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Transfer Certificate Filing Requirements

Transfer Certificate Filing Requirements

Transfer Certificate Filing Requirements for the Estates of Non-residents Citizens of the U.S.

Transfer Certificate Filing Requirements for the Estates of Non-residents not Citizens of the U.S.

You may be aware that U.S. citizens regardless of their residency must file IRS Form 706 (Estate tax return) if their taxable estate exceeds $11.58K (2020). Likewise, non-residents who are not U.S. citizens must file IRS Form 706-NA (Estate tax return) if the taxable estate is over $60K. The former only takes into account certain U.S. situs assets held by the decedent. The instructions to both 706 & 706NA outline the particulars of gross estate and taxable estate.

Both returns are due 9.5 months after the date of death unless IRS Form 7004 request for a filing extension is received by the IRS by the 9.5 month otherwise filing due date.

The links below imply that whether or not the foregoing estate returns are required to be filed, the executor must apply for a special transfer certificate when the estate is not administered in the United States. Therefore, if the  U.S. citizen resides  in Canada or a non- U.S. citizen  decedent holds U.S. situs property,  these transfer certificate filing requirements appear to apply.

The time frame for  the IRS to process the information is six to nine months.

It has come to  my attention that certain financial institutions are strictly following these rules in that they will  not transfer assets to a non- resident beneficiary of a U.S. decedent without this transfer certificate. This was the case where the Canadian beneficiary was set on the investment account as a direct beneficiary to avoid STATE probate. Even though the beneficiary was noted as a beneficiary in the decedent’s Will implying the asset goes through  the Canadian estate,  this direct beneficiary designation appears to have superseded. It appears that even if there was not a direct beneficiary, the IRS would still follow these procedures.

I some circumstances, the financial institution  may transfer the assets to a U.S. account for the Canadian beneficiary, request an ITIN for the beneficiary,  but the beneficiary may not access the funds or liquidate until this transfer certificate is received.

If the U.S. investment account is not transferred, it is my understanding that the financial institution will still issue tax information slips under the decedent’s name and not the beneficiary’s name, but will amend and create split slips to correct the situation once the transfer certificate is received.

It should be noted that these procedures could create issues for U.S.  decedents  or U.S. decedents who are delinquent U.S. taxpayers who wish to apply under the Streamlined Foreign Offshore procedures.

Transfer Certificate Filing Requirements for the Estates of Nonresidents not Citizens of the United States | Internal Revenue Service (irs.gov)

Transfer Certificate Filing Requirements for the Estates of Nonresident Citizens of the United States | Internal Revenue Service (irs.gov)

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CEBA Loan tax implication rules

CEBA Loan tax implication rules

Under The Canada Emergency Business Account, a number of business received the $40K loans of which up to $10K is forgivable if the loan is repaid by December 31, 2022.

Paragraph 12(1)(x) of the Income Tax Act (“ITA”) requires any government assistance to be included in income by virtue of subparagraph 12(1)(x)(iv).  The inclusion of the potential forgivable amount is requiredregardless if it is actually forgiven. Therefore the $10K would be included in the computation of income for tax purposes for the year in which the loan was received.

This income inclusion will be reported as an add-back to net income for accounting purposes to arrive at net income for tax purposes. This would be done by a corporate taxpayer on the T2S(1) schedule. The add-back would be the forgivable portion or $10K.

If the forgivable amount is not forgiven, because the taxpayer does not repay the loan bye December 31, 2022, then the taxpayer may claim a deduction in the year of repayment of the loan for the previousamount  includedin income. This deduction is pursuant to paragraph 20(1)(hh) of the ITA.

An election is available for the year of the income inclusion (ie., the year the loan was received) under subsection 12(2.2) of the ITA to reduce non-capital expenses that are incurred either in the year the loan is received or in the following taxation year. If the expenses are incurred in the 2021 year, then the election may be filed for that year.  Effectively these expenses are reduced by the amount of the otherwise income inclusion.  The net effect is the same unless there is a timing issue in that the expenses are incurred in the following taxation year. It appears that one would paper file with CRA this plain paper election with the relevant details or upload it through the online process.

The simple way to deal with this would be to just to add the forgivable amount to net income for tax purposes for the year the loan was received, which effectively gives you the same result except it would be for the year the loan was received, even though say some or all of the expenses were not incurred until 2021.

You also should examine the accounting entries that reflect this loan. If the $10K is forgiven, there would be a credit balance in the loan account at the end of the term. This would be cleared to the income statement as other income,butremember to claim for tax purposes a deduction for this amount because for tax purposes the inclusion was reported in the year the loan was received.

Reference may be made to CRA Technical 2020-0862931C6 12(1)(x) and CEBA.

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Home office expense claim due to COVID-19

Home office expenses are claimed on the employment expense claim form, CRA Form T777 with their eligibility for the deduction provided by the employer on CRA Form T2200. The T2200 also outlines the eligibility for an employee to claim other employment expenses including unreimbursed auto expenses.
Home office expenses are deductible provided the employer states that you had to use a home office. This is generally the case where you are working in an area where your employer does not maintain an office where you can easily go to and you require a home office.
Because individuals are working from home during COVID-19, CRA has come out with a simplified method. One may use the simplified method if you worked more that 50% of the time from home for at least 4 consecutive weeks in 2020. The simplified method allows a flat claim of $2 per day to a maximum of $400.

The simplified expense claim


The simplified claim requires the T777S and the T2200S. The T2200S should be provided to you by your employer and retained should CRA with to verify your claim.
One may make a claim using the detailed method which requires both T2200S and the T777S with option 2 completed on the form.
Here one would itemize eligible expenses based on space used in your home and time using that space, similar for a home office claim without COVID-19. Eligible expenses may include such things as rent, and utilities, maintenance attributable to space used plus unreimbursed office supplies and phone usage including use of basic cell service and long distance calls for employment. For employees who are commission- based, the claim may include portion of insurance, property taxes and equipment lease payments, but not mortgage interest, CCA or capital expenditures.

Other expenses claim

The home office claim is limited to your employment income (net of deductions for registered pension plan, contributions, union, or professional dues), with any excess available for carryover to a subsequent taxation year.
If you are also claiming auto expenses, then you must use the regular forms T777 and T2200 for your home office claim. Home office expenses for employees – Canada.ca
Reference may be made to CRA publication T4044 and the CRA website at Home office expenses for employees – Canada.ca and How to claim – Home office expenses for employees – Canada.ca for additional information.

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