Trump signed a comprehensive tax reform bill into law, last December, which includes the Transition Tax (also known as the Repatriation Tax). This tax reform bill targets American multinational companies such as Microsoft and Apple. This is to refrain them from recreating billions dollars of money in their foreign subordinates.
As an effect, a lot of Canadian residents handling US or dual citizenship are suffering from large tax bills amounting to hundreds of thousand-dollars, including the earnings of their corporations way back 1986. In many cases, some bills even amount to millions.
In month of June, people who were hit by the tax were given the time to complete the filing for their tax returns and be able to pay their first payment fees to the IRS.
However, due to these proposed regulations which only allow a fraction of the supposed-to-be deduction from the Canada-US Tax Treaty, many companies are forced to pay a lot in their Canadian tax in avoidance of the US tax.
According to a partner of the MNP accounting firm-Kevyn Nightingale- the new tax reform seems like emptying out your company’s funds to pay large amounts of Canadian tax just to escape from the threat of the US tax.
The main target of the so-called “transition tax”, which was first brought out by the Trump administration, was to discourage US multinationals from yielding large sums in foreign collateral. Unfortunately, the tax also hit Canadians who have US or dual citizenship and have incorporated companies residing in Canada.
The sad thing is, while a lot of those who are affected were hoping for a long-standing US tax deduction to take some sting out of their large tax bills, the proposed regulations allow only a little portion of that. It is also said that these regulations also violate the Canada-US tax treaty, which have functions, supposed to be, preventing double taxation.
Some tax experts describe the new 249-pages guidance document as a nightmare of this era, containing such a complicated tale. Doubled tax bills plus corporation divisions are resulting into a lot more expensive business living.