TAXATION IN U.S. & CANADA.   Term Paper ID:27006 Click to get this paper

Essay Subject: Compares tax structures, examines tax treaty, tax rates, statistics, individual vs. corporate taxpayers.... More...

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Paper Abstract: Compares tax structures, examines tax treaty, tax rates, statistics, individual vs. corporate taxpayers. Paper Introduction: COMPARING & CONTRASTING THE TAX STRUCTURES IN CANADA & THE UNITED STATES Executive Summary The tax structures of Canada and the United States were compare and contrasted. Canada and the United States have in place a negotiated tax treaty. The treaty covers taxation on income and capital. Both Canada and the United States levy taxes on the bases of both residence and source income. The tax treaty between the two countries, however, governs the applicability of taxes to source income, as well as defining source income. The tax treaty provides for credits against taxes levied against citizens residing in the other country for income taxes paid in the other country. The income tax is the primary revenue source at the fed Text of the Paper: The entire text of the paper is shown below. However, the text is somewhat scrambled. We want to give you as much information as we possibly can about our papers and essays, but we cannot give them away for free. In the text below you will find that while disordered, many of the phrases are essentially intact. From this text you will be able to get a solid sense of the writing style, the concepts addressed, and the sources used in the research paper. The rate increases to 26 percent for income in excess of C$29,59 but not exceeding C$59,18 . Comparing & Contrasting the Tax Structures in Canada & the United States Executive Summary The tax structures of Canada and the United States were compare andcontrasted. The rate increases to 28 percent for taxable incomein excess of US$19,45 but not exceeding US$47, 5 , and to 31 percent fortaxable income exceeding US$47, 5 (Section 1(a)(b)(c)(d), United StatesInternal Revenue Code, 1999). The government ofCanada, does not publish the Income Tax Act in a unified form. Taxable income of individuals in excess ofC$59.18 is taxed at the rate of 29 percent (Revenue Canada, 1998). Large and prosperous corporations,however, will find lower corporate tax rates in Canada than in the UnitedStates. Protocol to Canada-U.S. InCanada, the GST exists in addition to the federal income tax. The Canadian tax system.http://www.frasierinstitute.ca/publ~ns/books/tax_facts11/ chapter1.html Revenue Canada. The rate increases to 28 percent for taxableincome in excess of US$32,45 but not exceeding US$78,4 , and to 31percent for taxable income exceeding US$78,4 . Regulatory Constraints Neither Canada nor the United States impose exchange controls.Similarly, the foreign ownership of business in both countries is lightlyregulated. The income tax in Canada and the UnitedStates is levied on the incomes of individuals, partnerships, corporations,estates, and trusts. Unique Items of Taxation The only really unique item of taxation differentiating Canada and theUnited States is the national sales tax, or GST, in Canada. The rate increases to 28 percentfor taxable income in excess of US$16,225 but not exceeding US$39,2 , andto 31 percent for taxable income exceeding US$39,2 . Both Canada andthe United States levy taxes on the bases of both residence and sourceincome. Subchapter S and Subchapter C corporations are permitted to make anelection whereby shareholders will be taxed (for federal income taxpurposes) as individuals, as opposed to taxing the business organization asa corporation, and then taxing individual shareholders on income derivedfrom the corporation (Sections 1361, 1371, United States Internal RevenueCode, 1999). By contrast with Canada, individual income tax rates in the UnitedStates vary in relation to both marital and filing status. In Canada, the normal federal corporate income tax rate is 28percent of taxable income. Three Major Tax Issues That Should Be Brought to the Attention of Clients Considering Relocation to Canada from the United States or to the United States from Canada American individuals in particular should be made aware of the factthat taxation rates at the federal level are higher in Canada than in theUnited States. Tax treaty agreements allow entities from each country toestablish business operations in the other country and be treated asdomestic corporations. Partnerships are taxed at individual rates in both Canada and theUnited States on the basis of the income shares of the individual partners. Canadian manufacturing and processing income,however, is taxed only at a rate of 21 percent of taxable income (RevenueCanada, 1998). Both Canada and the United States levy a variety of tax types.Similarly, in both countries, taxes are levied by both the federalgovernment and provincial/state governments. The attraction of the Subchapter S Corporation lies in potentialfederal income tax benefits. A national salestax has been proposed for the United States as a substitute for the federalincome tax; however, support for this proposal has not been strong. Both countries, however, include in their federal tax laws provisions forthe sheltering from taxation of some income (Revenue Canada, 1998; Section6111, United States Internal Revenue Code, 1999). American individuals considering relocation to Canada should be madeaware of the fact that taxation rates at the federal level are higher inCanada than in the United States. Tax Treaty: Backgrounder. Is the Income Tax Act on the RevenueCanada site? Canada and the United States have in place a negotiated taxtreaty. Unmarried individuals other than headsof household are taxed at the rate of 15 percent on taxable income notexceeding US$19,45 . Canada, United States signtax treaty. The income tax is the primary revenue source at the federal level inboth Canada and the United States. With respect to the structure of taxation typeslevied at the federal level, the major difference between the two countriesis the presence of the GST in Canada, which has no counterpart in theUnited States. This examination, however,focuses on taxation at the federal level in the two countries (UnitedStates Internal Revenue Code, 1999; Frasier Institute, 1999). By contrast, marriedcouples filing separate returns are taxed at the rate of 15 percent ontaxable income not exceeding US$16,225. Taxation of Various Entities & Special Issues Taxes are imposed on individuals in both Canada and the United States. Corporations with taxableincome not exceeding US$5 , are taxed at the rate of 15 percent, andcorporate taxable income in excess of US$5 , but not exceeding US$75, is taxed at