US Citizens in Canada who own a Canadian Business???

[Kmp2]

Sooo, I don't have all the details yet, but my goodness the Dec. 22 2017 tax vote looks to have SEVERE consequences for my family...

We are Canadians, DH was born here, but was declared a foreign birth abroad as his mother was born and raised in the USA. He is a dual citizen.

In the early 2000's he started up his own (Canadian) consulting company, and has been slowly amassing funds in it similar to how anyone else would invest in RRSPs etc... Paying income tax on the corporate earnings, and personal income tax (both US/Canadian filing) on anything he takes out to live off of. He just got back from a meeting with his accountant and he is LIVID. The USA is enacting a one time asset tax on US citizen's who own 10% or more of a foreign corporation. It seems they are going to tax 15% of the cash and cash assets (ie stock investments) in his company... not the investment earnings - but the overall assets! He's going to have to take that money out (and pay CND income taxes on it), and then pay the US gov't. It's going to be at least 20%ish hit to his life savings depending on how we can balance the income over the next few years.

Does anyone else know about this? Have any advice? I'm expecting this to hit the media shortly, but I'm not sure how many people this actually will impact? Any other Dual citizens out there with a Canadian corporation - what have you heard?

[Sisko]

I'm unaffected by this, but I'm sorry to hear about your situation. I've read a bit about it, and the whole thing is absurdly unfair. It might even just be an accident because legislation was so rushed, it was meant for big international corporations and shady offshoring structure, but it's accidentally hitting small business owners living in other countries?

15.5% on liquid assets, 8% on illiquid... plus the money comes from you personally, not from the corporation, so there is huge personal income tax issue there. Then if you ever actually moved from Canada to the US you'd still have to pay deemed disposition tax in Canada on anything left in the corporation (I think).

My instinct is to renounce the American citizenship, and hope they forget about you. Not sure how risky this would be... CRA knows how much retained earnings are in the corporation, but what does the IRS know?

Wow, I used to wish I had dual citizenship, I have American family members, so it could have happened... I have a Canadian company with a lot of assets, so now I'm glad that I'm only Canadian. Actually I'm in the process of getting my wife's British passport (by descent), now I wonder if dual citizenship is a liability, rather than an asset.

http://www.mondaq.com/canada/x/673244/Corporate+Tax/The+US+Transition+Tax+For+2017+More+Sad+News+For+Many+US+Citizens+Residing+Abroad

[Novik]

Sisko, it's mostly just a liability if one of the citizenships is American, since almost everyone else taxes based on residency.

For the small business problem, I have no solutions for now... hopefully something can be worked out because that sounds absurd. For the future though, is there a way to put the business in your name to avoid problems? It would probably simplify other tax filing things for the corporation as well.  (I know that's my plan if I ever want to start a business... it can be my partner's business with a single employee - me!)

[Goldielocks]

Whoa

So are they in effect saying that this is like a non-recognized pension (like they treat the TFSA) so all of those US citizens have been avoiding deferring paying taxes on income each year, so they are now hitting you with something equivalent to income tax on retained assets?

One thing you can look into, is if you can claim "Foreign taxes paid" on your Canadian Tax return.  That will help to offset some of the pain.   

Also, if they are treating this like you need to pay tax on income, each year, instead of deferring it, then the result is needing to pay much lower taxes in future years when you would have normally withdrawn it.   (a small positive?)

[Kmp2]

Sucks! I was really hoping for a bunch of ‘find a new accountant, that’s not right’ replies...

@Sisko Unfortunately if he were to renounce citizenship now it would be impossible to prove he wasn’t doing or for tax Reasons (and we’d still be stuck with this tax bill). While it might save him from future craziness, I am not even sure he would be able to now... They don’t take kindly to people reonouncing when they could tax them in the future.

@Novik there is no way to transfer the company to me, I can’t afford to buy it, and transferring it would surely trigger gift/gains taxes... besides the tax is due based on assets as of November 1, they put it in retroactively so no one had time to move money...

@Goldielocks, not quite, I think this is mainly an unintended consequence of legislation put into place quickly. It’s designed to penalize us residents and corporations who had structured their business and parts of their business abroad to avoid paying the us business rate. There are even incentive deals for bigger corporations to avoid this tax by moving back to the us... I don’t think anyone even realized how this would affect non resident citizens or dual citizens who live, own and operate a business abroad.
Also I am pretty sure the foreign tax credit won’t apply to this as of yet, but it’s definitely something we will bring up with our MP...

We are having a tough time processing a foreign country essentially stealing assets from a Canadian company. This money was destined to be spent and taxed in Canada, and now it’s going to the US government...