The following article has been provided courtesy of Robert E. Ward of Robert E. Ward and Associates, P.C. For further information on the subject matter discussed below please contact us here or visit Mr. Ward’s website here.

Background

As you are well aware, the U.S. tax system imposes a tax on the transfer of wealth at death.  This tax is referred to as the “estate tax”.  To deter “deathbed” transfers, the United States also has a gift tax system.  Gift and estate taxes are imposed at the same rates.  Gift and estate taxes are imposed on the entire fair market value of the asset transferred (unlike a capital gains tax).  The effect of this system is to tax over and over again the very same wealth as it moves from one generation to the next.  Attempts to avoid this recurring taxation (for example by leaving assets directly to a grandchild) are deterred by a generation-skipping transfer tax which is imposed in addition to the gift or estate tax that applies to the gift or bequest. Read more…

IRS Requires New Reporting for 2011

Effective for your 2011 US tax returns the IRS has released a new filing requirement, Form 8938.  The form will be required by certain taxpayers with specific types and amounts of foreign financial assets or foreign accounts.  The information reported is similar to TD F 90-22.1 or (FBAR forms) but does require some more specific information; furthermore, the filing of form 8938 will not relieve you of the requirement to file the FBAR form.

Form 8938 is required to be attached to your annual return and is due on the date that the annual return is due, including extensions.  The form is applicable for anyone who files the following forms:

• Form 1040
• Form 1120
• Form 1065
• Form 1041
• Form 1120-S
• Form 1040NR
  .

Read more…

U.S. OFFSHORE VOLUNTARY DISCLOSURE PROGRAM REOPENED 2012

On January 9, 2012 the Internal Revenue Service (“IRS”) reopened the offshore voluntary disclosure program (“OVDP”).  More details are expected to be released over the coming month but the program is similar to the 2011 OVDI program which ended September 9, 2011.  The penalty’s associated in the new program have increased and the penalty framework requires individuals to now pay 27.5%, up from 25%, of the highest aggregate balance in their foreign bank accounts over the eight year required filing period.  Some taxpayers may be eligible for a reduced penalty rate of 5% or 12.5% depending on their specific situation.  For example people whose offshore accounts did not surpass $75,000 in any calendar year covered by the new OVDP will qualify for the reduced 12.5% rate.  As full details have not yet been released, based on the prior program, the reduced 5% rate was eligible for those individuals who are foreign residents and meet the following three conditions:

1. Resides in a foreign country;
2. Made a good faith showing that they have complied with all the tax reporting and payment requirements in the country of citizenship; and
3. Has 10,000 or less of U.S. source income each year.

To date these programs have brought in over $4.4 billion to the U.S.   Entering the OVDP should not be taken lightly as it does require a complex package to be submitted requiring a lot of information and disclosure; furthermore, the costs can be significant not only for the penalty but also the cost associated with preparing the full submission.

What are your options if you want to get compliant with the U.S. but do not want to enter into the 2012 OVDP?  Following much press on the matter in the latter half of 2011 the IRS made a formal release on December 13, 2011 disclosing some additional information for Dual residents residing outside the U.S.  This statement followed numerous comments and pressure made by Canada’s Minister of Finance stating that Canada would not cooperate in the collection of many of the penalties and the reasonableness of the required filings for honest, taxpaying Canadians.  The IRS’ statement essentially stated that for those individuals who have become aware of their filing requirement and would like to become compliant that they should file the past 6 years of filings including a letter stating the reason why they have not previously filed.  The IRS further stated that penalties will not be imposed in all cases and that the IRS will use reasonableness when assessing things such as the FBAR returns.  Furthermore, a taxpayer who owes no U.S. tax will not owe any failure to file penalty or failure to pay penalty.

If you would like to discuss the specifics of your situation and potential implications and options please contact us to arrange an appointment by calling our reception at 250-381-2400.

Hutcheson & Co is a progressive Chartered Accountant firm in Victoria BC providing a full range of accounting and tax services. We are looking to add an enthusiastic and reliable member to our accounting and tax team. This position will appeal to a self-motivated and driven individual who is looking for both a challenging and rewarding career in tax and accounting.

Duties will include:

• Preparation of corporate and personal tax returns
• Preparation of financial statements
• Bookkeeping
• Other accounting related tasks as required

Skills and experience required:

• Minimum of 2 years experience in accounting and tax
• CGA, CGA student or Accounting Technician
• Computer and technological proficiency
• Well-versed in Microsoft Word, Excel and Outlook
• Experience with Caseware Working Papers
• Strong interpersonal and communication skills
• Excellent written correspondence
• Organized and detail oriented
• Able to multi-task and produce results under pressure

Benefits:

The successful candidate will have the opportunity to receive the following benefits:

• Group extended health and dental insurance
• Flexible work schedule
• Incentive bonus arrangement

How to apply to this job: Applications may be submitted by email to admin@hutcheson.ca and should include a cover letter and resume.

