July 1995 CEN-TAPEDE - California Tax, Requirement to file State Return, Exemptions on earned income, Form 5471, Foreign Ownersh

July 1995                              Page 109-110


david ingram's US/Canadian Newsletter




Well, the season is almost over, - well, not quite. As I write this on CANADA Day, July 1, 1995 I have come to the realization that I have taken off 3 Sundays and 1 Saturday since New Year's day. In addition the months of April and June saw me in the office until midnight most evenings except Tuesday which is Bagpipe night.


Why the long hours? Poor organization you might say! Well, that is certainly part of it. Many people consider me disorganized, but after 31 years in the tax preparation business, this was the worst year I have ever seen. We spent hours explaining the $100,000 capital gains exemption to people who sometimes filed the election out of fear of missing it.


In many cases the people now want to cancel the exemption because they can't really afford the $10,000 (a family) clawback of Old Age Pensions and supplements or an old ABIL (allowable business investment loss) or CNIL (cumulative net investment losses) amounts which they had forgotten about. These last amounts usually only applied to people in the last week or so where we had not obtained a printout from Revenue Canada but it is a major annoyance to be cancelling all these elections now.


The other reasons we have been busier than ever:


1 California is out to catch all those individuals who work there without filing a tax return. Yep, attend seminars or work in California for 1, 5, or 30 days in May (while being paid by your Canadian employer), and you must (not should) file a California tax return and report your world income. What is really fun is that Canada will give you credit for any taxes paid to California because the money is considered "California/US Source" because that is where the "work" is performed.


So if you happen to be a Vancouver Radio Personality and spend time in Palm Springs and even do calls back to Vancouver "On Air" from Palm Springs, you would have to file a California Return and average out your per diem pay rate and show that as your income in California income for tax purposes.


Remember, you likely will not have to pay tax, but you DO have to file a return. If you want to be in good company, remember that someone like Wayne Gretzky files over 20 different state tax returns each year. Every state (not just California) has its own tax rules and public personalities have just about all been caught by now. California announced in a press release on Mar 7, 1995 that they expected to catch some 975,000 people who had not filed 1993 tax returns under these circumstances. You could be next.


2. U.S. citizens living in Canada get an exemption of up to $70,000 of earned income (see Nov, 93 CEN-TAPEDE for more info). The IRS also requires U.S. citizens to file a form 5471 if they own 5% or more of a Canadian (or any other foreign) company. Wow, the fine is a minimum of $1,000 or loss of 10% of your foreign tax credit). In additions, all those Canadians who ran across the border and did a simple U.S. corporation are liable for a $10,000 fine for failure to file a form 5472. "God Bless America!" It's good for our business.


3. Canada has increased its enforcement of non-resident rental properties.


Our deadlines look like this now. Feb 28 - T-4 Slips in; March 15 - US corporate tax returns; March 31 - Canadian Trust returns and Canadian non-resident "Agent" returns; April 15 - US resident and most other U.S. personal returns; April 30 - Canadian personal income tax returns; June 15 - US citizens residing out of the country returns; August 15 - U.S. personal returns for which an automatic extension has been filed; Oct 15 - U.S. citizens with an automatic 4 month extension from June 15th.


There are "NEW Exemptions" in place for Canadians returning to Canada and there are "New Duties" in place for those Canadians going to the US.


Exemptions into the US


Once every six months you may take gifts up to $100 if you will be in the U.S. for more than 3 days (72 hours).


If you are only going down for the day, you may take $100 worth of goods including limited amounts of alcohol and tobacco (50 cigarettes, 150 ml of alcohol (drinking or perfume) and 10 cigars) for your personal consumption. If you have more than $200 worth or more than the limited amounts of those alcohol or tobacco products, you lose the exemption and have to pay duty on the total. You can use the $100 exemption against your total if you exceed the $100 amount but are under the $200 exemption.


So if you are going down to the U.S. with 4 people in the car and $1,000 worth of goods and were entitled to the $100 each, you would have $300 to pay duty on at a flat rate of 10% or $30.00. If the dutiable amount is over $1,000, the rate switches to a per type basis with varying rates.


Remember "ZERO TOLERANCE". No drugs and this can include a non-prescription bottle of C-2's or Robaxical with Codeine. These are legal in Canada, not in the U.S.


Don't forget the $10,000 rule. I am sure we all read about the 18 year old arrested at Peace Arch last week with $43,000 in his pocket while riding across the border on his bicycle. In this case, it was a smart move. He lost the $43,000 and his bicycle. If it had been a $200,000 Rolls, he would have lost it as well.


You must fill out a 4790 form (page 51 in my Border Book) if you or the total of people in your car have more than $10,000 of currency or monetary instruments with you. Failure to fill out the form carries a penalty of: confiscation of the vehicle; confiscation of the cash or monetary instrument; and up to $500,000 fine PLUS up to five years in jail.


Watch out about old indiscretions of your own or your passenger(s). A minor charge in Canada such as shoplifting with a conditional discharge can cause you to be banned from the U.S. It is a violation of U.S. Immigration laws to enter the U.S. if you have been convicted in Canada without declaring the conviction. Of course, when you declare the conviction, you will be banned. There is a solution.


You can obtain a waiver by filling out a series of forms and being fingerprinted by the RCMP and getting a copy of your conviction (remember Canada says a Conditional Discharge is NOT a conviction but the U.S. says it is) and sending it to the U.S. department of Justice.

If this is a problem for you, we will be offering a "waiver service" at our North Vancouver office starting in September.


CANADA's NEW EXEMPTIONS - There are no limits on number of times these exemption can be used in any one year as there used to be with the $300 exemption.


Less than 24 hours no exemptions


More than 24 hours $50.00 - no alcohol or tobacco

(if over $50.00 cannot claim $50.00)


More than 48 hours $200 - including alcohol and tobacco


At least 7 days $500 - including alcohol and tobacco

(exclude the day you leave and count the day you returned (days not hours count).

As part of your $200 or $500 exemptions, you may bring back 1.14 litres wine or spirits; 24 - 355 ml containers of beer; + 50 cigars; + 200 cigarettes; + 400 grams of tobacco; + 400 tobacco sticks (whatever that is)


There is a NEW TOLL FREE NUMBER FOR ADVANCE APPROVAL of the type of car you can bring back. Try 1-800-333-0588 from anywhere in North America.

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