Dec. 2011/Jan. 2012 / Features
Canadian Tax Issues for Cross Border Executives
Balji of mergermarket writes that the rate of Canadian companies buying in the United States is outpacing that of U.S. companies looking to make acquisitions in Canada. This has been particularly true in financial services, where Canadian banks have been able to cherry pick assets and companies that will allow them to pursue growth.
As 2011 draws to an end, the volatility in capital markets due to uncertainty about the European debt crisis and the slowdown in the Chinese economy might slow the pace of M&A activity, but Canadian companies still will be opportunistic buyers in the United States. While Canadian companies understand the need to get more involved in emerging markets, the challenge of taking advantage of these markets remains.
Kligman and Beadle outline various tax considerations for U.S. citizens who cross the border to work at merged or acquired entities. An American resident earning $10,000 (Cdn) or less in Canada avoids the requirement to pay Canadian tax. Americans earning more than that may still be able to avoid the Canadian tax if they meet certain requirements involving physical presence in Canada and the residency of the employer.
Failure to file a Canadian tax return while tax is owing can result in a penalty of up to 17 per cent of the outstanding balance. Where there are repeated failures to file, the Canadian Revenue Agency may assess a penalty of up to 50 per cent of the tax owing.
Recently, the IRS has begun an initiative to collect non-filer penalties from non-residents that should have filed tax returns, as they see this as an easy way to increase tax revenue without hurting the U.S. economy. It will be only a matter of time before the CRA follows suit with a similar initiative.
