On July 28, 2014, our firm published a blog that discussed a recent Canada Revenue Agency (“CRA”) announcement at the 2014 Society of Trust and Estate Practitioners (“STEP”) Roundtable . The announcement involved the taxation of restrictive covenants under subsection 56.4(2) of the Income Tax Act (the “Act”). Specifically, the issue revolved around whether or not certain exceptions to the broad application of the taxation of restrictive covenant receipts could be avoided because of the strict application of the legislative requirement that no proceeds are received or receivable by the vendor for the granting of the restrictive covenant” (see paragraphs 56.4(6)(e) and 56.4(7)(d) of the Act).
Moodys Gartner musings
In Greek mythology, Icarus flew with wings made of feather and wax but he was overly-ambitious. Ignoring his father’s warnings, Icarus flew too close to the sun and the sun melted his wings causing him to fall into the water where he then drowned. Structuring oneself to provide services as an independent contractor comes with many advantages, and incorporating that business may bring additional advantages. However, in some circumstances, incorporating a ‘one-person’ business may be the same as flying too close to the sun.
So what does tax and all-inclusive resorts have in common? While away, it got me thinking how some of the recent personal tax credits announced by the Conservative Government resemble certain characteristics of an all-inclusive resort. All-inclusive resorts are a people-watching mecca but more famously are known for their numerous all you can eat buffets and unlimited alcohol (good, bad and ugly). To parallel the two, while there are certainly good sides to the recent amendments to the Children’s Fitness Tax Credit, the Universal Child Care Benefit (“UCCB”), Child Care Expense Deduction and the new “Family Tax Cut” credit, there are many distasteful aspects as well.
Unlike virtually every other developed country, the United States bestows upon its citizens the unique pleasure of being taxed on their worldwide income, regardless of where that income is earned. To sweeten the pot, Uncle Sam also imposes estate and gift taxes on the value of property transferred by a U.S. citizen by gift or upon death regardless of the location of those assets.1 Even if a U.S. citizen in Canada (and elsewhere abroad) has a limited amount of income or pays foreign taxes such that the U.S. tax returns to be filed would show zero tax liability owing, citizens must file a complex web of income and informational returns or potentially face severe penalties.2 These intricate and confusing requirements often result in substantial and burdensome tax compliance costs for U.S. citizens living in Canada, and create ongoing risks of harsh penalties due to noncompliance.
On August 29, 2014, the Department of Finance released 100+ pages of draft legislation. Much of the draft legislation was to enact the 2014 Federal Budget proposals. However, there were a couple of nasty surprises, one of which will have a great impact on traditional estate planning for Canadians. The Department of Finance gave interested parties until September 28, 2014 to provide comments.
On October 8, 2014, the IRS issued FAQs clarifying its amnesty programs for non-compliant taxpayers who want to catch-up on their U.S. tax filing obligations.1 These FAQs address the recently amended streamlined filing compliance procedures, offshore voluntary disclosure program (OVDP), and delinquent information return and FBAR submission procedures.2 The FAQs are not relatively enlightening, except for the FAQ on the nonresident streamlined procedures (dubbed the “Streamlined Foreign Offshore Procedures” by the IRS). After briefly summarizing some relevant general rules regarding streamlined, this blog will address the consequences of that FAQ for snowbirds who have not filed during the three-year period for which tax returns must be submitted under streamlined and, according to the IRS, spend too much time in the United States. Ultimately, these snowbirds are ineligible for streamlined and must find an alternative way to catch-up with their U.S. tax filing obligations.