February 1996
the CEN-TA PEDE
david ingram's US/Canadian Newsletter Pages 155-158
Free U.S. Income Tax Information Page 155
$100,000 capital gains exemption - Gone? no! Going? yes! Use it or lose it Page 156
Tax changes relating to the 1995 Fiscal Year End - NEW RULES Page 156
Many self-employed and professional corporations have
until June 15, 96 to file 1995 tax return Page 156
CEN-TA prepares U.S. Income Tax Returns as well as Canadian Page 156
Our Recommended List of "other" U.S. / Canadian Professionals Page 157
More information for the asking Page 157
Form 1139 "Reconciliation of 1995 Business Income for Tax Purposes" Page 158
Free United States Tax Information.
Presented by the U.S. Consulate General, the IRS will be holding two QUESTION AND ANSWER sessions at: 21st Floor, 1075 West Pender, Vancouver, V6E 2M6. Session one is for U.S. citizens and "green card" holders living in Canada and is from 2 PM to 4 PM, March 11, 1996. Session two is for Canadian "Snowbirds" or Canadians with U.S. investments and is from 9 AM to noon the next day on March 12. You must pre-register and be prepared to go through stringent security gates. Call 685-4311 extension 246 from 1:30 PM to 4:30 PM to register and you MUST pre-register to attend. Of course, you can also book an individual appointment from March 8 to March 15 but these times run out quickly, so call now if you want a private consultation with an IRS representative.
$100,000 EXEMPTION GOING, GOING, GONE!
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No, it didn't go away. The $100,000 capital gains exemption still exists for non-realized gains up to Feb 22, 1994, if you did not use it. It just costs more to claim because there is a penalty for filing your exemption a year later. The penalty is 1/300th per month of the amount exempted. This means that if you are now selling the cabin at Sechelt and have a $200,000 profit and did not file the exemption last year because it was going to cost you a clawback of your old age pension or you "just did not know about it", you can still file the election, pay a little penalty and save up to $40,000 in income tax. What happens now is that you can make the election late. And, of course, you can (and should) make the election even if you have not sold the property.
Assuming you and your spouse make the election in March 1996 for the above $200,000 profit, you would be making the election 11 months late. Each of you would have $100,000 profit and since you are exempting $75,000 from tax (only 75% of the $100,000 each is taxable and only 75% of the $100,000 exemption actually shows on the tax return), your penalty for the late election would be $250 (1/300 of $75,000) for each month you are late. March 1996 is 11 months late and you would owe a late filing penalty of (11 x $250) $2,750. Why would you file something that is going to cost you $2,750 each?
If you do not file the election, thus raising your Adjusted Cost Base (ACB) of the cabin by $200,000, you and your spouse have to report a taxable $75,000 each on your tax return when the property does sell and the minimum tax (1995 rates) for a single person on $75,000 in B.C. with no other income is $26,362.67. If you already have another $30,000 of income, then the tax will be closer to $32,000 and if you have $60,000 of other income, the tax on the $100,000 (each) will be over $37,500 each.
You still have a couple of more years to file the exemption late but each month will cost you $250 and after $8,000 of penalty (at the maximum 32 months and maximum $100,000) your time has run out. Of course, I have done this calculation at $100,000 profit. If you only claim the exemption on $40,000, the penalty is $75.00 a month and you save $7,500 to $15,000 income tax in the future. USE IT OR LOSE IT!
FISCAL YEAR END TAX CHANGES
It seems like yesterday but it was just about a year ago that we were thrilled with the news that professionals and individuals and partnerships could no longer have a fiscal year end that ended at any time other than December 31. The methods of doing the calculation have changed 3 times since it was proposed and Revenue Canada has finally (364 days later on Feb 26, 1996) released a booklet called "Tax Changes Relating to the 1995 Fiscal Year End". This booklet contains a reconciliation form "1139" which I am enclosing with this newsletter. The whole booklet is available from stationary at Revenue Canada or fax back my request form and I will fax you a complete copy of the 12 page booklet.
You will appreciate paragraph 2 of "Chapter 1 - General Information", which starts off:
"Under proposed legislation". That's right, it isn't even law yet. However, we are all supposed to make our plans and file our tax returns based on law that was proposed on February 27, 1995 and has not yet been passed by Parliament, one year later to the day I write this.
*** If this applies to you, the deadline for you and your spouse to file your 1995 income tax return(s) is June 15, 1996.
CEN-TA prepares U.S. and Canadian tax returns & gives advice
With Chartered Accountants, U.S. Lawyers, and U.S. CPA's as associates, I feel that the CEN-TA Group has the experience and the qualifications to look after most, if not all, US / Canada tax problems. However, there are many times when a client or prospective client might not want to use our services. Some examples could be:
1. Your spouse or ex-spouse is already a CEN-TA Group client. You may well want to deal with a different organization to ensure the confidentiality of information.
2. Your business partner may be dealing with us already and you want to keep your affairs separate.
3. You may need an audited statement for your law, insurance, real estate, or securities business. We do not perform audits.
4. You may just want a second opinion to ours before paying the $125,000 US tax on your Canadian tax free sale of your business.
Tax Preparation and Other US / CANADA Information Sources
some of our own CEN-TA resource personnel at (604) 913-9133 - Fax (604) 913-9123 are:
* David Ingram - US / CANADIAN tax advice and preparation for individuals and corporations. Author of the multi-user, multi-office in house computer personal tax program.
Other Outside US / Canada resource persons I should mention are:
CANADIAN IMMIGRATION (to Canada)
David Stoller, LLB at (604) 922-4702 (Fax 922-0374)
Brian Rudy, BSc, LLB at (604) 684-5356 (Fax 443-5001)
United States Immigration (to the U.S.) (in alphabetical order)
Greg Boos, LLB in Bellingham at (206) 671-5945 (Fax 676-5459) (Greg Boos is extremely knowledgeable in Native Indian cross border issues as well).
Ruben Briones at (604) 278-3360 (Fax 278-3521) is an obliging (but strict) US Immigration Officer in Vancouver for those seeking a Treaty Canada Visa to the US. He is free. If you are looking for a package of U.S. waiver forms, his office can send them out.
Mark Carmel, J.D. at 366 North Broadway, Jericho, New York, 11753, or 1500-5600 Yonge St., Toronto, ON, M2M 4G3, (905) 736-1792, Fax (905) 738-0756, or
Michael Jacobsen J.D. at (604) 736-0065 - Fax (604) 736-0032 or his Everett partner,
Dennis Olsen, J.D. A former U.S. Consul in Vancouver, now practicing in Everett, WA, Dennis Olsen is the guest author of our January, 1995 newsletter on E2 investor visas to the U.S. (see below for a copy)) at (206) 304-1030, Fax (206) 304-1065.
Terry Preshaw, J.D., in Vancouver at (604) 689-8472 (Fax 688-0099). In Everett at (206) 259-1807, Fax (206) 259-1784.
Jeffrey Peterson, J.D., in Vancouver at (604) 687-5151 (Fax 687-8504).
U.S. / CANADIAN tax advice
Steve Katz LLB, Stephen Katz Ltd., Vancouver, BC (604) 732-1515 - Fax 733-1311
Alison Morse CA, at Doane Raymond (604) 683-7133 - Fax (604) 643-5422
Roberta Shapiro LLB. is now retired.
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