4 Important Things to Know About Canada/U.S. Cross Border Taxation

November 23, 2021 | Written by: Sohail Afzal

Cross Border Taxation

Canada and the United States face unique and complex tax issues due to cross-border activities, such as financings, benefits, and losses. Tax legislation and regulations for cross-border taxation must be complied with to ensure dealings are structured so that you can maximize your tax efficiencies and minimize tax liabilities. A non-compliance has the potential to negatively impact both reputation and finances, especially in today’s climate of increased investigation from tax authorities and the public. In this article, we will learn four important things to know about Canada/U.S cross border taxation. 

To develop innovative cross-border acquisition, operations, and exit structures, cross-border businesses benefit most from cross-border taxation experts who can reconcile legal differences between Canada and the U.S. and deliver integrated tax planning guidance. 

4 Things That You May Need to Know

T1135 Verification Statement

If your foreign investment property was valued at more than $100,000, you must complete and file Form T1135 along with your income tax returns. Individuals, corporations, partnerships, and trusts who own such foreign investment property must complete this form.

Your income tax return will ask you if you own any foreign property with a total cost exceeding $100,000 at any time in the year. If your answer is yes, then you need to fill out the necessary form.

Property Held by Specified Foreigners

There are other types of foreign investment properties besides real estate. If you hold funds in foreign bank accounts or own shares of foreign companies, or interests in non-resident trusts, or if you hold bonds or debentures issued by foreign governments, you must report your foreign investment property on your Form T1135.

Changes in Form T1135

A few years ago, the government changed this form, which now has a two-tier structure that allows taxpayers with a specified foreign property of more than $100,000, but less than $250,000, to select checkboxes in Part A of the Form describing each property individually. Taxpayers who hold specified foreign property over $250,000 will still be required to use Part B of the T1135, also known as the detailed method. It is possible to Refile this Form with the CRA if you made a mistake.

Transfer Pricing 

The earnings of companies and individuals working for American or multinational firms can be taxed. This is known as transfer pricing. 

It is referred to as the pricing of transactions between related companies in different countries. The change may also affect Canadian companies with a taxable presence in other countries. If these companies were independent, they would have to ensure that they collected the same taxes in every country.

Final Words

Form T1135 must be filed if you fail to do so. It can result in stiff penalties. Even if you are getting help from an accountant for your taxes, this form must still be filled out and sent to the CRA, 

For any tax year in which you have foreign properties, you must complete Form T1135. You can use the Voluntary Disclosure form to avoid paying stiff penalties if you fail to submit it on time. You must include Form T1135 along with Voluntary Disclosure from any previous year you may have forgotten to include. Feel free to contact us if you want to know more about cross-border taxation.

Sohail Afzal CPA Toronto

Sohail Afzal, CPA, CMA, MBA

Sohail Afzal, (CPA, CMA, MBA) is the founder & CEO of GTA Accounting Professional Corporation. He is a highly experienced Chartered Professional Accountant and businessman himself and understands the challenges that many businesses face when it comes to cash flow management. As an experienced business consultant & tax advisor, he is helping companies grow by providing the technical, financial, and contractual information necessary for strategic decision-making.

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