FINANCIALconnection
Canadian MoneySaver magazine has provided Canadians with balanced insight into personal-finance issues since 1981. Through an exclusive arrangement with The Costco Connection, Canadian MoneySaver’s experts provide Costco members with answers to their questions about financial issues.
Inheritance, estate
and sales taxes
A U.S. relative named me as bene;ciary of
their IRA (Individual Retirement Account).
The IRA was immediately paid out in cash
from which the IRS (Internal Revenue Service) deducted a 15 per cent withholding
tax. Would this incur a tax liability in Canada
since I inherited the IRA as a bene;ciary
rather than it passing through the estate?
100 per cent owned by the deceased spouse. So
if the deceased spouse, as the joint property
owner, had an individual worldwide estate
worth more than $3.5 million, there is a possibility that the U.S. property in question could
be subject to some U.S. non-resident estate tax.
S.K., Toronto, ON
Because the inherited IRA account belongs
to you as the bene;cial owner, the CRA will
want to tax you on the entire income that you
receive from the IRA at your Canadian marginal rate in the year you receive the funds.
You’ll be allowed a foreign credit for whatever
withholding went to the IRS. In short, the CRA
doesn’t really care how the IRA got to you,
whether you inherited it or set it up yourself;
they will tax the income you receive.
Please note that, e;ective January 1, 2010,
there technically is no U.S. estate tax for U.S.
residents and non-residents alike for the
entire year, with a higher tax kicking in
January 1, 2011. However, it is expected that
Congress will pass a bill very early this year,
retroactive to January 1, that will reinstate the
$3.5 million estate tax exemption and tax rate
that was in e;ect prior to January 1, 2010.
Robert Keats, author of The Border
Guide, Keats, Connelly & Associates
The Canada/U.S. Tax Treaty, with its
numerous options, generally will protect the
majority of Canadians from U.S. non-resident
estate tax when purchasing U.S. real estate in
most states. Some states have a small non-resident estate tax, as they are not party to the
Canada/U.S. Tax Treaty.
FRED SHECTER
Phoenix, AZ
Robert Keats, author of The Border
Guide, Keats, Connelly & Associates
Columbia), the determining factor is where
the negotiation took place (as long as more
than 10 per cent of the service is performed in
that province).
My wife and I are co-owners of a condominium in Arizona. Some friends of ours
attended a seminar on purchasing property in Arizona. One of the speakers mentioned that if Canadian couples jointly
purchase a property and one of them
dies, the survivor would have to pay an
inheritance tax to both the IRS and the
Phoenix, AZ
Canadian government. Correct?
R. B., Kingston, ON
Generally, Canadians whose worldwide
estate is worth less than $3.5 million, or $7
million for a couple, can use the Canada/U.S.
Tax Treaty and apply for a full exemption
from U.S. estate tax on any U.S. property they
own, regardless of whether the U.S. property
is in joint ownership or not.
I am worried about how the impending
harmonized sales tax (HST) in British
Columbia will affect my business. Eighty
per cent of my income comes from Alberta,
although I reside in British Columbia; my
incorporated company is based in British
Columbia and pays only British Columbia
taxes. I drive to Calgary to seek out contracts, then work those contracts mostly
in Alberta. Do I have to charge the HST
when working out of province?
For more details, go to www.cra-arc.gc.ca/,
select “Business,” then search under “S” in the
column “GST/HST Topics Alphabetically.”
Select the topic “Services considered to be
sold in a participating province.”
Camillo Lento, C. A., M.Sc.
Lakehead University
;under Bay, ON
Personal finance
questions?
G.R., Kamloops, BC
Send to: Canadian MoneySaver,
The Costco Connection Q& A, Box
370, Bath, ON K0H 1G0. Or e-mail to:
;e answer depends on whether you are
providing a good or a service. Presumably, as
a consultant, you are providing a service.
questions@canadianmoneysaver.ca
(please include “The Costco Connection Q& A” in the subject line).
I believe what the speaker you quoted may
have been referring to was a U.S. rule that if
U.S. property is owned jointly and the surviving joint owner can’t provide proof that he or
she paid for at least half of the purchase price,
then that property is considered to have been
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Generally, when at least 90 per cent of a
service is performed in a province, the CRA
considers the service to be provided in that
province. So, if you are performing 90 per
cent of your service in British Columbia (an
HST province), then HST must be charged.
However, if you are performing 90 per cent of
this service in Alberta (a non-HST province),
then HST will not apply.
“Financial Connection.”
If the 90 per cent rule cannot be met in
either of the provinces (i.e., 45 per cent is performed in Alberta and 45 per cent in British
Canadian MoneySaver answers
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