Chantal Copithorn PricewaterhouseCoopers, LLP

Transcription

1 PricewaterhouseCoopers, LLP U.S. Estate Taxes.in this world nothing can be said to be certain, except death and taxes. - Benjamin Franklin in a letter to Jean-Baptiste Leroy

2 U.S. Estate Taxes U.S. Estate Taxes What is U.S. estate tax? Who does U.S estate tax apply to? Rates and Exemptions Impact on Canadians Planning 3 U.S. Estate Taxes What is U.S. Estate Tax? Wealth tax Applied to fair market value of worldwide estate Graduated rates 4

3 U.S. Estate Taxes Who does U.S estate tax apply to? U.S. Citizens Includes individuals who have acquired citizenship from parent Individuals domiciled in the U.S. - different than residency for income tax purposes Non-residents owning U.S. situs assets 5 U.S. Estate Taxes Rates and Exemptions Rates from 18% up to 40% depending on value of estate Exemption ($USD) Year Exemption *($USD) *adjusted annually for inflation Top Estate Tax Rate Unified Credit 2014 $5.34M 40% $2,081M 2015 $5.43M 40% $2,118M 6

4 U.S. Estate Taxes Rates FMV US Assets US Estate Tax to this level Rate above this level $0 $0 18% $10,000 $1,800 20% $20,000 $3,800 22% $40,000 $8,200 24% $60,000 $13,000 26% $80,000 $18,200 28% $100,000 $23,800 30% $150,000 $38,800 32% $250,000 $70,800 34% $500,000 $155,800 37% $750,000 $248,300 39% $1,000,000 $345,800 40% 7 U.S. Estate Taxes Impact on Canadians Subject to U.S. estate tax on U.S. situs property U.S. situs property: includes real property, U.S. securities including those held in a Canadian brokerage account, U.S. assets held by RRSP and TFSA, business related assets excludes U.S. bank deposits, proceeds of life insurance*, interests in Canadian mutual funds U.S. domestic exemption for foreign estates with U.S. situs assets with a fair market value of less than $60,000 *included in calculation of estate value 8

5 U.S. Estate Taxes Canada U.S. Treaty Canada U.S. Treaty extends the $5.43M exemption Exemption calculated as: $5.43M x FMV of US Assets/FMV of Worldwide Assets Marital credit if pass to Canadian spouse 9 U.S. Estate Taxes Impact on Canadians Canadian tax deemed disposition on death, taxed on accrued gains May be eligible for federal foreign tax credit for U.S. estate taxes paid Provinces and territories generally do not permit a credit Double taxation on death 10

6 U.S. Estate Taxes Example U.S. Vacation Home Client is Canadian citizen and resident FMV of worldwide estate is $50,000,000 FMV of Florida vacation home is $10,000,000 No other U.S. situs assets Estate tax liability of $3,565k USD 11 U.S. Estate Taxes Example Client and spouse are Canadian citizens and residents FMV of Client s worldwide estate is $10,000,000 FMV of U.S. securities is $1,000,000 No other U.S. situs assets U.S. estate tax $182.8k Marital credit ($182.8k) No U.S. estate tax liability on client death U.S. estate tax on spouse death 12

7 U.S. Estate Taxes Planning Canadian discretionary trust Canadian corporation consider shareholder benefit Reverse hybrid entity Personal ownership consider life insurance ILIT Review wills Important to plan before acquiring the asset *Don t gift U.S. property 13 U.S. Estate Taxes Questions? PricewaterhouseCoopers LLP T: E: chantal.s.copithorn@ca.pwc.com 14

8 Larry Linton PricewaterhouseCoopers Immigration Law LLP Agenda Business travellers Measures for ensuring compliance and penalties Canadian Immigration: Hot Topics 16 Larry Linton PricewaterhouseCoopers Immigration Law LLP

