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During his presidential campaign, President-elect Joe Biden had proposed a number of tax changes which could impact US expatriates’ resident in Canada. With the recent Georgia Senate win, Biden’s Democratic Party will now control both houses of Congress.
With control of both Houses of Congress, Biden has a clear path to pursuing his legislative agenda including potential tax changes. With COVID-19 raging in the US, tax legislation will not likely be at the top of said agenda. Nonetheless, it is imperative that we prepare and plan with our clients for potential changes, notwithstanding the uncertainty regarding their passage.
Estate Planning
On the estate planning side, there are two significant potential changes:
- Reduction of the estate tax limitation from $11.5 million plus per decedent to $3.5 million[1].
- Elimination of the “step-up” in basis of decedent’s assets on death. Under existing U.S. law, a beneficiary of an estate generally assumes the fair market value of the asset on the date of death.
Ownership of a Controlled Foreign Corporation
If you are a US citizen shareholder of a majority-US owned Canadian corporation, a proposed increase to the Global Intangible Low-Taxed Income (“GILTI”) from 10.5% to 21% could add an additional 10.5% tax on undistributed business income of the corporation.
Increase in US Rate
There are several proposed increases to US tax rates. Most relevant to high income US taxpayers in Canada is an increase in the highest US individual income tax rate from 37% to 39.6%[2]. Concurrent with the increase, Biden has proposed increasing the income tax on dividends and long-term capital gains of US taxpayers with greater than $1 million dollars of taxable income from 20% to 39.6% plus the existing 3.8% Net Investment Income Tax (i.e. the Obamacare tax).
While Zeifmans will be reaching out to clients on these matters, please feel free to contact your Zeifmans advisor or Stanley Abraham, US Tax Partner at 647.256.7551.
[1] Forbes, “Biden’s Tax Increase On Death That No One Is Talking About”, https://www.forbes.com/sites/robertwood/2020/11/02/bidens-tax-increase-on-death-that-no-one-is-talking-about/?sh=619a7147376f
[2] CNBC “How concerned investors should be about Biden’s tax proposals”, https://www.cnbc.com/2021/01/08/how-joe-bidebsproposals-also-have-the-potential-to-affect-holders-of-stocks-and-bonds.html
