Some of the best tax planning can b...

Some of the best tax planning can be foiled if your client is a US citizen. Don't rely forward your client for the information, as many US citizens are unaware of the US tax issues that may affect them. one of the more common issues affecting Canadian residents who are US citizens are outlined below.

The US is single in kind of the few countries in the world that taxes its citizens forward their worldwide income whether or not they are physically in the political division The result is that US citizens living in Canada must file tax turn backs under both systems, and ofttimes must pay tax to one as well as the other governments. Safeguards exist to obstruct double taxation of the same income, including the US "foreign earned income exclusion," foreign tax credits, and the Canada-US Tax Treaty. However, there are many differences between the US and Canadian calculations of income for tax designs and these differences can lead to unexpect tax liabilities. In particular, the taxation of stock options, capital gains, and contributions to deferr compensation plans may be different. Capital dividends do not receive tax-free status in the US, the Canadian capital gains exemption does not apply there, and the sale of a principal residence may be all or partially taxable in the US. In addition, income may be enthrall to US Alternative Minimum Tax.

Often US citizens who reside in Canada are delinquent filers-either because they are unaware of the requirement to file or assume that they have no US tax liability. Although the IRS has a statute of limitations after which it cannot assess a tax turn back (normally 3 years after filing), the clock doesn't start running until a recur is actually filed. It's not ever too late to catch up and file past go [i]or[/i] come backs While individuals may be reluctant to start filing if it could mean triggering a US tax liability, these liabilities won't just disappear; instead, they'll and nothing else get larger with potential interest and penalties. Nor will the vexed question disappear when your client dies, since a potential US income tax liability will ultimately pause with the executor of the estate of a US citizen. An executor, who is liable for the shortcomings of the decedent, may be unwilling to distribute an estate with a potential amount owing to the IRS. After your client dies, the information necessary to file past get backs may be difficult to accumulate.

US citizens are also subdue to the US estate, gift, and generation skipping tax method which taxes transfers of exclusive right during life and at the time of death. The unified estate and gift tax rates range from 18-55% of the value of estate transferred on a cumulative basis. A lifetime credit allows up to US $675000 (increasing to US $1000000 from 2006) to be transferred without tax. In addition, up to US $10000 may be given tax-free each year to any number of recipients, and up to US $106000 may be given to a non-US citizen spouse.

The generation skipping tax applies at a flat rate of 55% in addition to any estate or gift tax proper if transfers are made to a generation sum of two units or more below the transferor. There is a lifetime US $1060000 generation skipping tax exemption amount.

Problem can arise because there is no foreign tax credit mechanism to account for US gift tax in Canada. The attribution orders in Canada can also cause double taxation.

US estate tax applies in succession the fair market value of a decedent's estate. There are mixed planning strategies designed to co-ordinate Canadian tax forward death with US estate tax in order to mitigate double taxation; however, it is imperative that US citizens with substantial worldwide assets gain professional advice. As with delinquent filing, don't leave it to the executor to sort gone out

It's imperative that you determine whether or not your client is a US citizen before undertaking any Canadian tax planning which involves utilizing the capital gains exemption, establishing a Canadian corporation, or undertaking an estate be chilled

The capital gains exemption is not recognized in the US, a fact that may conclusion in a mismatching of income and foreign tax credits. It may still make thinking principle to crystallize a capital gains exemption, moreover it is essential to incorporate the US tax conclusions

US shareholders of Canadian corporations may be taxed forward corporate earnings. The US anti-deferral authoritys apply alternate taxation regimes to tax individual shareholders upon certain types of income earned or distributed according to non-US corporations. Anytime a US citizen hem ins shares in a Canadian corporation, the US anti-deferral empires should be reviewed. The masterships may also apply to shares held by the and of a trust or partnership. Annual information reporting may be required for shareholders of foreign (Canadian) corporations, and failure to file could arise in significant penalties.

If the freezor in a classic estate be congealed is a US citizen, gift tax may arise forward the full value of the entire company at the time of the be congealed Complications may arise when US citizens are party to a trust arrangement either as trustee, settlor, or beneficiary because the taxation of trust income and attribution lordships are different for US and Canadian tax plans