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
Category Archives: Canada/US tax issues
CANADIAN TAXATION OF DEATH BENEFITS FROM A U.S. IRA
A Canadian resident would not normally expect to pay any Canadian income tax on an inheritance received from a family member living in the U.S. However, that is exactly what can happen if a Canadian resident receives a payment as a beneficiary of a (conventional) Individual Retirement Account (“IRA”). That is because of the fact… Continue Reading
CANADIAN TAX ISSUES WITH CROSS-BORDER SHARE EXCHANGES
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
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
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
CANADA-US CROSS BORDER TAX ISSUES WHEN WINDING-UP A SUBSIDIARY
Canadian corporations form US Subsidiaries, and US Corporations form Canadian Subsidiaries, all the time. What are the cross-border tax implications when those subsidiaries are wound-up? This article will provide an overview of those implications. Winding-up a US Subsidiary (“USco”) of a Canadian Corporation (“Canco”) For US tax purposes, proceeds received on the wind-up of USco… Continue Reading