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Increased Border Monitoring

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You may need to file a tax form in the US if you spend too much time in the country.

You may need to file a tax form in the US if you spend too much time in the country.

A significant change is coming this year for people who regularly cross the border into the United States.

In the past, neither the Canadian nor US governments has been able to independently track the number of days that somebody has spent in either country.

Starting on June 30, under the Entry/Exit Initiative of the Perimeter Security and Economic Competitiveness Action Plan, both governments will be working together to share this information with each other.

This may have an effect on the requirement of certain Canadians to file tax return in the United States. You may recall in a previous edition of our newsletter, we noted that individuals would need to complete a US tax form if they spent on average more than four months per year over the last three years in the United States.

In order to avoid filing a complete US income tax return, you need to file an 8840 form, the Closer Connection Exception Statement for Aliens, with the IRS.

In previous years, many people may have not filed the form, assuming the US government would have difficulty determining whether they had spent enough days in the US. With the increased diligence, people may need to rethink this assumption.

For those living near the border, keeping track of the amount of time spent in the US may be difficult, particularly if they cross the border every week for gas or groceries.

For example, a person may think that they do not need to file the form because they spent only three months on average in the US over the last three years. However, they also crossed the border every week to shop while they were in Canada. Over a period of nine months, this would result in another 39 days spent in the US, and they would then be over the threshold.

Because of the difficulty in tracking these dates, you can make a request to Canada Border Services to obtain this information.

The 8840 form is due by June 15th every year.

Paying Business Debts to the CRA

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Sometimes business owners have to decide which debt to pay off first.

Sometimes business owners have to decide which debt to pay off first.

Sometimes business owners have to decide which debt to pay off first. Business owners are often left in a position of trying to decide whether to take out a loan to pay their tax, or be assessed interest on any amounts that are outstanding.

There are two things to be considered in determining what is most cost effective.

One would need to compare the interest rate payable to the CRA versus the interest rate payable on a line of credit or other type of loan.

Currently, the CRA charges 5% interest on outstanding amounts and this rate is reviewed quarterly.

In addition, one would need to consider that any interest expense that is incurred on income taxes owing would not be deductible for business purposes, whereas the interest on a loan used to pay the tax would be deductible.

The current rate of tax for small business corporations in British Columbia is 13.5%. Not being able to deduct this interest would effectively add another .675 to the interest rate that you are paying.

As a result, if a business owner can obtain a loan for less than 5.675%, it makes sense to use outside financing.

Foreign Income Easier to Monitor

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Information will now be shared between the Canada Revenue Agency and the Internal Revenue Service.

Information will now be shared between the Canada Revenue Agency and the Internal Revenue Service.

In February of this year, an agreement was signed between the Canadian and American government which makes it easier for the respective entities to monitor income earned outside their borders.

Under the terms of this agreement, financial institutions in Canada will share information with the Canada Revenue Agency (CRA), who will pass this information onto the Internal Revenue Service (IRS).

This will allow the IRS to more easily determine whether income earned at a bank in Canada is being accurately reported on an individual’s tax return.

The same information will be shared in return, so that the CRA will now have greater access to financial information regarding Canadians who hold bank or investment accounts in the United States.

This information sharing regime does not apply to registered investments, such as Registered Retirement Savings Plans, Tax Free Savings Accounts, and Registered Retirement Income Funds.

The new reporting regime will come into effect in July 2014 with information exchanges beginning in 2015.

The CRA has indicated that they will not assist the IRS in collecting taxes and penalties that are owed to the IRS.

As well, the agreement will not impose any taxes on US citizens holding accounts in Canada. The agreement will work in conjunction with tax treaties that are already in place with the United States, which govern the withholdings and the taxability of income between the two countries.

If you have investments in the United States, you should advise your investment advisor that you are a Canadian resident, to ensure that the correct amount of tax is being withheld on your income.

For instance, if you are receiving dividends on US stocks, and more than 15% tax is withheld on these dividends, you are overpaying US tax on your investment. You will need to contact your advisor to adjust your account.

Congratulations to our own Jim Burch, Grand Forks office

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2015 Board of Governors Election

CGA-BC is holding an election for the 2015 Board of Governors.  A call for nominations to fill seven vacancies resulted in the following:

One vacancy in District 5 –  East West Kootenays

One nomination was received to fill one seat; therefore the following individual is elected by acclamation:

Nominee Residence
James (Jim) R. Burch Grand Forks

Way to go Jim – we look forward to hearing more about this.

 

Social Media

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With Pinterest interest climbing  we have added it to our social media repetroire.

You can still follow us on Twitter.

You can still like our incredible news on Facebook.

But now you can get a look into the fascinating world of accounting by following our board on Pinterest.

See you there!