Welcome to the blog of inTAXicating.ca! Since 2008 we've been writing posts to help Canadians solve their tax issues with the Canada Revenue Agency. If you have any questions, or if you need assistance with any CRA matters including, but not limited to; Collections, Enforcement, Audits, Liens, Back-Filing, Assessments, Director's Liability, s160/325, Taxpayer Relief or the Voluntary Disclosure Program. If you have debt and are considering Bankruptcy or a Consumer Proposal, speak with us first. With over 10-years of CRA experience in the Collections division, our expertise is in the diagnosing and solving of the most complex tax problems.
Are you a Canadian resident who also has an obligation to file in the US? Before you send in your US taxes to meet the April 15th filing deadline, make sure to remember there is still one more tax slip on its way.
If you are set to receive a T3 for a Canadian trust, you have a little more time that your dual-filing counterparts.
T3 slips, otherwise known as the Statement of Trust Allocation and Designations (RL16 for Quebec residents), are being prepared and mailed – copies to the CRA – by the end of March.
A T3 slip reports how much income you received from investment in mutual funds in non-registered accounts, from business income trusts or income from an estate for a given tax year.
If you have not received your T3 tax slip – get in touch with the relevant financial administrator or trustee but make sure to file your income tax return by the deadline anyway to avoid late filing penalties.
You can find more information from the CRA website, here.
This article outlines how the Canada Revenue Agency (CRA) website, http://www.cra.gc.ca, can be used to keep up to date on any changes for 2014, and for 2015, which could help Canadians save money.
Money Mentors list themselves as being “the only Alberta-based, not-for-profit credit counselling agency.” What I like about this article is that this firm also believes that credit counselling, money coaching, retirement planning, tax saving and community financial literacy are essential to contributing to a healthier financial future for all Canadians.
Read the article, but as an outline, the topics covered include;
1) RRSP’s and TFSA’s
2) Charitable Donations
3) Medical Expenses
4) Public Transit
5) Child’s Art/Fitness Amount
6) Childcare Expenses
7) Job-Hunting Expenses
8) First Homes
Enjoy, and please do not forget to get your Canadian Tax Return filed and paid – if at all possible – by April 30th!
If you have any tax-related questions, specifically relating to collection matters with the Canada Revenue Agency (CRA), you can reach out for a free consult with us via email at firstname.lastname@example.org, or to me, Warren Orlans, at email@example.com. We can also be reached on the phone or by text at 416.833.1581.
Please be patient as we are swamped and it may take some time for you to get a response. Feel free to follow up and bug us in the same manner as the CRA bugs you. We’re okay with that.
The June 30th deadline to file your Report of Foreign Bank and Financial Accounts, also know as FBAR’s with the IRS is rapidly approaching. If you are a US person and have more than $10,000 in any foreign financial account (or are a signatory authority) then you need to file these by the deadline. These accounts include; bank account, brokerage account, mutual fund, trust, or other type of foreign financial account.
The Bank Secrecy Act requires US persons to report annually to the IRS any foreign financial accounts and their dollar amounts, however, under FATCA, those US persons who have not been doing so, will have their information reported for them by Foreign Financial Institutions (FFI’s) to the IRS and the penalties can be quite large.
If you are an US person, then you are required to submit this filing if;
1. You had a financial interest in, or signature authority over, at least one financial account located outside of the US; and
2. The aggregate value of all foreign financial accounts exceeded $10,000 at any time during the calendar year to be reported.
Stepping back for a second, the IRS through FATCA has provided a clear definition of what constitutes an US Person” and you are an US person for taxation purposes if you are;
• US citizen;
• US resident based on the number of days spent in the US during the year;
• US green card holder (even if the green card has expired);
• US created corporations, partnerships, limited liability companies which were created or organized in the US or are owned by US persons;
• US created partnership;
• US estates and trusts – formed under the laws of the US or created by US persons;
• Virtually everyone born in the US;
These rules also catch those with dual nationality, even if such persons are registered taxpayers in a non-US country (the US considers you “foreign” and asks you to complete a Form W8-BEN) These regulations also can include individuals who were born outside the US but who have at least one US parent.