Hutcheson & Co is a progressive Chartered Accountant firm in Victoria BC providing a full range of accounting and tax services. We are looking to add an enthusiastic and reliable member to our accounting and tax team. This position will appeal to a self-motivated and driven individual who is looking for both a challenging and rewarding career in tax and accounting. Both newly designated Chartered Accountants and UFE candidates are welcome to apply to this job posting.

Duties will include:

• Preparation of corporate and personal tax returns
• Preparation of financial statements
• Assisting partners with tax planning and compliance
• Other tax related tasks as required

Skills and experience required:

• Minimum of 3 years experience in accounting and tax
• Chartered Accountant or CGA designation
• Computer and technological proficiency
• Well-versed in Microsoft Word, Excel and Outlook
• Experience with Caseware Working Papers
• Strong interpersonal and communication skills
• Excellent written correspondence
• Organized and detail oriented
• Able to multi-task and produce results under pressure

Benefits:

The successful candidate will have the opportunity to receive the following benefits:

• Group extended health and dental insurance
• Flexible work schedule
• Incentive bonus arrangement

How to apply to this job: Applications may be submitted by email to admin@hutcheson.ca and should include a cover letter and resume.

Earlier this year, the Internal Revenue Service changed and clarified its views with respect to the US tax treatment of Registered Education Saving Plans (RESP), Tax-Free Savings Account (TFSA) and non-US mutual funds.  If you hold these types of investments your filing requirement is dramatically changed in terms of your US reporting.  The changes can be broken up into two areas RESP/TFSA and Non-US Mutual Funds; we have provided a brief summary of these changes and potential impact.

Holders of RESP and TFSA

The US has determined that these plans are classified as foreign trusts in the US and as such are required to complete two additional forms, 3520 and 3520A, to fulfill the proper filing requirements in the US.  Both of these forms are quite extensive in terms of the information needed to complete them.  A breakdown of the forms are: Read more…

Chartered Accountants are valued for their integrity and proven
financial expertise. The CA’s signature on an audit report means that
the CA has conducted an examination of the organization’s financial
statements, has expressed an informed opinion on the fairness of
financial information, and can provide reasonable assurance on the
presentation of the organization’s financial position, performance and cash flows.
It is important to note that not all financial statements are audited. Read more here.

This report by Jamie Golombek examines why it may make more sense for some business owners to save money inside their corporations rather than paying themselves a salary merely to create RRSP contribution room. In many cases, dividends may be more tax favourable than salary.

Jamie looks at both the tax savings advantage of dividends over salary and the tax deferral advantage of leaving funds inside the company vs. paying them out immediately. Click here to read the report.

Generally, when employees acquire a share under a stock option agreement they incur a taxable employment benefit equal to the difference between the FMV at exercise date and the amount paid for it (exercise price).  An offsetting deduction of 50% may be available under section 110(1)(d) if:

• the shares are prescribed shares (reg 6204)
• amount payable to acquire the shares under the agreement is not less than the excess of the FMV of the shares at the time agreement was made over any amount paid by the taxpayer to acquire the rights
• immediately after the option is granted the taxpayer is dealing at arms length with the corporation involved (less then 10% holding)

This benefit used to be able to be deferred and not recorded until the shares where actually disposed for CCPC and for public companies shares (up to $100K of benefit in the year for public companies).  However the March 4, 2010 budget has repealed this deferral for public companies thus this deferral is only available for CCPC.   Also remember that if the CCPC shares are not held for 24 months prior to sale that they income deduction is based under rule 110(1)(d) and not 110(1)(d.1) thus meaning that they can only get the deduction if the exercise price is greater or equal to the FMV at the time the option was granted.

Once the shares are acquired the normal capital gain/loss treatment is applicable.  If the shares subsequently turn into a loss and are disposed of prior to 2015 and an election had previously been made on the optioned shares to defer the tax then there is also a special relief provision to limit the tax liability to the ultimate share sale proceeds received.  The elective relief will be adjusted to take into account capital losses arising from the disposition of the shares and their application against capital gains from other sources.

For options exercised after Jan 1, 2011 Section 153 has been changed such that regular employee withholding is required on the exercise of the option to the same extent as if the benefit was paid in cash.  This withholding requirement will not apply to CCPC or if the options included a written condition to the effect that the shares must be retained by the optionee for a period of time after exercise or if they donate the optioned shares to a registered charity.  The withholding can be achieved by having the company sell some shares on the behalf of the employee to meet the tax obligation.

Cashed-out stock options (options that allow employees to opt to be paid in out their gains in cash rather then actual stock) the budget made it no longer possible for the employee to claim a stock option deduction with respect to a cash payment received under a stock option plan unless the employer waives its rights to a deduction for the cash payment; this would need to be done in an election.  Thus only the employee or the employer can claim a deduction if cash is paid instead of actual shares being issued.