GILTI Rules for American’s in Canada: The Basics

The recently passed U.S Tax Cuts and Jobs Act (TJCA) makes it more complicated for American citizens living in Canada to run businesses. One of the new complex tax regimes to consider is the GILTI rules.

GILTI is the acronym for Global Intangible Low-Taxed Income. GILTI rules were put into place so that U.S. do not try to shift profits to foreign subsidiaries in low-tax countries, since those foreign profits can be repatriated tax-free. While these rules were primarily put in place with Apple and Google in mind, they make it harder for U.S. citizens in Canada to use Canadian corporations to defer income from personal tax.

Under the GILTI rules, profit earned through a Controlled Foreign Corporation (CFC) owned by a U.S. citizen must be classified as GILTI or not. Profits are considered GILTI if they exceed a 10% return on depreciable tangible assets (e.g. equipment, hardware) owned by the corporation. Th

The issue is that professional corporations generally do not need lot of tangible property to run their business. For instance, an incorporated doctor who is a Canadian-resident U.S. citizen may only own computers and basic medical equipment. However, the profits of the doctor’s corporation will be deemed GILTI income to the extent they exceed 10% of the corporation’s investment in those tangible assets.

If income is considered GILTI, it will be taxed to the U.S. citizen personally, even if the profits remain inside the corporation and are not distributed to the U.S. Also, the ability to offset the GILTI inclusion with Canadian tax paid is limited.  As a result, U.S. citizens who perform services through Canadian corporations may lose the ability to defer income from personal tax.

Need Help?

At UHY Victor, we have expertise helping Americans living in Canada navigate the complex GILTI regulations to optimize their cross-border tax situation. Contact our cross-border tax experts for a free consultation:

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