Canada: The TCJA And Beyond



An update1 on recent tax changes, as well as the non-tax aspects and provincial aspects of US-Canada cross-border planning, which were discussed in the May 2017 edition of the STEP Journal.


Practitioners can revise their existing knowledge and advise clients with Canadian and US connections of any recent changes.


Since last year, a number of matters have been the subject of further developments and changes.

OUR 2017 STEP Journal article2 discussed British Columbia’s 15 per cent property transfer tax (the Vancouver tax), applicable to certain foreign buyers of residential property in the Greater Vancouver regional district.

On 21 April 2017, the Ontario government followed suit by implementing a nonresident speculation tax (NRST), applicable to certain transfers of property within the Greater Golden Horseshoe (GGH). The GGH covers a large swathe of Ontario, including Toronto and surrounding regions such as Niagara, Waterloo and Hamilton. Ontario’s 15 per cent NRST applies to transfers of residential real estate located in the GGH to:

  • individuals who are not citizens or permanent residents of Canada (excluding refugees);
  • foreign corporations; and
  • taxable trustees.

Like British Columbia’s 15 per cent foreign buyer transfer tax, the Ontario tax was enacted to cool overheated real estate markets by targeting foreign speculators who purchase property to turn a profit, rather than as a personal residence.

The Vancouver tax appeared to be working, but only temporarily. The market cooled for the first year, but, by mid-2017, year-over-year gains in house prices were returning to double digits. British Columbia’s New Democratic Party government, whose campaign promises included tackling the province’s affordable housing crisis, recently3 announced several expanded real property tax measures, including:

  • Effective immediately, the 15 per cent foreign buyer tax increases to 20 per cent.
  • The foreign buyer tax will be expanded from Vancouver to other major centres, including the Fraser Valley, Greater Victoria, Nanaimo and the Central Okanagan region.
  • The regular property transfer tax (payable by both residents and nonresidents of British Columbia) will increase from 3 per cent to 5 per cent for properties in excess of CAD3 million.
  • A new annual residential property ‘speculation tax’ will be levied, starting at CAD5 per CAD1,000 for 2018, and increasing to CAD20 per CAD1,000 in 2019. Homeowners who pay income tax in British Columbia will be eligible for an offsetting credit, so this tax is aimed directly at non-resident owners and ‘satellite families’, whose main sources of income are taxed outside British Columbia.


The Canadian government’s proposed changes to the principal residence exemption, aimed at restricting the ability of certain trusts and non-resident individuals to claim a capital gains exemption on the disposition of Canadian situs real property, have now been passed into law. Individuals and families holding Canadian real estate in trust should review the trust terms, and consider whether it would be beneficial to transfer the property out of the trust, prior to an actual or deemed disposition.


The Canadian government’s 2018 Federal Budget, published on 27 February 2018, included proposals that require all Canadian-resident and non-resident trusts to file an information return every year, whether or not the trust has income in the year. Reporting is to be expanded to include the names and details of the trust settlor, trustees, beneficiaries and any person who has the ability to exert control over trustee decisions (e.g. a trust protector). In addition, the trust return is to include a ‘beneficial ownership schedule’. It is not yet clear how contingent or unascertained beneficiaries would be reported. Additional penalties for failure to file could equal 5 per cent of the value of the trust property. The new reporting requirements and penalties are proposed to begin in 2021.

These are only a few of many recent changes to Canada’s tax regime. We cannot emphasise enough the importance of seeking up-to-date information and advice for any cross-border planning that you may do, as well as periodic updates regarding cross-border structures or plans that may already be in place.

TAX CUTS AND JOBS ACT The most comprehensive reform to the US tax code in over 30 years, the Tax Cuts and Jobs Act (TCJA) became law on 22 December 2017, and generally became effective as of 1 January 2018. Many of the changes brought in by the TCJA are beyond the scope of this article. The following is a summary of certain aspects of the TCJA that affect US-Canada cross-border planning.

It is important to note that, although changes to the corporate and business tax regimes are generally permanent, most of the changes to the individual, estate and gift, and pass-through entity tax schemes are temporary. Unless legislation is enacted to continue these measures, they will expire and revert back to their pre-2018 forms upon the 31 December 2025 sunset date.


The US allows individuals to pass on certain amounts as inter vivos gifts or through their estates, or some combination thereof, free of gift, estate and generationskipping transfer tax. For US citizens and resident non-citizens, the TCJA doubled the exclusion amount to USD10 million (inflation indexed to USD11.18 million). Non-US persons are subject to tax on their US-situs assets in excess of USD60,000. In addition, Canadians are eligible for a prorated exclusion for US-situs assets under the Canada-US Income Tax Convention, equal to the value of US-situs assets, divided by the value of worldwide assets. This means that, at least until 2025, Canadians will not incur US estate and gift tax unless their USsitus assets exceed USD60,000 and their worldwide estate exceeds USD11.18 million.

Given the sunset provisions, non-US persons may wish to consider taking advantage of the additional exemptions through inter vivos gifts prior to 31 December 2025. Advice from a qualified US advisor will be necessary before undertaking any such planning.


The TCJA lowered corporate tax rates from a top marginal rate of 35 per cent to a flat rate of 21 per cent. However, the TCJA changed how corporate tax is calculated, created and limited, while also eliminating a number of deductions. Of particular interest with regard to cross-border planning is the shift from the worldwide taxation model to a quasi-territorial system. Previously, foreign income earned by a foreign subsidiary of a US corporation was subject to US tax upon distribution as a dividend to the US parent corporation. Under the TCJA, a US corporation that owns 10 per cent or more of a foreign corporation is entitled to a 100 per cent dividends-received deduction (DRD) for the foreign-source portion of dividends paid by such foreign corporation.


Also significant for US-Canada crossborder planning is the deemed repatriation of previously untaxed foreign earnings. Under the TCJA, deemed repatriation applies to US shareholders with at least a 10 per cent voting interest in a controlled foreign corporation and to US shareholders of foreign corporations with at least one US corporate shareholder. The deemed repatriation rule imposes a one-time tax on post-1986 accumulated foreign earnings at rates of 15.5 per cent for cash and 8 per cent for non-cash assets. An election is available to pay this tax over eight years in increasing annual instalments.

The DRD, noted above, is available for corporate shareholders only. As a result, the deemed repatriation rules may lead to double taxation of US individual shareholders residing in Canada. Foreign tax credits may not be available because the one-time transition tax will not match tax on the actual distribution of earnings.


The US-Canada cross-border planning landscape continues to evolve. The impact of several new taxes, as well as major changes to the Canadian and US federal tax regimes, is keeping advisors on their toes.

Clients with Canadian or US connections should be advised to review current structures and seek up-to-date advice on any new planning.


1 The authors are grateful to Emily McClintock of Miller Thomson's Edmonton office for her assistance in preparing this article

2 3 Budget 2018: Working For You,

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.

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Wendi P. Crowe
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