the rate of 25 percent (Section 11, United States InternalRevenue Code, 1999). (1999). Therefore, the use of the concept must beconsidered within the context of federal income tax laws. The income tax is the primary revenue source at the federal level inboth Canada and the United States. http:/www.rc.gc.ca/~dwdrink/faqita-e.htm United States Department of the Treasury. Canada-United States Tax Treaty Canada and the United States have in place a negotiated tax treaty.The basic treaty is the Convention between the United States of America andCanada with respect to Taxes on Income and on Capital, signed September 26,198 . Large and prosperous corporations, however, will find lowercorporate tax rates in Canada than in the United States. The taxable portion of a payer's taxable gain is equal to 75percent of capital gains less capital losses (Revenue Canada, 1998).Taxable gains are taxed in the United States at the rate of 28 percent ofthe net capital gain (Section 1(h), United States Internal Revenue Code,1999). In the United States, special designations for closely-heldcorporations enable such corporations to elect to be taxed differently fromother corporations. Business climate The business climate is positive in both Canada and the United States. Corporations, however, are taxed at rates differing from individual incometax rates. Establishing a Business Establishing a business in Canada and the United States is arelatively easy task as long as the proposed enterprise will conduct legalactivities. The treaty covers taxation on income and capital. These corporate designations are Subchapter S andSubchapter C (Sections 1361, 1371, United States Internal Revenue Code,1999). The United States government publishes the federal income taxlaw in a unified form in the Internal Revenue Code. Protocol, signedMarch 17, 1995, amending the Convention between the United States ofAmerica and Canada with respect to Taxes on Income and on Capital, signedSeptember 26, 198 (Third Protocol). Introduction The tax structures of Canada and the United States are compared andcontrasted. Frasier Institute. With respect to the structure of taxation typeslevied at the federal level, the major difference between the two countriesis the presence of the GST (General and Miscellaneous Sales Tax) in Canada,which has no counterpart in the United States (United States InternalRevenue Code, 1999; Frasier Institute, 1999). (1998). References Department of Finance Canada. Employment income, commissions, interest, dividends, rental income, andself-employment income account for most of the taxable income forindividuals in both countries. Economic trends are stronger in the United States than in Canada; however,the trends are positive in Canada. Joint venture taxation in both Canada and theUnited States involving entities from foreign countries is governed byagreements relative to source income. Inflation is moderate in bothcountries, while the standard of living is higher in Canada than in theUnited States, but quite high in both countries. Ottawa,Ontario: Department of finance Canada. Tax haven issues Neither Canada nor the United States is a so-called tax haven country. In Canada, the basic federal income taxrate for individuals with taxable incomes not exceeding C$29,59 is 17percent. The tax treaty between the two countries,however, governs the applicability of taxes to source income, as well asdefining source income. Rather,according to Revenue Canada, the government does not publish the Income TaxAct either in print or electronically, as, technically, the Act ispublished by Parliament in the form of bills that are enacted. United States Tax Treaties, (IRSPublication 9 1). Commercialpublishers in Canada, however, do publish consolidated versions of thebills that constitute the Income Tax Act (Revenue Canada, 1999). The tax treaty provides for credits against taxeslevied against citizens residing in the other country for income taxes paidin the other country (United States Department of the Treasury. The rate increases to 28 percent for taxable incomein excess of US$26, 5 but not exceeding US$67,2 , and to 31 percent fortaxable income exceeding US$67,2 . Taxation System Type Both Canada and the United States levy taxes on the bases of bothresidence and source income. (1999). Washington: United States Department of the Treasury. Amendments to the tax treaty between the two countries arenegotiated relatively frequently, with the most recent amendment occurringin 1997 (Department of Finance Canada, 1997). Unmarried heads ofhousehold are taxed at the rate of 15 percent on taxable income notexceeding US$26, 5 . In Canada, capital gains are taxed at a taxpayer's normal income taxrates. Corporate tax rates in the United States vary by the level of taxableincome. Title 26, United States Code (26USC), 1999. (1999). Source income taxation is a complex issue in both Canada and theUnited States, and clients needs to be aware of the ramifications of sourceincome taxation. The GST is ahighly unpopular tax in Canada (Frasier Institute, 1998). The tax treaty provides for credits against taxes levied against citizensresiding in the other country for income taxes paid in the other country. Married couplesfiling joint returns are taxed at the rate of 15 percent on taxable incomenot exceeding US$32,45 . A sub-type ofthe Subchapter S corporation is the Subchapter C Corporation. (1997 July). (1999 January). On a broadlevel, the Subchapter S Corporation is limited to 1 shareholders, while arequirement for the Subchapter C Corporation is that at least 5 percent ofthe stock must be held by no more than five shareholders (Sections 1361,1371, United States Internal Revenue Code, 1999). The tax treaty between the two countries, however, governs theapplicability of taxes to source income, as well as defining source income. United States Internal Revenue Code. General income tax guide.http://www.rc.gc.ca/~paulb/gen98/english/contents.htm Revenue Canada. The income tax in Canada and the UnitedStates is levied on the incomes of individuals, partnerships, corporations,estates, and trusts. The lower rates, however, apply only to small or troubledcorporations, as most financially healthy medium and large corporations paythe maximum 34 percent of taxable income, which applies to corporationswith taxable incomes in excess of US$75, . Washington: United States Government Printing Office. Source incometaxation is a complex issue in both Canada and the United States, andclients needs to be aware of the ramifications of source income taxation. If this paper is not what you are looking for, you can search again: Search for: or Click here to request an essay written just for you.

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