Worried yet? So now you probably want to know more about when the FBAR’s are due.
The FBAR is due by June 30th of the year following the year that the account holder meets the $10,000 threshold. There are no extensions as there are for US personal tax returns. Filers cannot request an extension of the FBAR due date.
If a filer does not have all the available information to file the return by June 30, they should file as complete a return as they can and amend the document when the additional or new information becomes available.
If you need help filing the FBAR’s you can reach the IRS Monday – Friday, 8 a.m. to 4:30 p.m. Eastern time, at 313-234-6146 for callers outside the US, or send an email to the IRS at FBARquestions@irs.gov. The email system does not accept actual FBAR reports.
Once completed, the FBAR’s are sent to;
U.S. Department of the Treasury
P.O. Box 32621
Detroit, MI 48232-0621
If an express delivery service is used, send completed forms to:
IRS Enterprise Computing Center
ATTN: CTR Operations Mailroom, 4th Floor
985 Michigan Avenue
Detroit, MI 48226
The contact phone number for the delivery messenger service is 313-234-1062. The number cannot be used to confirm that your FBAR was received.
The FBAR is not to be filed with the filer’s Federal tax return.
Alternatively, a FBAR filing verification request may be made in writing and must include the filer’s name, taxpayer identification number (TIN) and the filing period. There is a $5 fee for verifying five or fewer FBARs and a $1 fee for each additional FBAR. A copy of the filed FBAR can be obtained at a cost of $0.15 per page. Check or money order should be made payable to the United States Treasury.
It is also possible to amend previously filed FBAR’s. It can be done by;
Checking the Amended box in the upper right-hand corner of the first page of the form;
Making the needed additions or corrections;
Stapling it to a copy of the original FBAR; and
Attaching a statement explaining the additions or corrections.
Beginning July 1st, 2013, Mandatory Electronic filing of FBAR forms!
E-filing is a quick and secure way to file FBAR’s and filers receive an acknowledgement of each submission right away.
So if you were required to file FBAR’s and failed to, the consequences can be quite alarming!
Failure to file a FBAR when required to do so may potentially result in civil penalties, criminal penalties or both.
If, as is the case for many Canadians who were not aware of the requirement to file US tax returns, you learned that you were required to file FBARs for earlier years, then you should file the delinquent FBAR reports and attach a statement explaining why the reports are filed late. No penalty will be asserted if the IRS determines that the late filings were due to “reasonable cause”.
Otherwise, cumulative FBAR penalties can actually exceed the amount in a taxpayer’s foreign accounts under the penalty provisions found in 31 U.S.C. 5314(a)(5).
Keep copies of what you have sent to the IRS, and the supporting documentation, for a period of five years. Failure to maintain required records may result in civil penalties, criminal penalties or both.
The IRS allows filing of FBAR’s back to 2008 on their current form (revised October 2008), and anything older than 2008 can be reported on the FBAR form revised in July 2000.
A spouse having a joint financial interest in an account with the filing spouse should be included as a joint account owner in Part III of the FBAR. The filer should write “(spouse)” on line 26 after the last name of the joint spousal owner. If the only reportable accounts of the filer’s spouse are those reported as joint owners, the filer’s spouse need not file a separate report. If the accounts are owned jointly by both spouses, the filer’s spouse should also sign the report. It should be noted that if the filer’s spouse has a financial interest in other accounts that are not jointly owned with the filer or has signature or other authority over other accounts, the filer’s spouse should file a separate report for all accounts including those owned jointly with the other spouse.
If you are a US person with substantial foreign financial assets, you should know that in 2013, the IRS introduced Form 8938 for you to report with your FBAR’s.
Taxpayers with specified foreign financial assets that exceed certain thresholds ($50,000) must report those assets to the IRS on Form 8938, Statement of Specified Foreign Financial Assets. The new Form 8938 filing requirement does not replace or otherwise affect a taxpayers requirement to file FBAR. The IRS has provided a chart comparing Form 8938 and FBAR requirements, here.
