New Tax Treaty Protocol to Benefit Canadians with U.S. Holdings

Strategic Insights -

Canadians with U.S.-based stocks, bonds, or real estate will see significant tax benefits from a new protocol to the tax treaty between the two countries, set to become law in the near future. This development will primarily affect snowbirds and Canadians living in the United States, who will be able to defer tax on income accumulating within plans created under the laws of the other country. The previous system considered registered retirement savings plan earnings taxable, and the country of origin could claim the pension payment, leading to double taxation.

Key Takeaways:

  • The new protocol will raise the exemption for Canadians' U.S. property from $60,000 (U.S.) to the equivalent of $600,000, significantly reducing the risk of paying both capital gains tax in Canada and estate tax in the United States.
  • The exemption is effective for deaths occurring after November 9, 1988, and executors have at least one year from the protocol's implementation to file refund claims.
  • Canadians will be allowed to offset lottery or casino winnings with losses, but those fleeing to escape taxes will face tougher collection and enforcement if tax problems predated their new passports.
  • Accounting fees to utilize the new rules may be substantial.

Statistics:

  • The exemption for Canadians' U.S. property increases from $60,000 (U.S.) to the equivalent of $600,000.
  • The protocol will reduce the risk of double taxation on capital gains and estate taxes.
  • Executors have at least one year from the protocol's implementation to file refund claims.

Sources:

  • ANDREW ALLENTUCK, Special to The Globe and Mail
  • Dennis McMullin, chartered accountant and tax partner with Deloitte & Touche
  • Daniel DuFon, Toronto chartered accountant and U.S. tax director for Ernst & Young