QUESTION:
I have inherited some money which is in Canada and I prefer not to take it
back to the US. If I carry a note for somebody in Canada is it legal? Who
do I pay the tax to. Do you do income tax returns? My accountant freaks on
Canadian-American tax questions.
I pay my taxes in the US and am a dual citizen but an American resident. Is
there an advantage to me taking over my dad's almost empty corporation?
Would it be legal? I am one of three on the board of directors now. I do
not believe the others have any interest in it. Could it own the note I'd
like to acquire from a private party?
---------------------------------------------
david ingram replies:
Keeping your money in Canada would have been a very smart thing to do for
the last 5 years. the Canadian Stock market did far better than the US
market and the recent rise in the dollar means that a 100,000 Canadian in
the market in Canada is likely worth $140,000 today, whereas $67000 US in
the market is likely still only worth $70,000 US. The $67,000 US was worth
$100,000 Canadian when you started and the $70,000 US is only worth $90,000
Canadian today.
However, there is NO guarantee that the same thing will happen in the next
five years although I think that Canada will exceed the US for the next four
years under Bush.
If you leave your money in Canada in interest bearing securities, the payer
should deduct 10% Canadian Withholding tax and remit it to the CRA (Canada
Revenue Agency). You will then report the interest again on your US return
on Schedule B and claim the tax paid to Canada as a dollar for dollar credit
on US form 1116. If you have Canadian Dividends, the payer should deduct
15% of the dividends and remit it to the CRA - You would report the
dividends on Schedule B and claim the tax on form 1116.
While you are looking at Schedule B, note the question about foreign
accounts at the bottom. Failure to answer yes and report the accounts has a
penalty of up to $500,000 PLUS 5 years in jail - serious stuff. You can
read the form and the penalty provisions by clicking here:
http://www.irs.gov/pub/irs-fill/f9022-1.pdf if this fillable form does not
work,
use
http://www.irs.gov/pub/irs-pdf/f9022-1.pdf
If you have an RRSP (a foreign trust) you need to fill out new form 8891
which you can find in draft form at:
http://www.irs.gov/pub/irs-dft/d8891.pdf
Again, big penalties for not filling it in.
There is no tax payable to Canada on any capital gains you might make on
Canadian Public securities but the Canadian Capital gains
==============================
With regard to buying your father's almost defunct corporation, DO NOT DO IT
unless you want to pay an extra $1,400 a year in accounting for filling in
US form 5471 which any US citizen has to fill out when a US citizen or
resident has to fill out annually if they own more than 50% of the shares of
a foreign (Canadian, French, German, etc) corporation. If they own or trade
more than 5% of the shares of a foreign corporation in any one year they
also have to fill it out. Look and WEEP at:
If you own 50% or less of a Canadian Corporation, there is a $1,400 or so
charge for bringing that corporation into the fold "one time" and then you
drop back to the $500 to $600 per year. That involves Form 5471 and the
failure to file it is $10,000 for the first 90 days and $10,000 every thirty
days after to a maximum of $50,000.
The Instructions for form 5471 can be read here
http://www.irs.gov/pub/irs-pdf/i5471.pdf
The actual form is at:
http://www.irs.gov/pub/irs-pdf/f5471.pdf
Some of the extra schedules are at:
Schedule J
http://www.irs.gov/pub/irs-pdf/f5471sj.pdf
Schedule M
http://www.irs.gov/pub/irs-pdf/f5471sm.pdf
Schedule N
http://www.irs.gov/pub/irs-pdf/f5471sn.pdf
Schedule O
http://www.irs.gov/pub/irs-pdf/f5471so.pdf
We specialize in US / Canadian tax returns and do over half by snail mail,
email and courier.
We have about 27 returns in the Boston Area alone as an example.
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