If you need helping getting compliant, or trying to determine your IRS / FATCA plan of action, all you need to do is reach out to us at Intaxicating Tax Services. With 17-years of Canadian tax experience and 30-years of US tax filing, our team will ensure you provide only what you are required to provide.
I saw this article in my Google news feed, and the title; “Managers prepare to Fatca-proof wealthy” caught my eye. This might be the next big development on the FATCA front.
Sure, my idea to buy the assets of US person’s prior to FATCA for $1.00 in order to allow them to renounce their US citizenship, pay the IRS 1/3rd of their worldwide income ($0.33) and then once complete for $1.00 plus .001% of their income still needed some work, but I thought this might be it.
I have been all over FATCA since March 18th, 2010 when President Obama passed the Hires Act through Congress, aimed at getting Americans working and taxing the wealthy (isn’t that what all socialist and democratic governments do?) Out of this Act comes FATCA, the Foreign Account Tax Compliance Act which is set to become law January 1st, 2013 and unlike most new taxes, FATCA changes the way taxation is administered globally.I’m going to outline why FATCA was brought in, what the US government is trying to do, and why there have been a couple of events in the past 2 weeks which have come to light which leads me to believe that this was not what the US government was thinking when they pushed the Hires Act through Congress.
So FATCA, in case you are unaware, is on its way to becoming the world’s first global tax on Americans, administered by financials institutions and non-financial entities around the world… OR else. Can the IRS do this, you ask? Apparently yes they can. Why do they need to do this you are wondering? Because US investors have been evading taxes by hiding their identities from the IRS or they have created offshore companies to hold their investments out of sight and out of reach of the IRS. The net result here is that the IRS needed to find a way to track down all these US persons who should be filing US tax returns disclosing all their worldwide income but are either not filing, nor including these items.
The estimated lost tax revenues from these US taxpayers using offshore schemes to evade US income taxes is in excess of $100 billion dollars per year. Think the US could use these funds? Yeah, I thought so too. Say hello to FATCA.
So how can the US crack down on these US persons who are hiding their funds? Well first they tried asking some foreign banks for a list of Americans who they had on their registry. That did not go over well at all. The banks said, you have a specific person you want information on, we will give you details, however the IRS didn’t know, they wanted everyone and the foreign banks we not going to give us their revenue sources. So the US government sued beginning with Switzerland. Not the best way to win friends, globally, by suing them, so the US government and the IRS them began pushing FATCA on everyone.
In a nutshell, it requires all foreign banks and foreign institutions to provide information to the IRS as soon as they find a US person on their system / in their bank. The IRS intends on using this information to locate, audit and potentially prosecute US persons who are evading the paying of their fair share of taxes. The scope of FATCA is global. The complexity of FATCA is massive.
The IRS figures through FATCA that every organization globally will opt in to FATCA and will become agents of the IRS and within 5 years will have flushed out every US person to the IRS – both those who are complying and those and those who are not (those who are not have a catchy new name: recalcitrant).
The IRS even offers a way out of FATCA if you are an US person… Just give the IRS 1/3rd of your worldwide income and renounce your US citizenship and you’re out. For good.
Recently, however, I came across two fantastic articles through my FATCA research which clearly shows me that the IRS and the US government may not have thought through the full implications of FATCA.
So here is problem number 1, in a great article from Bloomberg;
http://www.bloomberg.com/news/2012-05-08/u-s-millionaires-told-go-away-as-tax-evasion-rule-looms.html. This article outlines the international response to FATCA as the deadline to sign up with the IRS gets closer and closer. Instead of gearing up systems to flush out these US investors who have been hiding millions and millions of dollars (the FATCATs), these foreign financial institutions (FFI’s) and non-financial foreign entities (NFFE’s) are going through their foreign policies to find ways to instead remove Americans from their business. The costs associated with complying with FATCA outweighs the benefit of US monies. Oh oh.
Does the IRS and US government really want to prohibit US persons from investing outside of the US?
