US Cross-Border Tax Blog

Published by W.L. Dueck LLP

Steven Flynn

US Tax Reform – Getting Closer to the End

Quite the week for tax professionals in Canada and the US.  On Wednesday, Finance Minister Bill Morneau provided guidance on how Canada’s income splitting rules will apply to private corporations.  You can read more about it here

Detailed Comments: www.fin.gc.ca/n17/17-124-eng.asp

Guidance : https://www.canada.ca/en/revenue-agency/programs/about-canada-revenue-agency-cra/federal-government-budgets/income-sprinkling.html

 

On Friday, the House and Senate reached a compromise on their different US tax bills.  Details were released Friday and many anticipate the single document being signed into law next week.  Mary Duffy at Andersen Tax provides some detail at the link below:

https://www.andersentax.com/pressroom/republicans-reach-deal-on-tax-plan-final-votes-expected-next-week

Some quick highlights of the US tax bill announced on Friday that impact Canadians with US tax issues:

  • Increase of the US federal estate tax exemption from US$5.5 million to US$11 million. This is welcome news and should shield many Canadians from US federal estate tax applying to ownership of certain US assets on their death. However, the bill stops short of repealing US federal estate tax completely;

 

  • Decreased US federal individual and corporate income tax rates starting in 2018. As the US decreases US individual tax rates, Canada has effectively increased personal tax rates for many Canadian small business owners with new rules limiting income splitting;

 

  • US citizens resident in Canada that control Canadian corporations may be subject to a one time US tax on past income earned in Canadian corporations at rates ranging from 8% to 15.5%. Provisions allows payment over eight years and use of current foreign tax credit carryovers to offset this US tax;

 

  • The same US citizen, Canadian resident owners of Canadian corporations may also be subject to US federal tax on certain business activities realizing profits that are retained in the corporation. The new global intangible low-taxed income[1] rules subject income earned in excess of a routine return calculated as 10% of a corporations’ tangible depreciable assets.  An effective US Federal income tax of 10%[2] applies to the US citizens shareholder of the corporation.

 

As we analyze the US tax bill, we will have more comments.

[1] GILTI, pronounced Guilty, as in, you are guilty of making too much money!

[2] higher in the first year 2018 at 17.5%, but settles to 10% for years after