Taxation of U.S. Citizen physicians in Canada
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TAXATION OF U.S. CITIZEN PHYSICIANS IN CANADA PLANNING CONSIDERATIONS AND REQUIREMENTS Presented by Hutcheson and Co. LLP and MD Financial Management
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Transcript of Taxation of U.S. Citizen physicians in Canada
TAXATION OF U.S. CITIZEN PHYSICIANS IN CANADA PLANNING CONSIDERATIONS AND REQUIREMENTS
Presented by Hutcheson and Co. LLP and MD Financial Management
ABOUT US
Hutcheson & Co established in 1987
Full service tax and accounting solutions including cross border tax specialties
5 Partner firm with an excellent team of 23 staff members
Located in Victoria BC –Yates and Cook Street
TOPICS
Phil Hogan - Introduction
Ammo Baines –Canadian Tax Structures for Physicians
Brent England –US Tax Considerations and Requirements
Phil Hogan –Wrap Up and Questions
GENERAL US TAX REQUIREMENTS
US Citizens are required to file US 1040 income tax returns regardless of where they live
Other foreign financial and tax reporting is required
Canada-US tax treaty helps eliminate double taxation
Penalties can be high for non-compliance and late filing of specific tax forms
TAX FILING REQUIREMENTS FOR US PERSONS
Annual Filing Requirements T1
1040
FBAR (foreign bank account reporting – form 114)
Related treaty disclosures
Family Trust 3520-3520A
Private Corporate ownership 5471
Subpart F income (investment income)
COMMON CANADIAN TAX STRUCTURES
Considerations Legal
Health Professions Act
Section 43
College of the Physician and Surgeons of BC Bylaws
Part 6
Financial
Other
COMMON CANADIAN TAX STRUCTURES
Structures Shares held by physician
Add Spouse
Add Family Trust
Add Holding Company
Physician(shareholder)
OPCO
Voting Participating
SHARES HELD BY PHYSICIAN
COMMON CANADIAN TAX STRUCTURES
Add Spouse Voting shares for Physician
Non-voting shares for Spouse
Features participating vs non-participating
Physician(shareholder)
Spouse(shareholder)
OPCO
Non-VotingParticipating
Voting Non-Participating Non-Voting
Participating
ADD SPOUSE
COMMON CANADIAN TAX STRUCTURES
Add Family Trust Structure
Benefits versus “add spouse”
Now or later?
Physician(Shareholder)
OPCO
VotingNon-Participating
Non-VotingParticipating
Trust
Physician(Trustee)
Beneficiaries- Physician- Spouse- Children (over 18)
ADD FAMILY TRUST
COMMON CANADIAN TAX STRUCTURES
Add Holding Company Investment asset growth
Asset protection
Avoid subpart F inclusion (see final structure)
Physician(Trustee)
Trust
HOLDCO
Physician(Shareholder)
OPCO
Non-VotingParticipating
VotingParticipating
Beneficiaries- Physician- Spouse- Children (over 18)
VotingNon-participating
ADD HOLDING COMPANY
Non-VotingParticipating
VotingNon-participating
Physician US Citizen(Shareholder)
Spouse(Shareholder)
Trust
Trustee- 3rd Party- Spouse & 3rd Party- Spouse Only
OPCO HOLDCO
Non-VotingParticipating
VotingNon-participating
Beneficiaries- Spouse- Children (over 18)
ALTERNATIVE FOR US CITIZENS
Non-VotingParticipating
PLANNING CONSIDERATIONS
Corporation – PFIC vs CFC and subpart F PFIC Income
50/50 holding companies may be considered a PFIC
PFIC definition - 50% of inactive assets or 75% of inactive income
Punitive taxation
Controlled Foreign Company (CFC) and Subpart F Income (cannot be a PFIC)
Investment income in excess of dividends paid
Move investment assets to Holdco (not owned by US Citizen)
Income splitting Spouse and children
Ability to use lower marginal rates
PLANNING CONSIDERATIONS (CON’T)
Tax deferral Retain assets in corporation to defer higher personal tax rates
Sale of practice Capital gains exemption below $800,000
May not be easy to sell
AVOID PENALTIES!
Late FBAR (form 114) - $10,000
Late 5471 - $10,000
Late 3520A/3520 –Greater of $10,00 and % of trust property
T1135 - $25 a day to a max of $2,500 plus interest
Penalties on overdue tax payments
QUICK CHEAT SHEET
File your 1040 and FBAR on time each year
Review implications of holding Canadian mutual funds
Ensure proper planning to avoid PFIC and Subpart F income
Use structures specific to needs
Invest in proper tax planning to help minimize future tax and avoid costly tax problems
Be aware of US tax requirements and exceptions
Penalties can be avoided with proper planning
QUESTIONS?
CONTACT US
Name Email Phone Number
Brent England CPA, CA, CPA (Colorado)
[email protected] 250-381-2400
Phil Hogan CPA, CA, CPA (Colorado)
[email protected] 250-381-2400
Terry Dyer CPA, CA, RTRP [email protected] 250-381-2400
Ammo Baines BBA, CPA, CA [email protected] 250-381-2400
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