9 Who is considered a business visitor? Canadian Immigration: Hot Topics Business Visitor A person who is employed abroad but intends to visit the country of destination for a short period in order to undertake certain business related activities such as: meetings, conferences, fact-finding missions, etc. vs. Foreign Worker A person who is entering the labour force or competing with those in the labour market. 17 Larry Linton PricewaterhouseCoopers Immigration Law LLP Canadian Immigration: Hot Topics Business Visitor General criteria In limited instances, individuals may enter Canada for business without requiring a work permit. All business visitors must undergo examination and demonstrate they will: maintain their primary place of residence outside of the host country maintain their primary source of remuneration for the business activities outside of the host country maintain their principal place of business and actual place of accrual of profits outside of the country of destination be entering for the sole purpose of engaging in international business activities 18 Larry Linton PricewaterhouseCoopers Immigration Law LLP

10 Canadian Immigration: Hot Topics Business Visitor Acceptable business visitor activities: Attending meetings (for discussions only) Conducting research for a foreign-based enterprise Conducting commercial transactions on behalf of a foreign enterprise Attending or participating in conventions or conferences Intra-company training (in Canada) After-sales services (pursuant to a contract) 19 Larry Linton PricewaterhouseCoopers Immigration Law LLP Canadian Immigration: Hot Topics Employer compliance Changes to Canada s immigration compliance program at a glance: 2011 Changes to regulations placing increased scrutiny on employers 2012 Introduction of employer compliance reviews and increased penalties 2013 Increased authority to conduct on-site inspections Increased enforcement, new compliance measures & implementation of more draconian employer penalties 20 Larry Linton PricewaterhouseCoopers Immigration Law LLP

11 Business travellers Recent trends Greater scrutiny when crossing all ports-of-entry and visa posts. Tracking of all entries and exits to / from Canada and the US flagging frequent travellers Sharing of information with other countries and other government agencies Foreign nationals entering Canada for business / work must be properly documented (including third party service providers performing services for the company in Canada) Foreign nationals without proper documentation may be detained or denied entry altogether Canadian Immigration: Hot Topics 21 Larry Linton PricewaterhouseCoopers Immigration Law LLP Canadian Immigration: Hot Topics Enforcing compliance: Reviews and inspections Conduct warrantless, unannounced on-site visits (audits) Compel third parties (such as banks and payroll companies) to produce requested documentation Interview employees with employees consent Request compliance documentation for periods over the last six years including recruitment information Compel employers to produce requested documentation In certain situations, a referral to the RCMP may be required 22 Larry Linton PricewaterhouseCoopers Immigration Law LLP

12 Canadian Immigration: Hot Topics Purpose of new immigration compliance initiatives Ensure employers are complying with Canada s immigration laws Ensure employers are providing employment opportunities to Canadian citizens and permanent residents first Protect the rights of temporary foreign workers Maintain fair employment practices 23 Larry Linton PricewaterhouseCoopers Immigration Law LLP Canadian Immigration: Hot Topics Penalties for immigration non-compliance Impact on the company Imprisonment Civil litigation Monetary fines Imprisonment of certain company representatives, directors, or managers Employees may have grounds to sue company for inappropriately advising on immigration matters Ranging from CAD$ 50, 000 to $100,000 per offence Blacklisting / reputational risk Company name listed on a publicly available blacklist Banned from the Temporary Foreign Worker Program Bar from hiring any foreign workers for up to 2 years 24 Larry Linton PricewaterhouseCoopers Immigration Law LLP

13 Canadian Immigration: Hot Topics Penalties for immigration non-compliance Impact on the employee Fines Criminal charges Revocation of status Arrest & deportation Monetary fines Charges may be laid under Canada s Immigration and Refugee Protection Act or under Criminal Code Any existing work permits or visas may be immediately revoked from the employee Subject to arrest by Canadian officials and immediate deportation, at employee s cost Bar from entering Canada Bar from entering Canada for any purpose (work or pleasure) 25 Larry Linton PricewaterhouseCoopers Immigration Law LLP Canadian Immigration: Hot Topics Questions? Larry Linton PricewaterhouseCoopers Immigration Law LLP T: E: larry.j.linton@ca.pwc.com 26 Larry Linton PricewaterhouseCoopers Immigration Law LLP

