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US Relief Sought For Canadian Tax-Exempt Savings

Tuesday, March 8, 2016

In a March 4 letter, the American Institute of Certified Public Accountants (AICPA) pressed the US Treasury Department to adopt recommendations that would provide tax relief to citizens of the United States and Canada who have various cross-border deferred and tax-exempt savings accounts.

The AICPA urged Treasury to work with the Canadian Department of Finance to provide relief as appropriate. Similar requests comparable to the AICPA's are being submitted by the Chartered Professional Accountants of Canada to the Canadian Department of Finance, and by the American Chamber of Commerce in Canada to both Treasury and the Canadian Department of Finance.

In his letter, Troy Lewis, Chair of the AICPA Tax Executive Committee, explained that both the US and Canada have tax provisions that allow individuals to establish tax-deferred and/or tax-exempt savings accounts.

However, while the US-Canada double taxation agreement provides for various qualified or registered pension or retirement plans, it does not provide any relief from double taxation or current inclusion in income for other plans and accounts, such as education plans, disability savings plans, and, under certain circumstances, Roth individual retirement accounts (IRAs).

Lewis identified individuals who are impacted as those Americans living in Canada, Canadians living in the United States, Americans living in the United States who contributed to Canadian plans while living in Canada, and Canadians living in Canada who contributed to a US plan while living in the United States.

"Frequently, a cross-border move will result in adverse tax consequences, such as the unanticipated inclusion in income of amounts saved in a tax-deferred or tax-exempt account which may require the cross border individual to liquidate the accounts to avoid the adverse tax consequences," Lewis stated.

"Often, the forced liquidation itself can result in unanticipated taxable income," he added. "Furthermore, the United States imposes complex reporting requirements, such as those regarding foreign trusts and passive foreign investment companies (PFICs), for individuals participating in Canadian plans. These tax implications can adversely impact the individuals and their families, the social objectives of the countries, and cross-border mobility."

The letter recommended that Treasury should provide US citizens and residents tax-deferred or tax-exempt treatment, comparable to that offered by Canada to its citizens and residents, for their contributions, income, and withdrawals from Canadian Registered Education Savings Plans (RESPs), Canadian Registered Disability Savings Plans (RDSPs), and Canadian Tax Free Savings Accounts (TFSAs).

It should also exempt Canadian RESPs, RDSPs, and TFSAs from classification as grantor trusts, and exempt US citizens and residents from various onerous statutory filing requirements for foreign trusts and PFICs which can currently exist for these plans, it said.

It added that Treasury should work with its Canadian counterparts to provide similar relief from taxation and burdensome reporting requirements for Canadian citizens and residents who hold and contribute to 529 tuition plans, qualified ABLE (Achieving a Better Life Experience) accounts, and Roth IRAs in the United States.

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The Report

Offshore Trusts Guide: Introduction

The History of Offshore Trusts
Development of Professional Competence in the Jurisdictions
What Future for the Trust?
The New Age of Transparency
The Swiss Association of Trust Companies
The Society of Trusts and Estates Practitioners

Offshore Trusts Guide: Jurisdictions

Bahamas

Bahamas: Legal Framework and Formation Rules and Fees
Bahamas: 2006 Private Trust Companies Legislation

Barbados

Barbados: Legal Framework and Formation Rules and Fees
Barbados: Supervisory and Licensing Regime and Fees

Bermuda

Bermuda: Legal Framework and Formation Rules and Fees
Bermuda: Supervisory and Licensing Regime and Fees

British Virgin Islands

British Virgin Islands: Legal Framework and Formation Rules and Fees
British Virgin Islands: Special Trusts Act 2003
British Virgin Islands: The Trustee Act 2003
British Virgin Islands: :Supervisory and Licensing Regime and Fees
British Virgin Islands: New Laws on Private Trust Companies
British Virgin Islands: New Private Trust Company Regulations

Cayman Islands

Cayman Islands: Legal Framework and Formation Rules and Fees
Cayman Islands: Supervisory and Licensing Regime and Fees

Cook Islands

Cook Islands: Legal Framework and Formation Rules and Fees
Cook Islands: Supervisory and Licensing Regime and Fees

Cyprus

Cyprus: Legal Framework and Formation Rules and Fees
Cyprus: Supervision, Licensing and Tax

Gibraltar

Gibraltar: Legal Framework and Formation Rules and Fees
Gibraltar: Legislation, Regulation and Supervision

Guernsey

Guernsey: Legal Framework and Formation Rules and Fees
Guernsey: Trusts Law 2007

Isle of Man

Isle of Man: Legal Framework and Formation Rules and Fees
Isle of Man: Supervisory and Licensing Regime
Isle of Man: Uses Clients and Tax Treatment

Jersey

Jersey: Legal Framework and Formation Rules and Fees
Jersey: Supervisory and Licensing Regime
Jersey: Trusts Amendment Act 2006
Jersey: Foundations

Liechtenstein

Liechtenstein: Legal Framework and Formation Rules and Fees
Liechtenstein: Regulation Supervision and Transparency
Liechtenstein: Characteristics of Liechtenstein Trusts
Liechtenstein: Foundations

Madeira

Madeira: Legal Framework and Formation Rules and Fees

Malta

Malta: Legal Framework and Formation Rules and Fees
Malta: The Trust and Trustees Act 2004

Mauritius

Mauritius: Legal Framework and Formation Rules and Fees
Mauritius: Characteristics of the 2001 Trusts Act
Mauritius: Additional Provisions of the 2001 Trusts Act
Mauritius: Tax Treatment

Monaco

Monaco: Legal Framework and Formation Rules and Fees

Nevis

Nevis: Legal Framework and Formation Rules and Fees

Panama

Panama: Legal Framework and Formation Rules and Fees
Panama: Requirements for Acting as Trust Company in Panama

Seychelles

Seychelles: Legal Framework and Formation Rules and Fees

Turks & Caicos

Turks & Caicos: Legal Framework and Formation Rules and Fees
Turks & Caicos: The Voidable Dispositions Ordinance

Vanuatu

Vanuatu Legal Framework and Formation Rules and Fees




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