Problem number 2 came recently when Brazilian-born Eduardo Saverin, the billionaire Facebook co-founder, renounced his US citizenship he gained as a teenager in advance of the company’s impending IPO and moved to Singapore to avoid paying capital gains taxes on his approximately $3 billion stake in Facebook.
This is FATCA response #2. Renounce your citizenship and you’re out. So instead of staying in the US and paying taxes, the very rich do not appreciate carrying the taxation burden for a tax and spend government and they take their wealth to another country where it will be appreciated.
Caught red-faced the US government needed to respond so they looked to do to Saverin what they did to the foreign banks who had US persons on their registry. They threatened to sue. Then they changed the law. The US senate introduced a bill under which any expatriate with either a net worth of $2 million, or an average income tax liability of at least $148,000, will be automatically presumed to be leaving the country for tax purposes — enabling the IRS to impose a tax on any investment gains that person makes in the future. Crazy. Greedy.
Apparently Saverin filed to give up his US citizenship in January of 2011, but the news didn’t surface until the federal government released the information in a routine report. Saverin may be barred from re-entering the US if authorities decide he left the country for tax reasons because you don’t want a super-rich guy coming into your country and buying things! That will show him.
Singapore doesn’t have a capital gains tax. It does tax income earned in that nation, as well as “certain foreign- sourced income.” Saverin won’t escape all US taxes because Americans who give up their citizenship owe what is effectively an exit tax on the capital gains from stock holdings.
Saverin maintains that his renunciation of American citizenship, which actually took place last September, wasn’t a ploy to skip out on American taxes, but rather an attempt to free himself from FATCA, which he described as a burdensome restrictions on American investors abroad. US citizens are severely restricted as to what they can invest in and where they can maintain accounts. Many foreign funds and banks won’t accept Americans so it was for financial reasons and not tax related.
It’s true that FATCA is making life more difficult for US persons, including the IRS’ global reach (many countries tax based on residency); foreign bank account reporting rules; and FATCA. As a result of all the regulations, some foreign banks are dumping more U.S. customers.
Saverin is hardly the only one taking this particular route to big tax savings. The number of those renouncing US citizenship stands at around 1,800 last year.
While I cannot see the US government pulling back on FATCA I think they need to look again at what they are trying to accomplish and how they plan on getting there before all their high-income earners not in the US disappear from the radar within 5-10 years of FATCA being in force. So the tax pool will grow, then diminish and the IRS will be looking for newer ways to increase tax revenues.
What happens if a company, that you work for, is in chapter 11 and the new owners want the ESOP plan terminated. The present value of the stock is $0. The stock is not publicly traded. There is some cash left in the cash accounts associated with each participants ESOP account. The trustee is using the cash for the ESOP termination costs. Is this legal or should the company be picking up the costs?
Well, in this case, the court has authorized the payments out of the participants cash funds. As well, if you refer to your plan specific documentation, you will probably find that the company is under no obligation to pay for any plan expenses and the Trustee can use the ESOP funds to pay for costs.
The question of whether plan assets can be used to pay the costs of plan termination is addressed in DOL Advisory Opinion 97-03A. It is a fiduciary question under ERISA (employee retirement income security act). and requires an analysis of the terms of the plan document and of whether the termination of the plan is for the benefit of the participants or the plan sponsor. The cash in the ESOP is not an asset in the bankruptcy estate of the employer. While 97-03A does not refer to ESOP’s it does mention tax qualified pension plans, which indicates that the plan pays for the termination, specifically, “Accordinly, reasonable expenses incurred in implementing a plan termination would generally be payable by the plan.”
As a follow up to a question I was aksed a few weeks ago about Corporation X’s proposed issuance of about $100 million of debt to be packaged and marketed by a foreign institution, I am providing the general withholding tax rules and one of the exceptions that would be applicable to Corporation X’s proposed debt issuance.
Generally, interest paid from US sources to foreign corporations is subject to US withholding at a rate of 30% or the lower rate under an applicable tax treaty.
