS Form 4868 to extend the date to October 15th. The Secretary may waive penalties for first time filers with the penalties if the 4868 is not filed.

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Snowbirds U.S residency issues

Snowbirds U.S residency issues

Canadians who wish to reside in the U.S. for the winter months should be aware of the U.S. residency rules. If you fall into these rules, you could be subject to U.S. tax on your world income unless you file the appropriate forms for exemptions.

Like U.S. citizens, green card holders are considered lawful permanent residents of the U.S. and must file annual federal personal income tax returns U.S. 1040. However those that do not have a green card may fall into what is called the “Substantial Presence Test”.

You are considered a U.S. resident if you meet the substantial presence test for a particular taxation year. You meet the test if you were present in the U.S. for at least 31 days in the current year, and a total of 183 days during the current year and the preceding 2 years. You take the days in the current year, add one-third of the days in the preceding year and one-sixth of the days in the second preceding year. You exclude days in which you are commuting and days in which you are presence for less than 24 hours or days you are presence because of a medical condition that arose while you were in the U.S.

If you meet the substantial presence test, but were present in the U.S., fewer than 183 days in the current taxation year, you must file IRS Form 8840 to claim a closer connection to a foreign country. In this regard, you establish through a series of questions that you had a closer connection to one country in which you had a tax home than to the U.S.

Form 8840 is due on or before June 15 of the following taxation year.

If you are not eligible to file Form 8840 because you were present in the U.S. in the current year for a period of 183 days or more or you hold a green card, you must look to the Canada/U.S. Tax Treaty on the definition of residency to support your case on non-resident status for U.S. tax purposes and file IRS Form 8833.

U.S. forms are available on the IRS website (at http://www.irs.ustreas.gov/pub).

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