What is the next step for Canadians after Trump’s Repatriation Tax?

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Back in December, Trump has signed a sweeping tax reform charge into law. It included the Transition Tax, also known as the Repatriation Tax, which was meant to get large American multinational companies to cease parking billions of dollars in foreign subsidiaries.

Among some of its more significant provisions, the act reduced the corporate tax payable by corporations from 35 % to 21 % as of Jan 1st, meaning considerable financial savings for Canadian businesses that gain a significant share of their incomes in the U.S.
Unlike as for the U.S, this reform makes Canada a less attractive tax Jurisdiction for foreign companies looking to set up.

As a result, lots of Canadian residents with U.S. or double citizenship, particularly those that have used their small companies to save for their retirements, are now facing tax bills reaching hundreds of thousands of dollars on all retained earnings in their corporations going back to 1986. Some measures run within the millions.It is said that the proposed regulations may also break a Canada-U.S. tax treaty that is supposed to prevent double taxation.

A different important provision, for entities, is the imposition of a one-time “transition tax” on U.S. nationals and residents living outside of the US.
This said “transition tax” is a one-time tax payable by the U.S. including individuals, who own at least 10 %voting stock in a privately held, non-U.S. corporation, at 15.5 % on cash assets and 8% on non-cash assets.

Individuals struck by the tax can choose to pay it throughout eight years. However, the new guidance says those who resign their U.S. citizenship have to pay it right away.

It assumed that some people might have to maintain their U.S. nationality since they cannot pay the entire repatriation tax at once.

The tax reform bill has changed the competitive scenery in North America.
Canada’s previously favorable position in corporate taxation has eroded significantly while having the United States now holding the edge.

Canada’s risk coming from the U.S. tax reductions will undoubtedly pressure Canadian governments to take action in the upcoming budget season. Preserving much longer-term fiscal sustainability, enhancing the effectiveness of tax systems throughout revenue-neutral tax reforms and investment in human capital can achieve the similar aim of improving competitiveness. Within the current environment, the threat of a significant near-term migration of investment from Canada to the U.S. is genuine.

The U.S. is working at full capacity. Canadian companies might struggle to secure the space, providers, and labor needed to set up shop at reasonable return rates.
Canada’s economy continues to stand up well, which in turn mostly reflects solid U.S. growth expectancies.
Although, the latest considerable change in the landscape is more probably to manifest in the form of a longer-term “bleed” in capital flows to the south of the border. Greater difficulty in drawing in and retaining investment in Canada would weigh on the country’s longer-term growth prospects.

JRaphael Corporate Consulting is always up to date with the latest developments in international business. Schedule a free consultation today to see how you can leverage our knowledge for your offshore goals.