Canada: Post-Election US Tax Outlook

Last Updated: November 18 2016
Article by Grant Thornton

Trump victory and GOP Congress could pave the way for significant tax changes, though important details are yet to be determined

Surprising the vast majority of pollsters and many political pundits, Donald J. Trump prevailed in the US election on November 8, and will be inaugurated as the country's 45th president on January 20, 2017. Among his policy priorities, Trump has outlined a range of tax measures that could result in substantive changes for US taxpayers, including Canadian residents who file tax returns with the IRS.

What will these changes mean for you? After reviewing the Trump campaign's tax plan, there are some early indications of the path ahead. Of course, in assessing the impact of any tax measures, the details are essential, but few political campaigns bother to burrow too deep into specifics. This means that while the broad outlines of the tax proposals are known, many of the details are yet to be determined. Still, we can draw some important conclusions, and these are outlined below.

Trump plan silent on tax and reporting issues specific to expats

US citizens and permanent residents residing in Canada are subject to a number of IRS reporting requirements, such as the Foreign Account Tax Compliance Act (FATCA), and the Report of Foreign Bank and Financial Accounts (FBAR). While these can be a significant concern for affected individuals, the Trump tax plan and campaign were silent on these matters.

While it is possible that the incoming administration will ask for changes to these rules at some point, its first priority will be to push for those measures that have a domestic impact.

For individuals, a plan that seeks to reduce complexity and lower overall rates

Simplifying the system and reducing individual tax burden are the principal goals of Trump's tax proposals. To meet these objectives, the plan outlines a number of changes to current law:

  • Shrink the number of tax brackets from seven to three.
  • Reduce top-line tax rates across all brackets—the new rate for married couples filing jointly would be 33% for income over $225,000 (down from the current 39.6%); for joint income between $75,000 and $225,000 the rate would be 25%, while the lowest rate for income below $75,000 would be 12%.

  • Retain the existing rate structure for capital gains (maximum of 20%) within the simplified three brackets noted above; carried interest will be taxed as ordinary income.
  • Increase standard deductions and cap itemized deductions: - Proposed increase in the standard deduction for joint filers to $30,000, (from $12,600) and the standard deduction for single filers to $15,000.
    • Eliminate personal exemptions and the head-of-household filing status.
    • Cap itemized deductions at $200,000 for joint filers or $100,000 for single filers.
  • Repeal the 3.8% Medicare tax on investment income levied on taxpayers in the higher income brackets as part of Obamacare.
  • Repeal the alternative minimum tax (AMT). Under current tax law, US taxpayers are subject to the AMT, which was established to limit the total benefits from certain deductions and tax credits that higher-income taxpayers can receive. Though initially intended to target only the ultra-wealthy, over time the percentage of taxpayers subject to the AMT has grown, ensnaring those with more modest incomes and catching many families by surprise. Canadian residents can be subject to the US AMT under certain circumstances, so an AMT repeal would remove the burden of having to calculate—and perhaps pay—this levy.
  • Allow families to deduct the average cost of childcare from their taxes, including stay-at-home parents.
  • Establish Dependent Care Savings Accounts (DCSAs) that families can set up for specific individuals, with total contributions of up to $2,000 per year.

While the specific implications of these measures vary from person to person—and efforts by independent analysts to model those impacts have been cause for debate—their cumulative effect would be to lower the US tax liability for most individuals. Of course, if you are a Canadian resident and required to file a US tax return, calculating your US tax liability is only one part of your tax equation, but again the net impact could be a simplified return and the potential for a lower total tax bill.

It's also important to bear in mind that new tax-free savings accounts on either side of the border have the potential to create unexpected tax liabilities if they are not covered under bilateral tax agreements. As a US taxpayer residing in Canada, you should investigate new savings plans such as the proposed DCSAs carefully before proceeding.

Plans for business taxes could mean significant savings for certain partnerships, S corporation owners, and sole proprietors

One of Trump's proposed changes to business tax rates could end up greatly reducing the US tax liability for a number of individuals. Under current law, certain businesses do not pay corporate income tax; rather, the owners of S corporations, principals in a partnership and sole proprietors pay taxes on their business income on their individual returns. This is known as "pass-through" taxation, and it means that business income is subject to the applicable individual tax rates and brackets—up to the maximum 39.6% top rate.

The Trump plan, however, envisions two big changes for business tax rates and treatment. First, rates would be lowered from 35% to 15%. In addition, this rate would apply to the pass-through income, meaning that some business owners and partners could see a significant reduction in the effective rate they pay on this income.

An elimination of the estate tax, with a new provision to tax capital gains

Current US law requires that estates with combined assets valued over a certain threshold— $5,450,000 in 2016—file an estate tax return with the IRS and pay taxes on amounts above that threshold. Canadian residents that own property in the United States, as well as all US citizens and permanent residents, are subject to this tax.

The tax plan outlined by Donald Trump envisions a repeal of the existing estate tax altogether. In its place, two new measures would be enacted, a tax on capital gains valued over $10 million and held until death, and a ban on contributions of appreciated assets into a private charity.

What happens next

At this stage, all of these changes are merely proposals—realizing them will require changes in law. The US Constitution requires that any changes to the tax code must originate in the House of Representatives, and the Senate must agree to them as well. The new administration will need to work with Congress next year in order to achieve these goals. As in all tax matters, details can be very important, and the details of any changes are likely to be debated, negotiated and re-shaped during the legislative process.

The bottom line for American citizens (and those with US tax filing obligations) is that you have an idea of where the next administration wants to go with tax policies, and GOP majorities in the House and Senate make it more likely—though not inevitable—that the incoming president will be able to make progress on his ambitious agenda. The specifics will evolve over the coming months, but once they are set, you will benefit from a review of your tax strategies to ensure the most favourable position when any new rules take effect.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Collins Barrow National Incorporated
Collins Barrow National Incorporated
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Collins Barrow National Incorporated
Collins Barrow National Incorporated
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions