Jan 19, 2022
As we advised in Tax Tip 20-04 , significant additional disclosure and filing requirements for trusts were announced in the 2018 Federal Budget and are scheduled to apply for trust’s 2021 and subsequent tax years.
This U.S. Tax Tip follows up on the US Tax Tip issued on November 30, 2017. The facts/assumptions are similar in that we look at the effective overall tax rate for Canadian shareholders who are doing business in the U.S. through a U.S. subsidiary (C-corporation) of their Canadian operating company (CCPC). The difference here being that the shareholders will make the designation to treat the Canadian dividend as coming out of the Canadian company’s GRIP balance and, as such, will be an eligible dividend.
This example assumes the following:
|U.S .Taxable Income
U.S. federal tax
U.S. state income tax (@5%)
|Cash available for distribution
U.S. nonresident withholding tax (@5%)
|After (U.S) tax cash in Canadian company
Canadian corporate Part I tax
Personal tax on dividend (@39.34%)
|After tax cash in shareholder’s hand
Effective overall tax rate
Consistent with the prior US Tax Tip, there still is no integration between the Canadian and United States tax systems. Though the proposals would lower the U.S. corporate tax rate by 15%, the overall impact for Canadians doing business through regular U.S. corporations, and in receipt of eligible dividends, will only drop 8.3% from 64.5% to 56.2%. Whether the dividends are eligible or non-eligible, these structures are not tax efficient and investors should consider alternate structures.
TAX TIP OF THE WEEK is provided as a free service to clients and friends of the Tax Specialist Group member firms. The Tax Specialist Group is a national affiliation of firms who specialize in providing tax consulting services to other professionals, businesses and high net worth individuals on Canadian and international tax matters and tax disputes.
The material provided in Tax Tip of the Week is believed to be accurate and reliable as of the date it is written. Tax laws are complex and are subject to frequent change. Professional advice should always be sought before implementing any tax planning arrangements. Neither the Tax Specialist Group nor any member firm can accept any liability for the tax consequences that may result from acting based on the contents hereof.
U.S. TAX TIP is provided as a free service to clients and friends of Cadesky U.S. Tax.
The material provided in this U.S. Tax Tip is believed to be accurate and reliable as of the date of posting. Tax laws are complex and are subject to frequent change. Professional advice should always be sought before implementing any tax planning arrangements. Neither Cadesky Tax nor Cadesky U.S. Tax can accept any liability for the tax consequences that may result from acting based on the contents hereof.