Proposed tax regulations by U.S. Treasury Department may violate a Canada-U.S. tax treaty that is supposed to prevent double taxation, say experts. In December 2017 President Trump signed a sweeping retroactive tax reform bill into law which included the Transition Tax, also known as the Repatriation Tax. According to a new report by the CBC, "Many Canadian residents with U.S. or dual citizenship — particularly those who have used their small corporations to save for their retirements — are facing tax bills amounting to hundreds of thousands of dollars on all of the retained earnings in their corporations going back to 1986. Some bills run into the millions."
Kevyn Nightingale, a partner with the accounting firm MNP, told CBC that many of his clients are going to have to take twice as much out of their Canadian corporations than they had planned on to avoid the transition tax.
"For the government of Canada, it's great ... It's actually going to bump Canadian federal and provincial revenues."
- Kevyn Nightingale
Many Canadians affected by the Transition Tax were going to use a U.S. tax deduction reduce their tax bills, but the new tax regulations proposed last week in a guidance document from Treasury and the IRS only allows a portion of that deduction.
Does Your Business Need HR and Leadership Training on Cross-Border Business and Tax Issues?
Benefits of HR and Leadership Training on Cross-Border Business Issues
- Create awareness of the rules for business leaders and HR
- Allows business to address the issue and make informed business decisions regarding risk vs actual cost
- Increases the compliance of employees who are taxable
- Informing employees of their responsibility
- Puts the risks on employee and reduces the employer’s risk if employees ignore and attempt to push the consequences to management
- Protects Employer from significant tax, interest and/or penalties
- Address the issue instead of ignoring the issue