Thousands of Canadians hit hard by a retroactive tax signed into law by U.S. President Donald Trump have been dealt another blow.
Newly proposed regulations issued by the U.S. Treasury Department and the Internal Revenue Service threaten to increase their tax hit.
Apparently, a 'Transition Tax' introduced by Washington was intended to discourage U.S. multi-nationals from leaving vast sums in foreign subsidiaries. But the tax is also hitting Canadians with U.S. or dual citizenship who have companies incorporated in Canada.
While many of those affected had hoped to use a longstanding U.S. tax deduction to take some of the sting out of their tax bills, the proposed regulations — contained in a guidance document from Treasury and the IRS issued last week — will allow only a portion of that deduction.
Some experts say the proposed regulations may also violate a Canada-U.S. tax treaty which is supposed to prevent double taxation.
In December, Trump signed a sweeping tax reform bill into law. It included the Transition Tax, also known as the Repatriation Tax, which was meant to get big American multinational companies like Apple and Microsoft to stop parking billions of dollars in foreign subsidiaries.
As a result, many Canadian residents with U.S. or dual citizenship — particularly those who have used their small corporations to save for their retirements — are facing tax bills amounting to hundreds of thousands of dollars on all of the retained earnings in their corporations going back to 1986. Some bills run into the millions.
