Sent: Wednesday, January 29, 2003 4:00 PM
Subject: enjoyed your website
Hi,
I'm am interested
in a Canadian corp but am unfamiliar with the tax laws and consequences. After
viewing your site I see the tax situation may be much more complicated than I
expected. Perhaps you would answer a general question............... If a
US
citizen starts or purchased a Canadian corporation (Quebec)
and then sells the corp, would he pay tax in
Canada
(capital gains or personal income), in the
US,
or both.
Thank you very
much!
CXXXXXX XXXXXXX
The sale of the shares
of a private company in Quebec and Canada would be taxable by both the
province of Quebec AND the federal government of Canada.
They would then be
taxed again by both the US federal government and your state of residence.
However, you would get
credit on your US 1040 by filing a form 1116 to claim the taxes paid to
Canada.
Some states like
Hawaii will give a credit for the foreign taxes as well.
Your biggest problem
with your ownership of a Canadian company (when you are a US citizen OR even a
Canadian living in the US) is that you have to fill out a form 5471 and file
it with your US tax return.
The penalties for
missing this form are: $10,000 US for the first late 90 days and then a mere
$10,000 per month until you reach a total of $250,000 per company per owner
per year.
So, if you and your
wife both owned 50% of a Canadian company and did not file your 5471 for 1999,
you would owe $250,000 each in penalties. OUCH! - Get your
accountant to look up the rules for US form 5471.
The good news is that
Sonja Clark, CPA, CA, LLB is a specialist in the preparation of these forms
and just happens to be in our office.
If your US accountant
only has to do one a year for you, it would be cheaper by far to have Sonja do
them for you. we can also look after the preparation
of the Canadian and US portions of your Canadian company if necessary.
It is far more efficient to find someone who can do both at the same time
instead of having to send it away to the affiliate.
You can contact either
of us at the address and phone number below:
