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Question

I read your article ” Canadian Doctor with US Citizenship….” I think unintentionally I am stuck in a similar situation you explained.

I have had a small Canadian corporation since 2010, providing engineering consulting.

In July 2014, I got my green card. I was told I have 1 year to move to US. So I kept living and working in Canada. I just learned that for 2014 I have to file taxes in US. Even though the salary I paid to myself was relatively small and I can get exemption from US tax, I might be charged with sub part F tax as you explained. This make me very anxious as I do not understand how I should pay tax on a money that is in the company? Is it me who should pay this tax or my corporation? How Canada in future ( when I want to close the company or pay myself dividend etc ) will calculate credit for the tax that US collects under sub part F?

I appreciate if you could answer any of these questions.

I would like also to have a call, if you have time, and see if you could help me out with some tax planning and filing my taxes for 2014.

I look forward to hearing from you.

Answer

Hi XXXX

Yes, it is possible that your professional consulting income would be considered subpart F income, especially if you only have a few clients.

If you do, in fact, earn subpart F income, this income will not be available for deferral for U.S. purposes, and will automatically be flowed out, and taxed personally on your U.S. return. As this will not be the case for Canadian tax purposes, it is best to properly plan for the tax effects now.

If you are not currently deferring income within the company, the effect of subpart F income will be minimal as all the income will have been taxed personally regardless.

That being said, proper tax planning in these situations is very important to ensure nothing is missed. Please give me a call at 250-381-2400 and we can discuss this in more detail.

Cheers

Phil

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