Canadian Lawyer

44 A P R I L 2 0 1 8 w w w . C A N A D I A N L a w y e r m a g . c o m ack when U.S. President Donald Trump was stump- ing on the campaign trail, he made some bold prom- ises — among them to build a wall along the length of the U.S.-Mexican border and to reduce taxes. While the wall has shown no early signs of construction (or planning), in December, the American president signed into law the Tax Cuts and Jobs Act. Among some of its bigger provisions, the act reduced the corporate tax payable by corporations to 21 per cent from 35 per cent as of Jan. 1. This means significant savings for Canadian companies that earn a high share of their revenues in the United States; but it also makes Canada a less attractive tax jurisdiction than the U.S. for foreign companies looking to set up shop. Another major provision, for individ- uals, is the imposition of a one-time "tran- sition tax" on U.S. citizens and residents living outside of the United States. And new estate tax-filing rules have doubled the threshold at which the state tax kicks in, to US$10 million from US$5 million. How- ever, an estate tax return must be filed in the U.S. in order to avoid a hefty chunk of the sale of assets going to Uncle Sam. The transition tax The "transition tax" is a one-time tax pay- able by U.S. persons, including individ- uals, who own at least 10 per cent voting stock in a privately held, non-U.S. corpor- ation, at 15.5 per cent on cash assets and eight per cent on non-cash assets. Roy Berg, director of the U.S. tax law group for Moodys Gartner Tax Law office in Calgary, gives the example of a doctor with his own incorporated practice in Canada who holds dual U.S.-Canadian citizenship or is a Canadian citizen hold- ing a U.S. green card. This good doctor has $2 million of accumulated wealth in his corporation, and he stands to have $300,000 of his hard-earned Canadian dollars confiscated by the U.S. govern- ment this year. "If you have a corporation or an active business, you're hit with this one-time tax at eight or 15.5 per cent on retained earnings" — post-tax earnings in the corporation that have not been distributed, he says. And there's "no elegant solution," adds Berg, who is himself a dual citizen, as are most of the counsel in his office. Berg outlines a three-pronged strategy for such individuals. First, he says, "we go back and do a retained earnings analysis: What has been reported in the past, and is it correct?" There's a good chance it may not be correct because, in the past, he says, the retained earnings figure was "essentially just L E G A L R E P O RT \ TA X L AW MAT DALEY U.S. tax reform hits Canada Trump's tax overhaul will have many ripple effects on tax planning in Canada By Elizabeth Raymer B

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