Here you’ll find updates on cross border tax issues for 2019. Please check back often for updates as this page will be revised for new cross border tax news items from month to month. You can also sign up here to receive the updates automatically.
Update January 10, 2019
Section 965 and GILTI Tax Changes
As we start the new year we can’t forget about the recent tax changes enacted by the current US administration. Starting with the 2017 section 965 tax, and leading into the 2018 tax season with the new global intangible low-taxed income (GILTI) tax, the last few years have been nothing if not complex for US citizens in Canada. Especially those that control Canadian corporations.
For those not familiar with these new changes the US administration rolled out new tax rules in 2017 and 2018 that essentially taxed previously earned retained earnings and future active business income for US citizens with ownership in controlled foreign companies. For most of our clients, this included Canadians with a controlling ownership in Canadian corporations. Although there are planning strategies to help mitigate the potential US tax effect to taxpayers, the new changes have been overwhelmingly negative for our cross border clients.
US Government shutdown
The current government shutdown as a result of the President’s insistence on funding a wall between the US and Mexico will likely lead to some slowdown at the IRS. Although the department has assured taxpayers that they will be receiving their refunds on time we expect delays in tax returns processing and general responses from the IRS.
We also expect that the December 31, 2018 year end currency rates for FBAR and 8938 purposes will also be delayed. These figure are often released by mid January, however this year they may be released much later. If pushed too far this could impact the accuracy of FBAR and 8938 filings as these forms require that the year end Treasury currency rate is used for converting foreign funds to US dollars.
The Closing of the IRS Voluntary Disclosure Program
As expected the IRS closed their offshore voluntary disclosure program September 28, 2018. In November of 2018 the IRS provided guidance on future IRS voluntary disclosures. The guidance provided that:
- Pre-clearance will be reviewed by agents for new VDP submissions
- The IRS will expect all disclosures to include full taxes and penalties paid
- They expect 6 years of returns to be submitted and FBAR willful penalties will be potentially assessed
Note however that the streamlined tax filing program available to non-resident US citizens is still in place and available to those that are considering catching up on their late US tax returns.
IRS Compliance Campaigns
In 2018/2019 the IRS is expanding their compliance review in several international areas. We expect that our cross border clients will be receiving some additional review on these items. I have included a list of notable international examples below (see the full list here):
1120-F Delinquent Returns Campaign
Corporate Direct (Section 901) Foreign Tax Credit (“FTC”)
F3520/3520-A Non-Compliance and Campus Assessed Penalties
FATCA Filing Accuracy
Foreign Earned Income Exclusion Campaign
Forms 1042/1042-S Compliance
Form 1120-F Chapter 3 and Chapter 4 Withholding Campaign
Form 1120-F Non-Filer Campaign
Individual Foreign Tax Credit (Form 1116)
Individual Foreign Tax Credit Phase II
Nonresident Alien Schedule A and Other Deductions
Nonresident Alien Tax Treaty Exemptions
NRA Tax Credits
Offshore Service Providers
OVDP Declines-Withdrawals Campaign
Related Party Transactions Campaign
Section 965 Transition Tax
CRA Non-Resident Withholding Tax
We are seeing additional review of non-resident withholding tax from CRAs perspective. For those making payments to non-residents make sure that proper withholdings are paid to CRA on specific amounts. The maximum non-resident withholding rate to non-resident recipients is 25%, however these amounts can be reduced based on tax treaty provisions.
To assess appropriate non-resident withholding tax on payments to non-residents please use this CRA calculator.
Tax Fairness for Americans Abroad Act of 2018
On December 20th, 2018 Congress member George Holding of North Carolina introduced the Tax Fairness for Americans Abroad Act of 2018 bill into the House. This announcement garnered the attention of many US citizen taxpayers abroad for obvious reasons.
The introduced bill outlines an alternative taxation regime for US citizens living abroad. In simple terms the bill introduces the following measures:
- the bill would allow US citizens to be taxed based on a residency established system.
- for those considered “non-resident citizen” current worldwide reporting and taxation to the US government would not be required (assuming proper elections are filed)
- US Citizens would continued to be taxed on certain US source income
- US Citizens would be taxed on any sale of property or capital property during the time they were considered “resident Citizen of the US”
- In order to be considered a qualify “non-resident citizen” the taxpayer would need to be fully compliant for tax purposes during the last 3 years.
As many have pointed out, this is not the first attempt at introducing a bill of this nature into the House and as many professionals have pointed out, this bill is unlikely to become law.