I filed election T1244 for deferred departure tax on shares owned in a CCPC. According to regulations, departure tax becomes payable when asset is actually sold.
Now Nelsona on another thread informed me that a wind-up of a corporation is not a sale, based on this information, if I wind-up my company, does this mean that the departure tax does not have to be paid because a sale has not occurred.
I understand that I would have to pay 15% withholding on deemed dividend on a wind-up, but this is fine because the 15% is a tax credit in the USA while the departure tax isn't.
So can I avoid the departure tax by winding up the company thereby avoiding the the departure tax because the the asset in question has not been sold, but owund up.
Defered Departure Tax ... does it have to be paid?
Moderator: Mark T Serbinski CA CPA
I would think you would have needed to do this before leaving Canada.
To be clear, you do not need to pay the departure tax, so long as there are assets against it (collateral if you will). Once you wind it up, there is no collateral, so the deferral goes away.
To be clear, you do not need to pay the departure tax, so long as there are assets against it (collateral if you will). Once you wind it up, there is no collateral, so the deferral goes away.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
I would think you would have needed to do this before leaving Canada. .."the T1244 states definitively you do not have to pay until asset disposed of. I have called CRA to confirm deferral.
To be clear, you do not need to pay the departure tax, so long as there are assets against it (collateral if you will). Once you wind it up, there is no collateral, so the deferral goes away. ... so then you can reduce departure tax by winding up the company and you are essentially replacing a non refundable US tax with a refundable tax ....
has anyone here done this before? I would like to do this before 12/31/2011. I have already obtained a non-resident account number for my company.
To be clear, you do not need to pay the departure tax, so long as there are assets against it (collateral if you will). Once you wind it up, there is no collateral, so the deferral goes away. ... so then you can reduce departure tax by winding up the company and you are essentially replacing a non refundable US tax with a refundable tax ....
has anyone here done this before? I would like to do this before 12/31/2011. I have already obtained a non-resident account number for my company.
byw, I'm not so sure that I was the one that said a wind-up is not a sale. You would have to check with the person who actually said this, perhaps JGCA?
As to whether or not wind-up is a dispostion, I would be relying on IT-126R2 rather than anything that has been said here.
partulcarly Para. 9:
"9. Pursuant to subparagraph (b)(i) of the definition of "disposition" in
section 54, there is a disposition of the shares of a corporation when the
shares are cancelled. It is the Department's position that in the case of a
corporation being wound up, the shares are cancelled when the certificate of
dissolution is issued. In addition, even though the formal dissolution of a
corporation has not occurred, the Department will consider that there is a
disposition of the shares when subsection 88(1) or (2) applies to the
corporation in the circumstances described in 5 above. "
That sounds like a disposition to me.
As to whether or not wind-up is a dispostion, I would be relying on IT-126R2 rather than anything that has been said here.
partulcarly Para. 9:
"9. Pursuant to subparagraph (b)(i) of the definition of "disposition" in
section 54, there is a disposition of the shares of a corporation when the
shares are cancelled. It is the Department's position that in the case of a
corporation being wound up, the shares are cancelled when the certificate of
dissolution is issued. In addition, even though the formal dissolution of a
corporation has not occurred, the Department will consider that there is a
disposition of the shares when subsection 88(1) or (2) applies to the
corporation in the circumstances described in 5 above. "
That sounds like a disposition to me.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
As to whether or not wind-up is a dispostion, I would be relying on IT-126R2 rather than anything that has been said here. .... the issue as I see it is not whether or not a wind-up is a dispostion, but whether or not a wind-up is a sale of shares that triggers payment of departure tax.
byw, I'm not so sure that I was the one that said a wind-up is not a sale. You would have to check with the person who actually said this, perhaps JGCA? ... you are correct, what you posted was: "There is a difference between the wind-up of the CCPC and the deemed disposition of the company. CRA has confirmed this." .... whatever these differences may be, it appears that sale/wind-up/deemed disposition are equivalent terms as regards to the ultimate payment of the departure tax.
byw, I'm not so sure that I was the one that said a wind-up is not a sale. You would have to check with the person who actually said this, perhaps JGCA? ... you are correct, what you posted was: "There is a difference between the wind-up of the CCPC and the deemed disposition of the company. CRA has confirmed this." .... whatever these differences may be, it appears that sale/wind-up/deemed disposition are equivalent terms as regards to the ultimate payment of the departure tax.
If you windup your company before you leave Canada you are going to be faced with a deemed dividend income inclusion and a capital loss on the wind up. There is no more issue at that point in departure tax because the shares have been cancelled for consideration of the deemed dividend which is taxable in Canada and not in the US because you have done this before you left Canada so no departure tax issues arise at this point.
JG
He's already non-resident, otherwise he would not have filed the election to defer.
That is whay I said it "would have been" better to do this before leaving. Now it is too late.
That is whay I said it "would have been" better to do this before leaving. Now it is too late.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
If you are already a non resident the date you left Canada you had a deemed disposition of the shares at FMV this was the departure tax you owed at that time, now subsequently you redeem the shares you have a deemed dividend taxable in Canada and the US with a 15% witholding tax payable to Canada and available in the US as a FTC.