14 PricewaterhouseCoopers, LLP Business Travelers: Tax & Taxation of individuals in Canada Resident of Canada Taxable on worldwide income Must file annual income tax return Non-resident in Canada Taxable on Canadian source income only File a non-resident income tax return Maybe exempt from taxation based on a tax treaty Employer s payroll tax withholding and reporting obligations still exist Can file a waiver request to reduce payroll tax withholdings 28

15 Business Travelers: Tax & Canadian tax withholding requirements: ITA 153(1)(a) requires both resident and non-resident employers to withhold and remit income tax Regulation 102 provides specific rules relating to withholding obligations in relation to: Canadian Income Tax ( CIT ) Employment Insurance ( EI ) Canada Pension Plan/Quebec Pension Plan ( CPP/QPP ) 29 Business Travelers: Tax & Employment Insurance - Applicable to all employees who are residents of Canada - Applicable to Canadian non-residents; unless covered under unemployment insurance laws of a foreign country requiring premium payment for that employment Canada Pension Plan ( CPP ) Mandatory contribution for residents of Canada Employees on assignment in Canada may be exempt if Canada has a Totalization Agreement with the foreign country and a Certificate of Coverage ( COC ) has been obtained in the home country Canada/US Totalization agreement - if travel expected to be < 183 days in a calendar year no COC is required 30

16 Business Travelers: Tax & Sourcing of compensation In what country/countries must you report compensation and what should be reported? Depends upon location of workdays, residency/citizenship rather than location of payment Possible to report compensation in both home and host location (e.g. Canada and US) Rules for each country are different compensation must be reviewed to determine the proper reporting 31 Business Travelers: Tax & Example: Sourcing of compensation for Cdn NR Facts: John Smith is a US citizen and resident of Texas; On short term assignment in Canada considered non-resident of Canada Salary $100,000 Workdays: Canada 50; US 190; Total 240 Sourcing of compensation: Canadian source = $100,000 x 50/240 = $20,833 US source = $100,000 x 190/240 = $79,167* *Report worldwide compensation 32

17 Business Travelers: Tax & Who are Business travelers? Employees who are sent to work outside of their home country or home state for short periods of time globally mobile workforce - Often without the knowledge of Human Resources - Without formal assignment letters or secondment agreements - Generally do not register with local authorities - Typically do not break their home residence - Often employees who would be considered short-term assignees if HR knew about them 33 Business Travelers: Tax & Why do they exist? Last minute projects or extended business trips Business units attempting to reduce costs Entrepreneurial attitude both with the work at hand and the perceived unnecessary administration Employees often roll on to projects back to back Lack of understanding of host country immigration, income and social tax laws 34

18 Business Travelers: Tax & Business travelers: Risks and Issues Company Reputation Payroll Compliance (Reg 102) Employee Tax and Immigration Corporate Tax (Reg 105) Transfer Pricing Issues Permanent Establishment (PE) 35 Business Travelers: Tax & Business travelers to Canada exempt under a tax treaty? May be exempt from taxation in Canada if qualifies for a tax treaty benefit Must meet 4 tests under Canada-US Tax treaty: Considered a resident of home country (e.g. US under Article 4) Less than 183 days in Canada in rolling 12 months period The remuneration is not paid by or behalf of a person in Canada The remuneration is not borne by a permanent establishment (PE) in Canada 36

19 Business Travelers: Tax & Waivers to reduce income tax withholding in Canada - Regulation 102 Treaty based Waivers Exemption available if employee meets criteria under applicable tax treaty (CRA Information Circular IC 75-6R2) For example, paragraph 2, Article XV, Canada-US Tax Treaty - Remuneration < C$10,000 File Regulation 102 Waiver Application Form R102 J E ; or - Present in Canada in any 12-month period beginning or ending in the fiscal year for < 183 days and the remuneration is not paid by or on behalf of a person who is a resident of Canada and is not borne by a permanent establishment ( PE ) in Canada File Regulation 102 Waiver Application Form R102 R (E) 37 Business Travelers: Tax & Requirements for nonresidents of Canada example Facts: John Smith is a US citizen and resident of Texas; On short term assignment in Canada considered nonresident of Canada What are the employer and employee requirements if: He is exempt from Canadian taxation under Canada-US tax treaty? He is subject to Canadian taxation? 38

20 Business Travelers: Tax & Nonresident of Canada: if not exempt under treaty Employer requirements: Arrange to apply for a valid work permit/visa Obtain a Social Insurance Number ( SIN ) or Individual Tax Number ( ITN ) Withhold/remit individual income tax, social security (CPP), EI If employer pays Cdn tax then tax payment should be grossed up Issue T4 slip and file payroll tax return Employee requirements: Apply for a valid work permit/visa Obtain a SIN or ITN File a nonresident income tax return Claim a foreign tax credit on home country tax return 39 Business Travelers: Tax & Nonresident of Canada: if exempt under treaty Employer requirements: Arrange to apply for a valid work permit/visa Ensure employee obtains a Social Insurance Number ( SIN ) or Individual Tax Number ( ITN ) File a waiver for reduced tax withholdings, Form R102J or R102R* Withhold/remit Canadian tax till waiver application is approved* Issue T4 slip and file payroll tax return * May be changed Jan 2016 Employee requirements: Apply for a valid work permit/visa Obtains a SIN or ITN File a nonresident income tax return if need to apply for a tax refund 40

21 Business Travelers: Tax & Tax requirements: US cross-border employee with travel into Canada Requirements Treaty Exemption available Treaty Exemption not available Canadian Tax Return Income tax withholding Canada Pension Plan ( CPP ) withholding Not required if treaty exemption applies and tax withholding waiver approved Required unless a waiver is obtained; or qualifies under new proposed legislative changes Required unless a COC is obtained (special exemption for U.S. employees in Canada for <183 days) Nonresident tax return required Required (waiver not applicable) Required unless a COC is obtained (special exemption for U.S. employees in Canada for <183 days) Employment Insurance ( EI ) withholding Required Required (exemption may apply) (exemption may apply) Form T4 filing requirement Required Required 41 Business Travelers: Tax & Regulation 102 Waiver - Challenges Difficult for employers to predict and track mobility of their workforce Nonresident employers are required register and obtain a business number CRA approved applications should be received before employee is paid any remuneration or renders services Employer not allowed to reduce tax withholdings without approved waiver CRA processing time may be more than days Our most recent experience; CRA denying waivers if there is a possibility that the foreign employer has a PE in Canada CRA may decline a waiver for an employee who intends to work in Canada for an extended period of time in a year 42

22 Business Travelers: Tax & Questions? PricewaterhouseCoopers LLP T: E: 43 Kimberly Maiatico PricewaterhouseCoopers, LLP

23 Federal Budget Update Reg. 102 and Immigration Reg. 102 What s Proposed Legislative changes to Reg. 102 that should alleviate some of the burden for certain non-resident employers and their non-resident employees working in Canada. Qualifying employers and employees The exemption from the Reg. 102 withholding requirement on an amount paid by a qualifying non-resident employer to a qualifying non-resident employee. 45 Kimberly Maiatico Federal Budget Update Reg. 102 and Immigration Qualifying employers and employees A qualifying non-resident employer must meet all of the following conditions: is resident in a country with which Canada has a tax treaty does not carry on business through a permanent establishment in Canada is at that time certified by the Minister A qualifying non-resident employee must meet all of the following conditions: is resident in a treaty country is exempt from Canadian income tax under a tax treaty is not present in Canada for 90 days or more in any 12-month period that includes the time of the payment 46 Kimberly Maiatico

24 Federal Budget Update Reg. 102 and Immigration What s Proposed To become certified, a non-resident employer must file an application form containing prescribed information and must meet certain (unstated) conditions. The certification will be effective for a specified period of time, subject to revocation if the employer fails to meet the conditions or to comply with its Canadian tax obligations. When all the conditions are met, the employer will be exempt from Reg. 102 withholding and remittance requirements. However, the employer will continue to be responsible for reporting requirements, such as filing a T4 information return annually. 47 Kimberly Maiatico What s Proposed Federal Budget Update Reg. 102 and Immigration Employers will remain liable for any withholding in respect of nonresident employees found not to have met all the conditions. However, no penalty will be applied if, after reasonable inquiry, the employer had no reason to believe that the employee did not meet the conditions. Proposals do not provide any relief in cases when all of the conditions are not met in these cases the current requirements will continue to apply. The budget changes will apply to payments made after December 31, Kimberly Maiatico

25 Federal Budget Update Reg. 102 and Immigration Initial Reaction The current process of applying for Reg. 102 waivers is burdensome and impractical for most businesses. In particular, employees often must travel to Canada on short notice, making it difficult for companies to submit complete Reg. 102 tax waiver applications early enough for the CRA to grant waivers before the Canadian source compensation is paid. Employees frequently travel to and from Canada for business meetings and short projects, so the proposed changes could eliminate the Reg. 102 remittance requirement, and the need to file refund claim personal income tax returns should all the conditions be met. This should reduce the time and resources currently spent on Reg. 102 compliance. 49 Kimberly Maiatico Initial Reaction (cont d) Federal Budget Update Reg. 102 and Immigration A non-resident employer must be certified before it can become a qualifying non-resident employer. It remains to be seen what information the CRA will require, and what additional conditions will be imposed, for a non-resident employer to become certified. Given the proposed new requirements, affected employers will need to identify the residency status of their employees and track the number of days each employee is present in Canada. Note that the 90 day test is based on total days present in Canada, rather than only working days. The budget proposals provide relief only from the Reg. 102 withholding requirements. As is currently the case, each non-resident employer must complete and file T4 slips and a T4 Summary for employees who performed any employment duties in Canada (there is no de minimus exception). 50 Kimberly Maiatico

26 Federal Budget Update Reg. 102 and Immigration So what s the problem? Lack of automatic deminimus exemptions It is critical for non-resident businesses that there be a legislated exemption from Reg. 102 if certain reasonable criteria (other than a certified employer requirement) are met. Without such exemptions, there would be no meaningful reduction of tax compliance burdens. Reporting the Proposals do not amend any of the existing reporting requirements. This means that non-resident employers would still need to prepare T4 slips, ensure that employees have obtained social insurance or individual tax numbers for such purposes and, as is often the case, bear the costs and burdens of assisting their non-resident employees in meeting the Canadian personal income tax filing obligations. 51 Kimberly Maiatico So what s the problem? Federal Budget Update Reg. 102 and Immigration Requirements for certification Provide no indication of what these requirements will include Expected to not materially reduce red tape and that it could simply be used as an audit tool by CRA. Many groups are requesting a self certification process. 90 days threshold Proposals refer to days of presence within a rolling 12 month period. Employers are able to track their employees work days in other countries, but would not know where the employee chooses to spend vacation or other personal time. Many employers payroll systems are set up to track information on a calendar year to require them to measure any data, for purposes of the Proposals, on a rolling 12 month period would increase, not reduce, administrative burdens on business. 52 Kimberly Maiatico

27 Federal Budget Update Reg. 102 and Immigration 2015 Federal budget Impact on immigration Reforming the Temporary Foreign Worker Program Ensuring a fast and flexible economic immigration system Removing barriers to the Foreign Credential Recognition Program Protecting the Integrity of Canada s borders Electronic travel authorization 53 Kimberly Maiatico Federal Budget Update Reg. 102 and Immigration Questions? Kim Maiatico PricewaterhouseCoopers LLP T: E: kimberly.maiatico@ca.pwc.com 54 Kimberly Maiatico