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Taxation of U.S. Citizen physicians in Canada
- 1. TAXATION OF U.S. CITIZEN PHYSICIANS IN CANADA PLANNING CONSIDERATIONS AND REQUIREMENTS Presented by Hutcheson and Co. LLP and MD Financial Management
- 2. 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 inVictoria BC –Yates and Cook Street
- 3. TOPICS Phil Hogan - Introduction Ammo Baines – CanadianTax Structures for Physicians Brent England – USTax Considerations and Requirements Phil Hogan –Wrap Up and Questions
- 4. GENERAL USTAX 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
- 5. TAX FILING REQUIREMENTS FOR US PERSONS Annual Filing Requirements T1 1040 FBAR (foreign bank account reporting – form 114) Related treaty disclosures FamilyTrust 3520-3520A Private Corporate ownership 5471 Subpart F income (investment income)
- 6. COMMON CANADIANTAX STRUCTURES Considerations Legal Health Professions Act Section 43 College of the Physician and Surgeons of BC Bylaws Part 6 Financial Other
- 7. COMMON CANADIANTAX STRUCTURES Structures Shares held by physician Add Spouse Add FamilyTrust Add Holding Company
- 9. COMMON CANADIANTAX STRUCTURES Add Spouse Voting shares for Physician Non-voting shares for Spouse Features participating vs non-participating
- 11. COMMON CANADIANTAX STRUCTURES Add FamilyTrust Structure Benefits versus “add spouse” Now or later?
- 12. Physician (Shareholder) OPCO Voting Non-Participating Non-Voting Participating Trust Physician (Trustee) Beneficiaries - Physician - Spouse - Children (over 18) ADD FAMILYTRUST
- 13. COMMON CANADIANTAX STRUCTURES Add Holding Company Investment asset growth Asset protection Avoid subpart F inclusion (see final structure)
- 14. Physician (Trustee) Trust HOLDCO Physician (Shareholder) OPCO Non-Voting Participating Voting Participating Beneficiaries - Physician - Spouse - Children (over 18) Voting Non-participating ADD HOLDING COMPANY
- 15. Non-Voting Participating Voting Non-participating Physician US Citizen (Shareholder) Spouse (Shareholder) Trust Trustee - 3rd Party - Spouse & 3rd Party - Spouse Only OPCO HOLDCO Non-Voting Participating Voting Non-participating Beneficiaries - Spouse - Children (over 18) ALTERNATIVE FOR US CITIZENS Non-Voting Participating
- 16. 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
- 17. 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
- 18. 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
- 19. 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
- 20. QUESTIONS?
- 21. CONTACT US Name Email Phone Number Brent England CPA, CA, CPA (Colorado) brent@hutcheson.ca 250-381-2400 Phil Hogan CPA, CA, CPA (Colorado) phil@hutcheson.ca 250-381-2400 Terry Dyer CPA, CA, RTRP terry@hutcheson.ca 250-381-2400 Ammo Baines BBA, CPA, CA ammo@hutcheson.ca 250-381-2400