MPs to lobby U.S. counterparts on impact of Trump tax in Canada
Thousands of Canadian residents with corporations facing massive U.S. tax bills because of Trump’s tax reform
The plight of thousands of Canadian residents facing massive bills as a result of U.S. President Donald Trump’s tax reform, will be on the agenda when a committee of MPs and senators heads to Washington this week.
Liberal MP Wayne Easter, co-chair of the Canada-United States Interparliamentary Group, said the top priority when Canadian lawmakers meet with their American counterparts will be the North American Free Trade Agreement (NAFTA) and international security issues. However, he said members of the committee also plan to raise the issue of the inadvertent impact Trump’s sweeping tax reform is having north of the border.
“I think what’s happened here is that a decision was made and there’s a whole lot of collateral damage or unintended consequences.”
– Wayne Easter, Liberal MP
“I do know that the minister of finance and government officials have been having some discussions with the Americans on that,” said Easter, who also chairs the House of Commons finance committee. “It’s a huge problem for Canadian businesses and it needs to be addressed, so I’m sure it will probably come up in some of the meetings.”
Easter’s comments come as thousands of Canadian residents with U.S. citizenship across the country are grappling with the impact of a one-time, retroactive repatriation tax included in the 1,000-page U.S. tax reform Trump signed into law just before Christmas.
The measure was intended to get big American multinational corporations like Apple and Microsoft to stop parking billions of dollars in foreign subsidiaries. However, it is also hitting U.S. or dual citizens in Canada who have corporations – many of whom have lived their lives in Canada.
Many are facing the prospect of hundreds of thousands of dollars of U.S. tax on all of the retained earnings in their corporations going back to 1986. Some are facing bills in the millions of dollars.
Those who have been using their corporations to save for retirement are getting particularly hard hit.
Double tax whammy
While the tax is being levied on money sitting in their corporations, it is the owner who has to declare the money on their 2017 personal tax return.
If they have to take money out of their corporations to pay the tax, they risk a double whammy – having to pay tax to the Canadian government on the money they take out to pay the IRS.
While those affected can elect to spread the bill over eight years, they have until June 15 to file their tax returns and begin making payments.
Experts say the measure is hitting Canada harder than other countries. Canada has more residents with U.S. or dual Canadian-U.S citizenship than many other countries and Canada’s tax system makes it more advantageous for small business owners, farmers and professionals like doctors and lawyers to incorporate than in the U.S.
Finance Minister Bill Morneau’s office says the government is studying the impact of Trump’s tax reform on Canada but has not made any decisions. It said finance department officials speak regularly with their American counterparts but it could not confirm whether they have discussed the impact the tax reform is having in Canada.
Easter’s message to his American counterparts is simple.
Need government-to-government talks
“I think what’s happened here is that a decision was made and there’s a whole lot of collateral damage or unintended consequences. There will have to be more government-to-government discussions and we’ll be able to, I think, broach the issue and tell members of Congress how problematic this is for Canadians or Americans who are in Canada who set up retirement plans with the best intentions based on the rules that were already in place.”
Brian Masse, NDP MP for Windsor West who heads to Washington as part of the group Tuesday, also plans to raise the impact of Trump’s tax reform. He said it reminds him of a problem that arose years ago over how American social security benefits were being taxed for Canadians who had worked in the U.S.
Conservative Senator Michael MacDonald, co-chair of the interparliamentary group, expects NAFTA to dominate the trip to Washington – particularly since many of the U.S. politicians they will meet also have an interest in the outcome of the trade talks.
NAFTA on the agenda
“Particularly with the free trade agreement, most of the talk will be on cross-border trade for the most part, and any regulatory problems there are. The tax bill – certainly I’m no tax expert but I am familiar with some of the impact of the bill in terms of double taxation of people and there’s a lot of money being drained back into the U.S. from Canadian corporations because of this bill.”
However, MacDonald’s not holding out much hope that the group’s trip to Washington will make a difference.
“In terms of us having a lot of impact in that area, I think the odds are relatively slim because that has been signed into law by the U.S. government, by the president.”
Elizabeth Thompson can be reached at email@example.com.
Source: CBC NEWS / Elizabeth Thompson