#americansabroad with Subpart F income – 15% tax on dividends and cap gains ends in 2012 forbes.com/sites/baldwin/… CFC owners take note #FATCA
— U.S. Citizen Abroad (@USCitizenAbroad) June 30, 2012
#americansabroad #FATCA #FBAR in 2013 the tax on dividends goes from 15% to 44.6% – Obamacare only part of the reason forbes.com/sites/baldwin/…
— U.S. Citizen Abroad (@USCitizenAbroad) June 30, 2012
If I am right on this consider the following scenario:
You own a Canadian Controlled Private Corporation that would pay tax on dividend income at a rate of about 45% – this in inside the corporation. Subpart F would deem the dividend income to have been received by the the U.S. shareholder. What this means is that it goes on the citizen’s individual return (1040) and is about to be taxed at 44%. So this means means that the dividend income is subjected to tax on two levels (it may be that the U.S. citizen can get a credit for some tax paid by the corporation). First on the corporate level (at least the corporation received the income) and then on the individual level (income the individual never received). But, the bottom line appears to be: a total of 90% tax on dividends. The individual must pay a 44% tax on dividends that were never received.
Now, I hope that somebody jumps in and explains why I am wrong.
If I am not wrong, those of you with Subpart F income better make sure that your corporation does not make any more investment income.
If the IRS only knew the things that I know. This is one more reason why I started Petros Research Inc. only after I lost my U.S. citizenship. I had learned that the IRS subjects ownership of more than 10% of foreign corporations and private businesses to special draconian treatment. The United States does not want its citizens going to foreign countries and doing start up businesses that might sell US products and services. This is one way that they stop their citizens from doing.
Did you that when I was born in an American hospital, I had on the eighth day, the following text tattooed to my butt: “Property of the United States of America”.
If you were born in the United States, you had that tattooed to your butt too. (Your parents probably told you that it was birth mark or a mole. Take a look again with a microscope.
The Subpart F rules have a “high tax exception,” that I expect would typically apply to a corporation doing business in Canada. Under the high tax exception, an item of income that otherwise constitutes Subpart F income is excluded if the item is taxed at a rate exceeding 90% of the maximum US corporate rate, i.e., more than 31.5% (90% of 35%).
There are other exceptions that may apply as well, but I can only sit at the computer so long before I get yelled at.
@Michael
Yes, I am aware of the “high tax exemption” – but I have never seen any accounting firms apply it – always giving this reason or that reason why it does not apply – one experienced partner saying “I have never seen a case where that has applied”. I find this amazing given that the IRC clearly includes the “high tax exemption” in plain English. When you get a bit more time (not on family time) I would be grateful if you would consider this issue a bit more.
Does the eligibility of this depend on whether the taxpayer (to whom the Subpart F income is attributed) is an individual or whether it is a corporation?
I am very interested in getting to the bottom of this.
Thanks,
Subpart F deemed dividends are already taxed at ordinary income rates. For those of us in non-treaty countries, dividends we get from our businesses are never qualified dividends anyway, so we get screwed either way. Those who know what they’re doing can take the second-best alternative of making a Section 962 election (get taxed at corporate rates, but you can take a credit for the taxes paid by the corporation), but that’s not much benefit for ordinary middle-class earners. Not to mention it’s so obscure there’s not even a form for it.
@ Petros
“This is one more reason why I started Petros Research Inc. only after I lost my Canadian citizenship.”
You might want to edit that — especially so close to Canada Day.
Yea… just another thing I ignore entirely.
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