As a general rule, where a Canadian resident exchanges shares of a corporation for shares of another corporation, that exchange will constitute a “disposition” of the original shares for the purposes of the Income Tax Act (“the Act”), and the “proceeds of disposition” will be equal to the fair market value of the shares received… Continue Reading
Author Archives: Michael Atlas
DEALING WITH 21 YEAR DEEMED DISPOSITION ISSUES FOR CANADIAN TRUSTS WITH NON-RESIDENT BENEFICIARIES
As a general rule, trusts resident in Canada are deemed to dispose of all of their assets every 21 years for proceeds equal to the fair market value of such assets at that time[1]. The end result is that if appreciated assets are in the trust at the end of the relevant deemed disposition date,… Continue Reading
CANADIAN TAX ISSUES WITH SOFTWARE ROYALTIES PAID TO NON-RESIDENTS
As a general rule, royalties paid to non-residents of Canada for the use of property in Canada would be subject to non-resident withholding tax under Part XIII of the Income Tax Act (“the Act”). This arises from the wording of subparagraph 212(1)(d)(i) of the Act. In the absence of a tax treaty applying, this tax… Continue Reading
U.S. LLCs AND CANADIAN RESIDENTS-A BAD COMBINATION!
There is a big problem for Canadian residents who use U.S. LLCs to earn rental income or carry on business in the U.S.- the Canada Revenue Agency (“CRA”) considers them to be corporations, even if they are considered disregarded entities (if only one member) or partnerships (with two or more members) for US tax purposes.… Continue Reading
SOUTHWARD EXPANSION CAN KO THE “CAPITAL GAINS EXEMPTION”!
Because of the vastness of the U.S. marketplace compared to the one we have in Canada, it is quite common for a successful Canadian corporation (“Canco”) to expand by setting-up operations south of the border. Usually, the natural tendency on the part of professional advisors is to recommend forming a wholly-owned U.S. subsidiary (“Usco”). Indeed,… Continue Reading
ROLLING OVER 401K PAYMENTS TO CANADIAN RRSPs
Many Canadians, who have moved to the U.S., return to Canada with substantial sums to their credit in U.S. 401K plans (the U.S. equivalent of a Canadian RPP). Often, for one reason or another, they don’t want to leave those funds in the 401K plan after their return to Canada. What are the Canadian and… Continue Reading
DISTRIBUTIONS FROM CANADIAN TRUSTS OR ESTATES TO FOREIGN BENEFICIARIES CAN ENTAIL TAX NOTIFICATION AND CLEARANCE REQUIREMENTS
In certain cases, a distribution of capital by a trust[1] to a non-resident beneficiary will bring into play certain notification and tax clearance requirements found in subsection 116. As a general rule, a distribution of capital by a trust to a beneficiary is considered a “disposition” by that beneficiary of all or a portion of… Continue Reading
A PITFALL FOR AMERICANS USING CANADIAN ULCs
Unless you are very active in Canada-US cross-border tax planning, you probably are not aware of the fact that, some years back, the 5th Protocol to the Canada-U.S. Tax Convention (“the Treaty”) created a problem in connection with the ownership of Canadian Unlimited Liability Companies (“ULCs”) by U.S. Residents. ULCs are a strange feature of… Continue Reading
SPECIAL RULES IN THE CANADA-US TAX TREATY APPLY TO CROSS-BORDER DEATH TAX ISSUES
Canada and the United States have very different regimes for imposing taxes on death. The United States imposes a Federal Estate Tax; however, Canada has not imposed any Estate Tax since 1971. Rather, Canada taxes accrued, but unrealized, capital gains on death, as part of its income tax system. Most tax practitioners are not aware… Continue Reading
CANADIANS REPAYING $US DEBTS MAY BE ELIGIBLE FOR SOME TAX RELIEF
With the Canadian dollar hovering at around 70¢ in US currency (the lowest level since 2003), Canadians who repay $US debts will likely incur a significant forex loss. This loss will be based on the difference between the rate that applied when the debt was incurred and the rate that applied when the debt was… Continue Reading