FAQs

A: While the sale of a principal residence is 100% tax-exempt in Canada under the CRA’s principal residence exemption, it is not completely exempt under US tax law. The IRS treats the sale of any global real estate by a US citizen as subject to capital gains. Under IRC Section 121, you can exclude up to $250,000 USD (or $500,000 USD if filing jointly) of capital gains, provided you met ownership and use tests. Any profit exceeding these thresholds is fully exposed to US capital gains tax.

A: This scenario exposes the Canadian firm to a dangerous operational trap: Permanent Establishment (PE) under Article V of the Canada-US Tax Treaty, alongside domestic State and Local Tax (SALT) Nexus. Having an employee execute contracts or provide core services from a home office in states like New York or California can instantly subject your Canadian corporate profits to US federal and state income tax allocations.

A: The IRS does not recognize the tax-free or tax-deferred status of Tax-Free Savings Accounts (TFSAs) or Registered Education Savings Plans (RESPs). The IRS classifies these vehicles as highly exposed foreign financial accounts. Income earned inside them must be reported annually on Form 1040, and they frequently trigger complex foreign trust reporting requirements (Forms 3520 and 3520-A), exposing the owner to aggressive statutory non-compliance penalties.

A: Operating a US rental property requires parallel filing. You must file IRS Form 1040-NR annually to report gross rental income, where we typically elect to deduct net expenses via a Section 871(d) election. When selling, you face immediate exposure to FIRPTA (Foreign Investment in Real Property Tax Act), which forces the escrow agent to withhold up to 15% of the gross sale price unless a formal withholding certificate is secured. The sale must also be declared on your Canadian T2 or T1 profile, utilizing Foreign Tax Credits to balance the exposure.

A: While a US C-Corp provides clean legal separation, it triggers immediate filing obligations on both sides of the border. If the US entity is 25% or more foreign-owned, it must file IRS Form 5472 along with Form 1120 annually. Failure to accurately disclose inter company transactions on Form 5472 triggers an automatic, non-negotiable $25,000 USD penalty per form. On the Canadian side, if the Canadian parent controls the C-Corp, it must file a T1134 Information Return with the CRA.

A: If your physical days in the US (calculated using a 3-year weighted average: all days this year, 1/3 of last year, 1/6 of the year before) equal or exceed 183 days, the IRS automatically deems you a US tax resident. This exposes your entire global income to US taxation. To counteract this, we model a defensive “What-If” layout utilizing IRS Form 8840 (Closer Connection Exception) or invoke the Article IV tie-breaker rules on Form 8833 to preserve your pure Canadian residency status.

A:If your physical days in the US (calculated using a 3-year weighted average: all days this year, 1/3 of last year, 1/6 of the year before) equal or exceed 183 days, the IRS automatically deems you a US tax resident. This exposes your entire global income to US taxation. To counteract this, we model a defensive “What-If” layout utilizing IRS Form 8840 (Closer Connection Exception) or invoke the Article IV tie-breaker rules on Form 8833 to preserve your pure Canadian residency status.

A: This triggers the aggressive Controlled Foreign Corporation (CFC) rules under the IRS. If a US person owns more than 50% of a Canadian corporation, the entity is a CFC. This subjects the business owner to complex US GILTI (Global Intangible Low-Taxed Income) taxation frameworks and requires filing IRS Form 5471 annually, transforming a standard Canadian corporate tax structure into an administrative and financial liability.

A: An Individual Taxpayer Identification Number (ITIN) is mandatory for foreign individuals who have US tax reporting obligations (e.g., US rental income, capital gains, or treaty-based withholding exemptions) but do not qualify for a Social Security Number. To bypass the risky process of mailing your original Canadian passport directly to the IRS in Austin, Texas, our firm serves as a conduit to verify identity documents locally and expedite processing via Form W-7.

A: If brother-sister companies or cross-border parent-subsidiary structures trade goods, services, or management fees without robust documentation, auditors will reallocate income. Under OECD guidelines and internal codes (IRS Sec. 482 / CRA Sec. 247), transactions must reflect “Arm’s Length” pricing. If a “What-If” analysis reveals unaligned margins, both agencies can assess retroactive taxes, interest, and multi-million dollar transfer pricing penalties.

Most individuals must file by April 30. Self-employed individuals and their spouses or common-law partners have until June 15 to file, though any balance owing is still due April 30. When a deadline falls on a weekend or holiday, the CRA generally extends it to the next business day.

A late-filing penalty generally applies when a balance is owing and the return is filed after the deadline, plus daily compound interest on any unpaid amount from the due date. Repeat late filers can face higher penalty rates. Filing on time avoids the penalty even if you cannot pay the full balance immediately.

Canadian residents report worldwide income, including foreign employment, investment, rental, and pension income. If the total cost of specified foreign property exceeds CAD $100,000 at any time in the year, a T1135 foreign income verification statement is generally also required.

Residency status generally determines whether you are taxed on worldwide income or only Canadian-source income for the year, and a departure or arrival can trigger a deemed disposition of certain property, part-year filing, and specific reporting forms. Residency is a facts-and-circumstances determination, not simply a matter of physical presence.

Yes. The CRA can generally reassess an individual return within three years of the original notice of assessment, and longer in cases involving carelessness, neglect, wilful default, fraud, or a waiver. Keeping supporting records for at least six years is recommended.

Read the letter carefully for the specific request and deadline, gather the supporting documentation requested, and respond by the stated date. Extensions can sometimes be requested. Professional support is recommended for anything beyond a routine slip-matching request.

It depends on your income level, liability exposure, growth plans, and cash-flow needs. Incorporation can offer liability protection, tax-deferral opportunities at lower corporate rates, and income-splitting possibilities, but adds ongoing compliance costs, including separate corporate filings and minute-book maintenance. A side-by-side comparison based on your numbers is the best way to decide.

A T2 return is generally due six months after the corporation’s fiscal year-end. Any balance owing is typically due two or three months after year-end, depending on the type of corporation, so the payment deadline often falls well before the filing deadline.

Registration is generally required once your total worldwide taxable supplies exceed CAD $30,000 over four consecutive calendar quarters (the small-supplier threshold), though you can register voluntarily earlier to recover input tax credits. Certain industries and non-resident sellers have additional considerations.

Salary creates RRSP room, CPP contributions, and personal taxable income with source with holding, while dividends are paid from after-tax corporate profits and taxed personally at different rates with no CPP or RRSP room created. Most owner-managers use a blend, decided based on personal cash-flow needs, retirement planning, and overall tax integration.

Generally, reasonable expenses incurred to earn business income are deductible, including rent, salaries, supplies, professional fees, and a proportionate share of home-office or vehicle costs where applicable. Capital assets are generally deducted over time through capital cost allowance rather than fully expense d in the year of purchase. Documentation and a clear business purpose are essential.

The CRA generally requires business records to be kept for at least six years from the end of the last tax year to which they relate. Records supporting the purchase or disposition of property, or a permanent change to your business, may need to be kept longer.

Both individuals and corporations may need to pay tax by installment during the year rather than in one lump sum at filing, generally once net tax owing exceeds CRA thresholds in the current and one of the two previous years. The CRA sends instalment reminders, but the responsibility to calculate and pay correctly remains with the taxpayer or corporation.