Departure Tax challenges
Moderator: Mark T Serbinski CA CPA
It has been my experience in these type of situations that when shrs of a CCPC are pledge as security CRA will always give the file to Minister of Justice lawyers to do the paperwork. This involves you to sign over full authoirity of these shrs to the Govt of Canada, then eventhough you still have voting rights everthing you do goes throygh them even ehen you pay dividends it goes to them first then if youy are not behing in your tax filings or any other item they deem necessary they will pass on the dividend to you net of witholding tax. So yes if you think this is simple then its fine just be aware Minister of Justice also will charge you for their administration of tehis file nothing is free when you pledge security.
JG
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canadausguy
- Posts: 9
- Joined: Mon Oct 20, 2014 11:35 pm
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canadausguy
- Posts: 9
- Joined: Mon Oct 20, 2014 11:35 pm
Once you pledge securities this means effectively you give up certain ownership rights to the third party Rev Canada will hold tiltle to the shares since they must to secure their tax collection on eventual sale by a non resident.
As such the legal requirement will be to transfer title to them so they can maintain their vested interest in securing the tax, all issues other than your voting rights are now in their hands until you pay the tax.
When dividends will be declared they have no say since you are exercising your rights as director, but when the dividends are paid to the shareholder they get the chq in their hands since you have pledged all monies go to them first then they will pass it on to you once the witholding tax is paid.
If you owe them any back tax they will deduct this from the dividend and pass on the excess to you in the US again after witholding tax also.
That is why I say its better to take the money now lower the Retained earnings so the gain is also small if not you set the govt up as a nominee on the shares until you pay them off or come back to Canada.
I am a CA in Canada and a CPA in the US and also now what they refer to as a CPA in Canada too. I do offer services to clients have been doing so for 30 years 15 years in this area but I am not exclusively practicing in cross border I do both Canada domestic and US crossborder. I do not solicit from this forum you could very easily contact Mark Serbinski of this forum for a more detailed explanation I believe his preliminary consulation is free so why not take advantage of this.
As such the legal requirement will be to transfer title to them so they can maintain their vested interest in securing the tax, all issues other than your voting rights are now in their hands until you pay the tax.
When dividends will be declared they have no say since you are exercising your rights as director, but when the dividends are paid to the shareholder they get the chq in their hands since you have pledged all monies go to them first then they will pass it on to you once the witholding tax is paid.
If you owe them any back tax they will deduct this from the dividend and pass on the excess to you in the US again after witholding tax also.
That is why I say its better to take the money now lower the Retained earnings so the gain is also small if not you set the govt up as a nominee on the shares until you pay them off or come back to Canada.
I am a CA in Canada and a CPA in the US and also now what they refer to as a CPA in Canada too. I do offer services to clients have been doing so for 30 years 15 years in this area but I am not exclusively practicing in cross border I do both Canada domestic and US crossborder. I do not solicit from this forum you could very easily contact Mark Serbinski of this forum for a more detailed explanation I believe his preliminary consulation is free so why not take advantage of this.
JG
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canadausguy
- Posts: 9
- Joined: Mon Oct 20, 2014 11:35 pm
Thank you again for the reply. I have been advised that if I pay out dividends before departure, I will be subject to very high dividend tax (like 40% or so). Living in the US and taking out dividends is very costly for tax.
The thinking is that if I post security now, and later sell say in 10 or 15 years, yes I will have to pay capital gains if I sell or maybe I won't ever sell. But with the time value of money the best bet is to post security. Also if I don't do this I have to maintain my tax residency in Canada. That could be a challenge or not. I own and operate a CCPC in Canada that is active, I rent a place there and travel there around every 6 weeks. But my wife and kids live in the US full time. So based on this fact pattern can it be argued that I still maintain my tax residency? Lastly if I want tp build a business in the US and it grows in value then that will be subject to capital gains if I dont depart. So if I reduce the value of the Cnd business but the US grows, then Im back to square one. Seems like Im facing a hard situation.
The thinking is that if I post security now, and later sell say in 10 or 15 years, yes I will have to pay capital gains if I sell or maybe I won't ever sell. But with the time value of money the best bet is to post security. Also if I don't do this I have to maintain my tax residency in Canada. That could be a challenge or not. I own and operate a CCPC in Canada that is active, I rent a place there and travel there around every 6 weeks. But my wife and kids live in the US full time. So based on this fact pattern can it be argued that I still maintain my tax residency? Lastly if I want tp build a business in the US and it grows in value then that will be subject to capital gains if I dont depart. So if I reduce the value of the Cnd business but the US grows, then Im back to square one. Seems like Im facing a hard situation.
You would definitely not be considered Cdn resident under the conditions you describe. You have really already left. And your corp loses its CCPC status.
The whole point of departure tax is for CRA to get its share as you leave. Mision accomplished.
The whole point of departure tax is for CRA to get its share as you leave. Mision accomplished.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing 