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Tuesday, August 28, 2012

US Citizens Abroad: New Filing Procedure and OVDP FAQs

US Citizens Abroad: New Filing Procedure and OVDP FAQs

On June 26, 2012, the IRS announced a new compliance procedure for certain US taxpayers living abroad who have failed to timely file US federal income tax returns or reports of foreign bank and financial accounts (FBARs), form TD F 90-22.1. Effective September 1, 2012, the new procedure applies to current non-US residents, including those who are dual citizens. The IRS also released FAQs for its open-ended 2012 offshore voluntary disclosure program (OVDP).
New compliance procedures. To come forward under the new guidance, a taxpayer must file delinquent tax returns with appropriate related information returns for the past three years and delinquent FBARs for the past six years. Notably, the guidance allows a taxpayer to claim retroactive relief for failure to timely elect income tax deferral on certain retirement and savings plans, such as RRSPs and RRIFs, for which deferral is permitted by a tax treaty; the deferral elections for a taxpayer's non-US retirement plans must be made with the submission. Any tax and related interest must also be paid with the submission. Further guidance on the application procedure is expected before September 1, 2012.
The IRS is expected to review all submissions, but the level of the review will vary according to the taxpayer's compliance risk. For taxpayers who present a low compliance risk, the review will be expedited and the IRS will not assert penalties or pursue follow-up actions. For those who present a higher compliance risk, the IRS will conduct a more thorough review and possibly a full examination of the returns--in some cases, for more than three years--and on that basis will impose tax, interest, and any appropriate penalties in accordance with US federal income tax laws. The IRS refers taxpayers to its fact sheet FS-2011-13 (issued in December 2011) for more information on penalties that may be imposed.
The level of compliance risk is based on certain information provided in the returns filed and on certain other information required in the submission. A low-risk taxpayer has simple returns with little or no US tax due. Absent any other high-risk factors, a taxpayer is generally considered to be low-risk if he or she has less than $1,500 in tax due in each of the three years. The risk level rises (1) as the taxpayer's income and assets increase, (2) if there are indications of sophisticated tax planning or avoidance, or (3) if the taxpayer has material economic activity in the United States. Additional risk factors include any additional history of non-compliance with US tax laws and the amount and type of US-source income. Before September 2012, the IRS is expected to release more information and guidance on how the level of compliance risk is determined.
In order to claim reasonable cause for failure to file a tax return, an information return, or an FBAR, the taxpayer must submit a dated statement, signed under penalties of perjury, explaining the reasonable-cause justification for the failure to file. (Taxpayers are referred to fact sheet FS-2011-13 for examples of reasonable cause.) In addition, a taxpayer who seeks to file a late election to defer income from certain retirement or savings plans pursuant to a relevant treaty must submit (1) a statement that requests an extension of time to make an election to defer income tax and identifies the treaty position, (2) for relevant Canadian plans, a form 8891 ("US Information Return for Beneficiaries of Certain Canadian Registered Retirement Plans") for each tax year and a description of the type of plan covered by the submission, and (3) a statement describing the event that led to the failure to elect; the events that led to the discovery of the failure; and, if the taxpayer relied on a professional adviser, the nature of the adviser's engagement and responsibilities.
The IRS reminds taxpayers that this new procedure does not provide protection from criminal prosecution if the IRS and the Department of Justice determine that it is warranted in the taxpayer's particular circumstances. Furthermore, once a taxpayer makes a submission under this new procedure, the IRS's 2012 OVDP is no longer available. A taxpayer who is ineligible to participate in that OVDP is also ineligible to participate in this procedure.
OVDP FAQs. The IRS released long-awaited FAQ guidance for its open-ended 2012 OVDP. The lookback period is the most recent eight tax years for which the US income tax return filing date (with valid extensions) has passed either with no income tax returns filed or with returns filed from which income was omitted. Thus, for a Canadian who did not file a 2011 US income tax return--or a request for an extension to file by October 15--by the June 15, 2012 deadline, the lookback period is 2004 through 2011.
The OVDP requires payment of any US tax owing, interest, and mandatory penalties for late filing of US income tax returns and late payment of any US income tax due. The values of foreign accounts and other foreign income-producing assets are aggregated for each year, and the penalty is calculated at 27.5 percent of the highest year's aggregate value during the period covered by the voluntary disclosure. The rate of penalty is reduced to 5 percent for a taxpayer who did not reside in the United States during the lookback period, made a good-faith showing of timely compliance with all tax reporting and payment requirements in his or her country of residence, and has $10,000 or less in US-source income each year.
The new FAQ guidance reaffirms that no penalties are imposed on a taxpayer who for the last eight years timely filed US income tax returns reporting all non-US income, and failed only to file FBARs and forms 3520 or forms 5471. In that case, a taxpayer may file the delinquent information returns with the appropriate processing centre (forms 5471 must be filed with amended income tax returns) and include a statement that explains why the information returns are being filed late. The IRS will not impose penalties for failure to file if the taxpayer was not previously contacted by the IRS regarding an income tax examination or a request for delinquent information returns.
The new compliance procedure is welcome guidance for many US citizens living in Canada, particularly its inclusion of deferral elections for RRSPs and RRIFs. Some questions remain unanswered, but the available penalty relief should encourage US citizens who may have just learned of their US tax-filing requirements to come forward. Canadians should consult a US tax adviser to determine the appropriate approach to come into compliance with their US income tax and information reporting obligations.
Marla Waiss and James M. Bandoblu Jr.
Hodgson Russ LLP, Buffalo
Canadian Tax HighlightsVolume 20, Number 8, August 2012
©2012, Canadian Tax Foundation

GST/HST Place of Supply for Services


GST/HST Place of Supply for Services

Coincident with the 2010 implementation of the HST in Ontario and British Columbia, the place-of-supply (POS) rules, which govern whether GST or HST applies on the supply of property or services, were revamped. In particular, the POS rules that govern the supply of intangible personal property and services were modified to focus more on the place of consumption and not the vendor's location, thus bringing the rules in line with one of the founding principles of a value-added tax. The June 2010 Technical Information Bulletin (TIB) B-103 contained various helpful examples that illustrated the changes, but many interpretive issues remained. The redraft of the bulletin, "Harmonized Sales Tax--Place of Supply Rules for Determining Whether a Supply Is Made in a Province"--was released in June 2012 for public comment and incorporates many new examples that answer some questions that were left hanging. The TIB redraft does not introduce new rules or significant new concepts, but its examples may be useful to taxpayers and practitioners who are struggling to understand the POS rules in the context of specific transactions.
A number of POS rules target specific services such as transportation, customs brokerage, telecommunications, and repair and maintenance. Other rules that encompass services in relation to real or tangible property apply if a sufficiently direct connection exists between the service and the underlying property. For example, the TIB redraft delineates a sales agent whose services do not "relate to a particular good that is known . . . to be situated at a particular location, but rather [consist] of the selling" of a generic good. Because the connection to specific identifiable goods is not sufficiently direct, the CRA is of the view that the POS rule for services in relation to tangible property is not relevant: instead, the general services rule (discussed below) applies.
If no specific rule fits the circumstances, the default rule is the general services rule, which focuses primarily on the address of the recipient--the person liable to pay for the service--as a proxy for the place of consumption. The general services rule establishes the POS and rate of tax by reliance in the first instance on the Canadian home or business address of the recipient that is obtained by the vendor in the ordinary course of business. The TIB redraft reiterates that such an address is relevant only if it is obtained in connection with the supply, but it does not have to be the address that is determined for every supply made to the recipient: thus, the relevant rule can vary from supply to supply. Notably, the CRA states that it must be reasonable for the supplier to be able to conclude, on the basis of information available to it or provided to it by the recipient, that a valid business address has been obtained. However, the redraft reaffirms that the supplier is not required to verify the validity or appropriateness of the address.
If more than one address is obtained, the POS is based on the one address that is most closely connected with the supply, as represented--in decreasing order of preference--by the contracting address, the address that the supplier has the most contact with, and the billing address. This hierarchy of addresses has led to a number of unresolved interpretive issues, including the question of which contracting address should be used when both a master services agreement and a statement of work or a purchase order (PO) exist, as is often the case. The TIB redraft sheds light on this question by citing the example of a recipient, headquartered in Ontario, that contracts with a consultant under a global framework agreement (GFA). The GFA incorporates definitions, the extent of the parties' liabilities, confidentiality obligations, performance standards, dispute resolution, and payment terms between the contracting parties. The GFA does not constitute an agreement for the supply of any specific services and does not impose an obligation on either party for future supplies: each regional office issues a PO for specific services under the GFA umbrella. The redraft concludes that the most closely connected business address is the one associated with the PO and not with the GFA, presumably because the PO-connected address is the locus of the actual supply, whereas the GFA-connected address is merely the locus of an agreement that establishes the relationship's ground rules in the event that a supply is made.
If there is no Canadian home or business address, the default POS is the place where the service is performed. The CRA interprets this POS to potentially include the location from which a person physically performs the work or the location of the supplier's equipment that is used to supply the service; the location where a report is prepared; and the location of a customer's property if the vendor can remotely access it to provide electronic services. Under the CRA's expanded interpretation, each supply must be analyzed to pinpoint the various locations where elements of the supply are performed before the predominant location can be determined.
Audrey Diamant
PricewaterhouseCoopers LLP, Toronto
Canadian Tax HighlightsVolume 20, Number 8, August 2012
©2012, Canadian Tax Foundation

Thursday, August 9, 2012

CAAMP Stats August 2012

CAAMP Header Stats


Bank of Canada Interest Rate
June 5, 20121.00 %
July 17, 20121.00 %
September 5, 2012Next meeting date
Source: Bank of Canada
Top of Page


Bank Prime Lending Rate
June 6, 20123.00 %
July 18, 20123.00 %
September 6, 2012Next meeting date
Source: Bank of CanadaTop of Page


Conventional Mortgage - 5 Year Rate* 
May 30, 20125.34 %
June 6, 20125.24 %
July 25, 20125.24 %
Source: Bank of Canada
*Determinant for high ratio mortgage variable qualifying rate
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US Federal Reserve Board Discount Rate*
June 20, 20120.00 % - 0.25 %
July 31, 20120.00 % - 0.25 %
September 12, 2012Next meeting date
Source: US Federal Reserve
*US Federal Reserve has indicated it will keep this rate until Q4 2014
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Exchange Rate $CDN($US)
July 3, 20120.9877
July 18, 20120.9894
July 31, 20120.9971
Source: Bank of CanadaTop of Page


Government of Canada Bonds
Bond TypeJune 27, 2012July 11, 2012July 25, 2012
1 year Treasury Bill0.96%0.99%0.97%
3 year Benchmark
Bond Yield
1.04%1.04%1.00%
5 year Benchmark
Bond Yield
1.21%1.20%1.16%
10 year Benchmark
Bond Yield
1.72%1.67%1.60%
Source: Bank of CanadaTop of Page


Total New Housing Starts (Seasonally adjusted and annualized)
Province
April
2012
April
2011
May
2012
May
2011
June
2012
June
2011
Newfoundland/Labrador
4,600
2,300
4,500
3,700
4,700
5,800
PEI
1,200
700
700
900
1,300
800
Nova Scotia
3,200
3,900
4,400
4,400
4,100
4,000
New Brunswick
2,500
2,500
4,700
3,400
5,400
4,500
Quebec
62,600
45,100
42,000
50,500
48,100
48,200
Ontario
98,400
67,600
80,300
53,000
73,300
75,800
Manitoba
5,100
4,800
12,200
6,300
5,000
5,400
Saskatchewan
11,100
5,900
6,900
5,200
10,800
8,700
Alberta
39,400
21,400
33,400
24,300
33,500
24,100
British Columbia
23,900
24,500
28,300
31,900
36,500
23,500
CANADA
252,000
178,700
217,400
183,600
222,700
200,800
Source: CMHC Housing Now - July 2011 and July 2012. This seasonally adjusted data goes through stages of revision at different times of the year.


Average MLS® Resale Price for Local Markets 
City
June 2011
June 2012
Halifax
$ 269,605
$ 272,495
Saint John
$ 168,830
$ 163,468
Quebec
$ 245,158
$ 263,740
Montreal
$ 323,926
$ 336,054
Ottawa
$ 354,524
$ 354,690
Toronto
$ 476,386
$ 508,622
Hamilton/Burlington
$ 339,828
$ 363,162
Winnipeg
$ 243,977
$ 257,095
Saskatoon
$ 299,572
$ 287,355
Regina
$ 285,613
$ 312,241
Calgary
$ 412,016
$ 422,139
Edmonton
$ 328,695
$ 340,391
Vancouver
$ 808,867
$ 701,141
Victoria
$ 507,385
$ 486,611
Source: Canadian Real Estate Association
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Quarterly Housing Price Index


Standard Two-Storey
Market
Q2 2012 Average
Last Quarter Avg
Q2 2011 Average
2 Storey % Change
Halifax
317,167
306,667
301,667
5.1%
Charlottetown
203,000
200,000
197,000
3.0%
Moncton
138,000
134,800
137,500
0.4%
Fredericton
215,000
208,000
208,000
3.4%
Saint John
279,770
293,250
299,750
-6.7%
St. John's
368,025
350,500
336,667
9.3%
Montreal
384,804
387,429
379,529
1.4%
Ottawa
392,000
387,833
371,500
5.5%
Toronto
668,829
645,467
623,202
7.3%
Winnipeg
321,875
309,250
307,375
4.7%
Regina
347,500
299,000
325,000
6.9%
Saskatoon
379,500
372,250
353,750
7.3%
Calgary
425,456
418,233
415,200
2.5%
Edmonton
353,764
354,714
349,286
1.3%
Vancouver
1,178,750
1,182,250
1,114,500
5.8%
Victoria
461,000
459,000
477,000
-3.4%
National
408,423
398,282
390,163
4.7%
Detached Bungalows
Market
Q2 2012 Average
Last Quarter Avg
Q2 2011 Average
Bungalow % Change
Halifax
285,833
273,333
266,333
7.3%
Charlottetown
172,000
170,000
165,000
4.2%
Moncton
144,000
145,700
157,500
-8.6%
Fredericton
205,000
205,000
201,000
2.0%
Saint John
175,037
191,000
179,950
-2.7%
St. John's
275,625
262,500
245,333
12.3%
Montreal
281,161
286,000
279,714
0.5%
Ottawa
388,917
385,667
370,750
4.9%
Toronto
560,187
544,450
517,100
8.3%
Winnipeg
304,250
283,375
281,125
8.2%
Regina
320,500
316,500
313,000
2.4%
Saskatoon
351,125
338,750
331,250
6.0%
Calgary
432,322
422,989
411,711
5.0%
Edmonton
327,857
324,143
312,000
5.1%
Vancouver
1,087,125
1,068,500
1,025,250
6.0%
Victoria
460,000
470,000
475,000
-3.2%
National
379,311
356,306
356,625
5.5%
Source: Royal LePage, July 2012