International Tax Law Archives

Global tax information exchange peer review

Canada ready for review by Global Forum tax information exchange peers

The followiing news release is available from the Canada Revenue Agency:

Paris, France, January 7, 2010 ... Today, after a meeting with the director of the Centre for Tax Policy and Administration of the Organisation for Economic Co-operation and Development (OECD), Mr. Jeffrey Owens, the Honourable Jean-Pierre Blackburn, Minister of National Revenue and Minister of State (Agriculture and Agri-Food), announced that Canada has volunteered to be among the first countries to participate in a tax information exchange peer review process as part of the Global Forum on Transparency and Exchange of Information.

"Canada recognizes that the advancement of transparency and exchange of information is critical to tax fairness and the integrity of the tax system, not only for Canada, but for countries around the world," said Minister Blackburn. "Today, I confirmed Canada's continued commitment to the work of the OECD in the area of tax administration, in particular regarding the establishment of international standards for transparency and the effective exchange of information."

Under international treaties, Canada cooperates with a large number of countries by exchanging information about foreign investments for tax purposes. To this end, Canada is working hard to increase the flow of information by negotiating Tax Information Exchange Agreements (TIEAs). The work of Global Forum on Transparency and Exchange of Information and initiatives in Canada's 2007 Budget have created a strong incentive for jurisdictions to enter into these TIEAs.

The Global Forum has formed a Peer Review Group to ensure that TIEAs and exchange of information provisions in tax treaties are effectively implemented. The peer review process is expected to begin in the next few months.

"By taking a leadership role and volunteering to be among the first countries to undergo the peer review process, Canada will be in a strong position to fast-track the implementation of these agreements and build on the growing global momentum that currently exists," added Minister Blackburn.

As of October 2009, TIEA negotiations have commenced with 14 jurisdictions, in addition to the signing of Canada's first TIEA with Netherlands in respect of the Netherlands Antilles on August 29, 2009.

While in Europe, Minister Blackburn is holding a series of high-level working meetings with some of his tax administration counterparts from the Seven Country Working Group on Tax Havens to further advance co-operation between Canada and its international partners on addressing tax evasion and aggressive international tax planning schemes. Minister Blackburn's tour includes meetings with his tax administration counterparts in the United Kingdom, France and Germany.

International Financial Reporting Standards (IFRS)

The use of International Financial Reporting Standards (IFRS) will be required in 2011 for Canadian enterprises including public companies and other profit-orientated enterprises responsible to large or diverse groups of shareholders.

International Financial Reporting Standards are a series of standards and interpretations that have been adopted by the International Accounting Standards Board (IASB). Many of these standards that form FRS are known by the older name of International Accounting Standards (IAS) that were issued between 1973 and 2001 by the board of the International Accounting Standards Committee (IASC).

International Financial Reporting Standards comprise:

- International Financial Reporting Standards (IFRS) - standards issued after 2001
- International Accounting Standards (IAS) - standards issued before 2001
- Interpretations originated from the International Financial Reporting Interpretations Committee (IFRIC) - issued after 2001
- Standing Interpretations Committee (SIC) - issued before 2001

There is also a Framework for the Preparation and Presentation of Financial Statements which describes some of the principles underlying IFRS. The objective of financial statements is to provide information about the financial position, performance and changes in an enterprise, useful to a wide range of users in making economic decisions and to provide the current financial status of the entity to its shareholders and the general public.

For more information, see the IAS web site at http://www.iasb.org

Government of Canada delivers on the promise of the Softwood Lumber Agreement

$467 million in export charges paid to 6 provinces

In a Canada Revenue Agency News Release, Minister of National Revenue Gordon O'Connor has announced that the CRA has distributed close to $470 million in revenue to six provinces from charges on exports of softwood lumber products destined for the U.S.

According to the release:

"The six provinces whose products may be subject to the export charge under the September 2006 Canada-U.S. Softwood Lumber Agreement (SLA) are: British Columbia, Alberta, Saskatchewan, Manitoba, Ontario and Quebec. Exports of softwood lumber products from the Atlantic provinces are not subject to the export charge."

For more information, see:
http://www.cra-arc.gc.ca/newsroom/releases/2008/jan/nr080111-e.html

Centres of expertise to address international tax planning

Revenue Minister McCallum and the Canada Revenue Agency have announced the creation of 11 centres of expertise to address aggressive international tax planning.

