Canada talking with U.S. about Trump tax: Morneau
Retroactive repatriation tax hitting thousands of Canadian residents
The Canadian government is talking to the U.S. government about the impact a retroactive tax signed into law by U.S. President Donald Trump is having north of the border, Finance Minister Bill Morneau revealed Monday.
Speaking to reporters in Windsor, Ontario, Morneau said he is aware that some of the U.S. government's tax changes affect Canadian residents with U.S. or dual citizenship.
It is, at the end of the day, going to be up to them to manage their own tax code.- Finance Minister Bill Morneau
"We're continuing to consult with Americans to make sure that we fully represent the challenges that these changes have made for Americans or dual citizens living in Canada," Morneau said. "That's an ongoing process. We certainly hope that we can make progress."
But, he added: "It is, at the end of the day, going to be up to them to manage their own tax code."
Government officials did not provide any further details such as who has been speaking with the Americans, when and how many times.
"Finance officials have and will continue to engage with their U.S. counterparts to ensure they are aware of the negative impact on U.S. citizens abroad," Morneau's press secretary, Pierre-Olivier Herbert, said.
Morneau's comments mark the first time the government has indicated it is taking action regarding the tax rather than just studying it.
The comments came as CBC News revealed Monday that thousands of Canadian residents affected by the retroactive tax have been dealt a second blow: proposed new rules unveiled a few days ago risk increasing the tax hit for those affected.
In December, Trump signed a sweeping tax reform bill into law that included the Repatriation Tax, also known as the Transition Tax. It was designed to get big American multinational companies like Apple and Microsoft to stop parking billions of dollars in foreign subsidiaries. However, it's also hitting thousands of Canadian residents with U.S. or dual citizenship and a company incorporated in Canada.
Many Canadian residents, particularly those who have used their small corporations to save for their retirements, are facing tax bills amounting to hundreds of thousands of dollars on all of the retained earnings in their corporations going back to 1986. Some bills run into the millions.
While the tax is being levied on money sitting in corporations, it is the owners who have to declare the money on their 2017 tax return.
In June, those hit by the tax were given a temporary reprieve — more time to file their tax returns and to make the first payment to the U.S. Internal Revenue Service.
Tax lawyers and accountants have been grappling with the new tax, trying to find the best way to help their clients.
One strategy was for those affected to take money out of their corporations. While the move would trigger a Canadian tax hit, under the Canada-U.S. tax treaty, tax payments made to one country are generally deductible in the other.
However, under the proposed regulations, the U.S. government plans to only allow a fraction of that usual deduction.
Experts say that may force many of those affected to take more money than they planned out of their companies, and pay more Canadian tax in order to mitigate the U.S. repatriation tax.
Some experts say the new rules may violate the Canada-U.S. tax treaty, which is designed to prevent double taxation.
Asked whether the new rules contravene the Canada-U.S. tax treaty, Morneau didn't directly respond.
Earlier, Morneau said the Canadian government has been studying the U.S. tax reform package.
"We have been looking at the changes that the United States have made broadly in taxation, carefully considering how it is impacting, in particular, businesses across the country," he said.
"As you probably know, businesses have an investment environment where they can consider different options. So we're making sure that we understand the implications of those changes."
Elizabeth Thompson can be reached at [email protected]
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