Category Archives: Cross-border transactions

CANADIAN CORPORATIONS DOING BUSINESS IN U.S. VIA LLCs FACE BIG TAX PENALTY!

A Canadian corporation (“Canco”) which earns profits from carrying on business in the U.S. through a “permanent establishment” (“PE”) there will generally be subject to US federal taxes on its income derived from that PE. In addition to the normal federal income taxes on that income, as well as possibly state taxes, there is the… Continue Reading

BIG CANADIAN TAX HIT CAN RESULT FROM SALE OF CERTAIN PARTNERSHIP INTERESTS TO FOREIGN BUYERS

Many types of businesses (including the ownership of real estate) are structured as partnership. The partners can be individuals, corporations or even other partnerships. If the interest in the partnership is sold, then normally a capital gain or loss will result from the disposition of the partnership. It is well established that an interest in… Continue Reading

CANADIAN TAX ISSUES WITH ALIMONY PAYMENTS TO AND FROM NON-RESIDENTS

Under the Income Tax Act (“the Act”) alimony[1] paid by a separated or divorced spouse will generally be deductible in computing income of a Canadian resident. This assumes that it is paid pursuant to a written agreement or court order, and paid as an “allowance” on a periodic basis. Similarly, a Canadian resident recipient of… Continue Reading

CANADIANS CAN DEDUCT US TAX PAID RE LLCs EVEN IF NO INCOME REPORTED

As a general rule, a Canadian resident can claim of credit against his/her/its Canadian income tax liability for foreign income taxes paid (“foreign tax credit”-“FTC”). The rules relating to claiming FTCs are generally found in section 126 of the Income Tax Act (“the Act”). Unless the foreign tax is related to a business carried on… Continue Reading

CANADIANS WITH FOREIGN REAL ESTATE CORPORATIONS CAN FACE SURPRISING FAPI ISSUES

A Canadian resident who is a shareholder of a “controlled foreign affiliate” (“CFA”) will have special Canadian tax issues if that CFA earns “foreign accrual property income” (“FAPI”). Any corporation that is not resident in Canada (“Forco”) will be a CFA of a particular Canadian resident if it is controlled by that Canadian resident.  However,… Continue Reading

MORE HOGWASH ON OFFSHORE TAX AVOIDANCE FROM TORONTO STAR/CBC DUO-CANADA’S TIEAs GET A BUM RAP!

Most readers of the June 17, 2016 edition of the Toronto Star could not have failed to notice the headline of a prominently featured article: “Tax loopholes cost Canada billions in lost revenue” This was followed by the following subheading: “Canada used agreements meant to crack-down on tax evasion to open-up tax loopholes” What a… Continue Reading

CANADA’S “THIN CAPITALIZATION” RULES-AN OVERVIEW

Like many other countries, Canada’s Income Tax Act (“the Act”) contains rules aimed at limiting the ability of foreign shareholders of a Canadian corporation (“Canco”) to reduce the taxable income of Canco by interest charges. These rules, which are commonly called “thin capitalization” rules, are found in subsections 18(4) through 18(8) of the Act. The… Continue Reading

CANADIAN TAX ISSUES WITH CROSS-BORDER GUARANTEE FEES

In situations where a foreign parent company (“Forco”) guarantees a debt of a Canadian subsidiary company (“Canco”) a fee may be charged for the provision of that guarantee. This would be particularly sensible for a tax planning perspective if Forco is subject to a lower rate of tax on its income than Canco. In addition,… Continue Reading

U.S. RESIDENTS PROVIDING SERVICES IN CANADA CAN HAVE A DEEMED PE

As a general rule, a U.S. resident carrying on business in Canada will be exempt from Canadian income tax on any profits from that business unless there is a “permanent establishment” (“PE”) in Canada. This is provided in Article VII(1) of the Canada-U.S. Tax Convention (“the Treaty”). There are exceptions to this general rule. The… Continue Reading

CROSS-BORDER COLLECTION OF CANADIAN INCOME TAX LIABILITIES

It is well established that, as a general rule, a country cannot collect a liability for income tax in a foreign jurisdiction. Thus, a government will only be able to seize assets located within its borders to satisfy an outstanding tax liability. This, in part, is the reason that the Canadian income tax system depends… Continue Reading