Don’t Forget The T3’s!

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.

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Money Mentors’ Advice for 2014 Taxes

I came across this article relating to Canadian Tax Filing for 2014, and thought it was worth a share.  The article can be read via the link below.

Money Mentors’ Advice for 2014 Taxes.

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

9) Students 

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 intaxicatingtaxservices@gmail.com, or to me, Warren Orlans, at worlans@intaxicating.ca.  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.

Also feel free to get more information about us at http://www.intaxicating.ca.

FATCA-Proofing US persons or complying. A huge difference!

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.

Then I read the article…

http://www.efinancialnews.com/story/2012-06-25/vestra-coutts-fatca-wealth

It’s not at all what the headline claims it is, and I had to read it twice in case I was mistaken.

It talks about helping US persons comply with FATCA. Yawn.

How do you see US persons in foreign countries, ie/ Canada, coping with FATCA?

FATCA Fallout: This was NOT what the IRS intended with the upcoming FATCA Regulations

This image depicts the total tax revenue (not ...
This image depicts the total tax revenue (not adjusted for inflation) for the U.S. federal government from 1980 to 2009 compared to the amount of revenue coming from individual income taxes. The data comes from the Office of Management and Budget’s record of the ‘Budget of the US Government FY 2011’, specifically the ‘Historical Tables, Table 2.1.’ The information is also here. (Photo credit: Wikipedia)

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.

NetFlix Takes Out Blockbuster

On the same day that NetFlix launched its product into Canada, Blockbuster announced it is filing for Chapter 11 (bankruptcy) in the United States. Can that filing be coming up in Canada too?

Is this not a case of out with the old and in with the new?

Blockbuster became obsolete years ago, around the same time record stores like Sam the Record Man, HMV and Sunrise began to realize they were no longer a viable option.

ESOP termination in bankruptcy – US. Who pays?

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.”