Interest would be considered US-source if paid by a US citizen or resident or by a domestic corporation. However, no withholding tax is applied to US-source interest payments in the case of
interest on “portfolio debt obligations” of US issuers, defined as corporate and partnership debt issued in registered form and held by persons who own less than 10% of the equity of the issuing corporation (or less than 10% of the capital or profits if the issuing entity is a partnership).
Bearer instruments may also qualify if applicable guidelines are met.
The portfolio exemption does not apply to contingent interest, i.e. interest calculated by reference to the receipts, sales, income, profits, assets, or dividends of the debtor or a related party.
Entitled, “Does the IRS owe YOU money”, it made me think back to when the IRS did owe us money and that it took us almost a year to get it back from them.
Nonetheless, I wanted to re-post it and share any additional information I learned while dealing with the IRS.
Here is the IRS press release…
Some people may have had taxes withheld from their wages but were not required to file a tax return because they had too little income. Others may not have had any tax withheld but would be eligible for the refundable Earned Income Tax Credit.
•To collect this money a return must be filed with the IRS no later than three years from the due date of the return.
•If no return is filed to claim the refund within three years, the money becomes the property of the U.S. Treasury.
•There is NO penalty assessed by the IRS for filing a late return claiming a credit (refund).
•Current and prior year tax forms and instructions are available on the Forms and Publications web page of IRS.gov or by calling 800-TAX-FORM (800-829-3676).
•Information about the Earned Income Tax Credit and how to claim it is also available on IRS.gov.
Were you expecting a refund check but didn’t get it?
•Refund checks are mailed to your last known address. Checks are returned to the IRS if you move without notifying the IRS or the U.S. Postal Service.
•You may be able to update your address with the IRS on the “Where’s My Refund?” feature available on IRS.gov. You will be prompted to provide an updated address if there is an undeliverable check outstanding within the last 12 months.
•You can also ensure the IRS has your correct address by filing Form 8822, Change of Address, which is available on IRS.gov or can be ordered by calling 800-TAX-FORM (800-829-3676).
•If you do not have access to the Internet (then I’m not sure how you are reading this…) and think you may be missing a refund, you should first check your records or contact your tax preparer. If your refund information appears correct, call the IRS toll-free assistance line at 800-829-1040 to check the status of your refund and confirm your address.
This line works in Canada but if no one answers after 6 rings, they hang up on you. I swear… I just tried it!
Last week I was approached by a CEO of a very large US Corporation who was questioning the need to have withholding tax taken off his dividend payment, when the funds were earmarked for his Roth IRA.
From pervious communication on this matter I knew there should be no withholding, but I wanted something more concrete to put on my website in order to have for nay future queries and to educate all of you who look for an answer.
So I called the CRA international office and they confirmed that the dividend paid to U.S. holder who registered in Individual Retirement Accounts (“IRAs) are not subject to Part XIII (non-resident withholding) tax.
Also they advised me that there is no specific document regarding IRAs provided on CRA website.
Please see below statement from Canada – U.S income tax convention:
3. For the purposes of this Convention:
(a) The term “pensions” includes any payment under a superannuation, pension or other retirement arrangement, Armed Forces retirement pay, war veterans pensions and allowances and amounts paid under a sickness, accident or disability plan, but does not include payments under an income-averaging annuity contract or, except for the purposes of Article XIX (Government Service), any benefit referred to in paragraph 5; and
(b) The term “pensions” also includes a Roth IRA, within the meaning of section 408A of the Internal Revenue Code, or a plan or arrangement created pursuant to legislation enacted by a Contracting State after September 21, 2007 that the competent authorities have agreed is similar thereto. Notwithstanding the provisions of the preceding sentence, from such time that contributions have been made to the Roth IRA or similar plan or arrangement, by or for the benefit of a resident of the other Contracting State (other than rollover contributions from a Roth IRA or similar plan or arrangement described in the previous sentence that is a pension within the meaning of this subparagraph), to the extent of accretions from such time, such Roth IRA or similar plan or arrangement shall cease to be considered a pension for purposes of the provisions of this Article.