U.S. Tax Reform – Getting Closer to the End

December 16, 2017

Quite the week for tax professionals in Canada and the U.S. On Wednesday, Finance Minister Bill Morneau provided guidance on how Canada’s income splitting rules will apply to private corporations. You can read more about it here: https://www.canada.ca/en/revenue-agency/programs/about-canada-revenue-agency-cra/federal-government-budgets/income-sprinkling.html

On Friday, the House and Senate reached a compromise on their different US tax bills. Details were released Friday and many anticipate the single document being signed into law next week. Mary Duffy at Andersen provides some detail at the link below:


Some quick highlights of the U.S. tax bill announced on Friday that impact Canadians with US tax issues:

  • Increase of the U.S. federal estate tax exemption from US$5.5 million to US$11 million. This is welcome news and should shield many Canadians from U.S. federal estate tax applying to ownership of certain U.S. assets on their death. However, the bill stops short of repealing U.S. federal estate tax completely;
  • Decreased U.S. federal individual and corporate income tax rates starting in 2018. As the U.S. decreases U.S. individual tax rates, Canada has effectively increased personal tax rates for many Canadian small business owners with new rules limiting income splitting;
  • U.S. citizens resident in Canada that control Canadian corporations may be subject to a one time US tax on past income earned in Canadian corporations at rates ranging from 8% to 15.5%. Provisions allows payment over eight years and use of current foreign tax credit carryovers to offset this US tax;
  • The same U.S. citizen, Canadian resident owners of Canadian corporations may also be subject to U.S. federal tax on certain business activities realizing profits that are retained in the corporation. The new global intangible low-taxed income1 rules subject income earned in excess of a routine return calculated as 10% of a corporations’ tangible depreciable assets. An effective US Federal income tax of 10%2 applies to the U.S. citizens shareholder of the corporation.

As we analyze the U.S. tax bill, we will have more comments.

  • 1 GILTI, pronounced Guilty, as in, you are guilty of making too much money!
  • 2 higher in the first year 2018 at 17.5%, but settles to 10% for years after