As I said earlier you also have a deemed capital loss on these shares that you received a dividend on which you can carryback to the year of departure to offset it against the capital gain you had when you left Canada, you will not be taxed twice on the same amount. It has no effect on the US side since the gain was triggered before you entered the US.
As I said earlier you also have a deemed capital loss on these shares that you received a dividend on which you can carryback to the year of departure to offset it against the capital gain you had when you left Canada, you will not be taxed twice on the same amount. It has no effect on the US side since the gain was triggered before you entered the US.
JG
I had not thought of the carryback provision. Good point.
After all, this is TCP, so must be reported on a T1 return, so carryback is allowed (for 3 years).
This carryback doesn't apply to non-TCP, like a public stock.
Why would there not be a commensurate cap loss in US? The shares had a value, and at disposition they do not. That is a capital loss in US as well.
After all, this is TCP, so must be reported on a T1 return, so carryback is allowed (for 3 years).
This carryback doesn't apply to non-TCP, like a public stock.
Why would there not be a commensurate cap loss in US? The shares had a value, and at disposition they do not. That is a capital loss in US as well.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
THe capital gain was a deemed realisation on departure at which time he was not a resident of the US, he is not picking up the capital gain in the US.
So if he is not taxed on the cap gain it is only allowed on the capital gains on his departure return since it was on the redemption of shares that was triggered on this event only, he could not use this loss to offset any losses in the US on US capital gains that were never taxed in Canada.
THere is also an anti avoidance mechanism wherein if you pay out dividends on the shares while a non resident then you redeem the shares for more than the value of the departure FMW elected gain this excess will not be allowed as a capital loss they will simply revise the departure gain to equal to this amount.
So if he is not taxed on the cap gain it is only allowed on the capital gains on his departure return since it was on the redemption of shares that was triggered on this event only, he could not use this loss to offset any losses in the US on US capital gains that were never taxed in Canada.
THere is also an anti avoidance mechanism wherein if you pay out dividends on the shares while a non resident then you redeem the shares for more than the value of the departure FMW elected gain this excess will not be allowed as a capital loss they will simply revise the departure gain to equal to this amount.
JG
I think you are misunderstanding my question.
US rules never require the deemed dispostion to be used at any time in determining cap gains or losses on a disposition that occurs while a US resident (it is an election to be made by the taxpayer).
So, if the shares were worth X when they were acquired (which may or may not be the case in this instance), and are worth zero when they are sold, that certainly is an allowed capital loss.
Example: I but ABC in 2009 at $20, it is worth $25 at departure ($5 dollar deemed gain for Cdn purposes), I sell at $5 later in US. I do get the $20 cap loss. That is absolutely true.
he is paying out the shares while resident in US, so the dividend is taxable, and there is an equivalent cap loss.
US rules never require the deemed dispostion to be used at any time in determining cap gains or losses on a disposition that occurs while a US resident (it is an election to be made by the taxpayer).
So, if the shares were worth X when they were acquired (which may or may not be the case in this instance), and are worth zero when they are sold, that certainly is an allowed capital loss.
Example: I but ABC in 2009 at $20, it is worth $25 at departure ($5 dollar deemed gain for Cdn purposes), I sell at $5 later in US. I do get the $20 cap loss. That is absolutely true.
he is paying out the shares while resident in US, so the dividend is taxable, and there is an equivalent cap loss.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
General comment. I read a lot of information on many sites (IRS and CRA included) and this is the most informative site I have ever been too. I double check all information, and any all information posted here has been cooberated eslsewhere, Furthermore, what others claim to be true, when double checked against information posted here, it turns out that this site is correct in the details.
thx for the information. while the internet is full of misleading information, it is rare to have people who post accurate, timely, reliable, info ....
thx for the information. while the internet is full of misleading information, it is rare to have people who post accurate, timely, reliable, info ....
JCGA is quite good (and willing to share) with his information of business tax. He is a pro, so could be making money instead.
I'm more comfortable with personal tax, especially stategies when entering leaving canada, and have not had much support for the business end until recently. It's a hobby for me so far.
We try.
I'm more comfortable with personal tax, especially stategies when entering leaving canada, and have not had much support for the business end until recently. It's a hobby for me so far.
We try.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
Nelsona, he did not actually dispose of the shares to a non arms length party, he by virtue of ITA sec 84(3) redeemed the shrs so the deemed dividend kicked in and also by virtue of ITA Sec 248(1) (1.1) he has a capital loss on the shares equal to the deemed dividend less his ACB.
This capital loss is only available in the year of departure it will not be allowed to be brought into the US because it was not an actual sale. Had he sold the shares instaed he would have realised a capital gain but his ACB would have been set at the value established when he departed so the gain would have been minimal or NIl, the use of the capital loss election here is simply to get back the tax he paid on departure allowing him to claim a further capital loss in the US would be giving him an extra benefit, this is why they do not recognize it in the US.
This capital loss is only available in the year of departure it will not be allowed to be brought into the US because it was not an actual sale. Had he sold the shares instaed he would have realised a capital gain but his ACB would have been set at the value established when he departed so the gain would have been minimal or NIl, the use of the capital loss election here is simply to get back the tax he paid on departure allowing him to claim a further capital loss in the US would be giving him an extra benefit, this is why they do not recognize it in the US.
JG