"I am committed to ensuring a level playing field for all Canadians, and that is why I take the issue of tax havens seriously," said Minister McCallum. "The CRA is continually challenging aggressive international tax planning structures and the new Centres of Expertise will equip the CRA with even more tools to ensure that everyone is paying their required share of taxes."

According to the CRA news release, the centres "represent a new way of doing business for the CRA by bringing together audit professionals from the areas of international tax, special audits and tax avoidance to create teams of experts, the CRA is ensuring a more coordinated approach in addressing aggressive international tax planning and the abusive use of tax havens."

Centres of Expertise will be located at Tax Services Offices in Burnaby, Calgary, Halifax, Laval, London, Montréal, Ottawa, Saint John, Toronto West, Vancouver, and Winnipeg.

For more information, see the news release on the CRA web site at:
http://www.cra-arc.gc.ca/newsroom/releases/2005/aug/nr050809-e.html

You Could Have US Tax Issues

If you spend a significant amount of time in the United States, own rental property in the US, do business in the US, or are a US citizen or "Green Card" holder, then you need to be sure you’re onside with any required US filings. While compliance often does not result in US taxes owing and may simply consist of filing a single form, penalties for non-compliance are severe.

Are you a snowbird? You must keep track of the number of days you spend in the US (including travel days). The US Internal Revenue Service (IRS) will consider you a US resident if you meet the "substantial presence test", which is a formula calculated based on the number of days you were in the US in the current year, the preceding year and the second preceding year. Unlike the 183-day misnomer, if you spend, on average, 4 months per year or more in the US then you may meet the test and be deemed a US resident.

You can avoid being considered a US resident by claiming the "closer connection exception". This requires the filing of US Form 8840 to establish that your ties to Canada are closer than those to the US. Such ties include permanent home, family, personal belongings, banking, and participation in social, religious or professional organizations. If you spent more than 183 days in the US in the current year or if you have applied for a Green Card (permanent resident status in the US) then you cannot claim the closer connection exception.

It is possible to be a resident of both Canada and the US – a dual resident. Under these circumstances, we must turn to the "tie-breaker" rules in the Canada-US Tax Convention (treaty) to determine who has ultimate jurisdiction to tax you (i.e. which country you are, in fact, a resident of). If the rules result in Canadian residency, then a US tax return must be filed to report US-source income, while a Canadian return must be filed to report world-wide income. If the rules result in US residency, then the opposite is necessary. Foreign tax credits are used to the extent possible to provide relief from double taxation.

Perhaps you own US real property that you rent out. It is important to elect, in a timely manner, to be taxed as though the income is effectively connected with a US trade or business. Without the proper election, the tenants are obliged to withhold 30% of the gross rent and remit it to the IRS. By making the appropriate election, you can file a US return reporting gross income and deducting expenses to end up paying tax at the marginal rate on the net income – a far better scenario than 30% of gross income.

If you are a US citizen or Green Card holder residing in Canada you are still required to file a US tax return to report your world-wide income. As a Canadian resident you are also required to file a Canadian tax return to report your world-wide income. Again, foreign tax credits are used to the extent possible to provide relief from double taxation. It is also imperative to file your US return in order to not lose the right to claim a "foreign earned income exclusion" and to make certain elections.

Regardless of your filing status, it is important to file when required and to claim any and all treaty exemptions that are available to you, such as electing to defer taxation of any income or gains accrued in a retirement plan, such as an RRSP.

The US also has Estate Tax issues that should be considered. US estate tax arises on the death of an individual and is applied at graduated rates to the fair market value of the individual’s taxable estate. If you are a non-resident, then the estate tax applies only to the value of property in the US. A US citizen or US resident must pay estate tax on their world-wide estate.

Currently US estate taxes are being phased out – the tax rate is being reduced while the exemption amounts are being increased. By 2010, there will be no estate tax; however that may change. Under US legislation, there is a "sunset clause" which essentially means these changes will not apply after December 31, 2010. So, unless further steps are taken, the repeal of the estate tax will last for only one year – 2010. In 2011, the system will revert back to the rules that applied before this phase-out started.

In general, US forms and returns are due April 15 (vs. April 30 in Canada). For US citizens residing outside the US, there is an automatic two-month extension. For non-citizens, it may be possible to request a filing extension. For everyone, regardless of extensions, any tax owing is still due April 15 and subject to interest if not paid on time.

The bottom line is that many people don’t realize they have filing obligations with the US. You may be at risk for severe penalties and lose the ability to rely on tax benefits and treaty protection.

Caren MacLeod
Scott Rankin & Gardiner
www.srgg.com