CPA Canada, AMCHAM Canada and AICPA urge tax fix for savings plans held cross-border

TORONTO, March 7, 2016 /CNW/ - Chartered Professional Accountants of Canada (CPA Canada), the American Chamber of Commerce in Canada (AMCHAM Canada), and the American Institute of CPAs (AICPA) have called on the Canadian and American governments to work together to help people with cross-border tax-assisted saving plans achieve the fully intended benefit of the incentives.

"Tax-deferred and tax-exempt savings plans use special provisions in the tax law to help Canadians and Americans save for a variety of important goals such as pursing higher education, ensuring there is ongoing care for people or family members with disabilities, or investing for the future, to name a few," says Gabe Hayos, vice-president, taxation, with CPA Canada. "But the U.S. and Canada treat similar types of savings plans differently. This mismatched alignment or treatment brings unexpected – and harsh effects – for many people who've had a cross-border move or temporary job assignment."

Tax-assisted plans encourage savings by allowing contributions and/or earnings in the plans to go untaxed or to be taxed later (and often at a lower rate) when they're withdrawn. But, as Jim Yager, director of AmCham Canada's International Tax Committee explains, the mismatched Canadian and U.S. tax rules that govern these plans can cause some amounts in the plans to be taxed unexpectedly, or the same amount can be taxed twice – once by each country. 

"Many people are often forced to unwind their plans and forfeit the tax benefit to pay the unexpected bill and avoid the complex tax filings that can ensue," says Yager. "In extreme cases, this can create even more tax to pay on the liquidated amounts."

The specific plans affected are:

  • Canadian Registered Education Savings Plans (RESPs) and U.S. 529 plans, which both encourage education savings
  • Canadian Registered Disability Savings Plans (RDSPs) and Achieving a Better Life Experience (ABLE) accounts, which both help build funds for the future needs of people or family members with disabilities
  • Canadian Tax Free Savings Accounts (TFSAs)
  • U.S. Roth Individual Retirement Arrangements (IRAs) for retirement saving

CPA Canada, AmCham Canada and the AICPA united to help the two governments find solutions because of the high number of people in both countries who are affected. These include Americans living in Canada, Canadians living in the U.S., Americans living in the U.S. who contributed to Canadian plans while living in Canada, and Canadians living in Canada who contributed to a U.S. plan while living in the U.S.

In jointly developed letters, the organizations outline how the governments can change domestic rules and/or The United States-Canada Income Tax Convention and associated protocols to ensure the plans outlined are recognized, treated equally and allow citizens to use the targeted initiatives as intended.

"By doing so, Canada and the U.S. will allow the social objectives associated with the tax incentives to be achieved and ensure smoother cross-border mobility for both workers and retirees," says Hayos.

To view the letter submitted by CPA Canada to the Canadian government, visit: cpacanada.ca/USCanadataxassistedplans

About CPA Canada

The new Canadian designation, Chartered Professional Accountant (CPA), is now used by Canada's accounting profession across the country. The profession's national body, Chartered Professional Accountants of Canada (CPA Canada), is one of the largest in the world with more than 200,000 members, both at home and abroad. The Canadian CPA was created with the unification of three legacy accounting designations (CA, CGA and CMA). CPAs are valued for their financial and tax expertise, strategic thinking, business insight, management skills and leadership. CPA Canada conducts research into current and emerging business issues and supports the setting of accounting, auditing and assurance standards for business, not-for-profit organizations and government. CPA Canada also issues guidance and thought leadership on a variety of technical matters, publishes professional literature and develops education and professional certification programs. cpacanada.ca

SOURCE CPA Canada

For further information: Tobin Lambie, Principal, Media, CPA Canada, T: 416-204-3228, C: 647-302-3761, tlambie@cpacanada.ca; Diana Sorace, Manager, Media Relations, CPA Canada, T: 604-694-6700, C: 604-551-4487, dsorace@cpacanada.ca

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