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U.S. Senate passes Tax Reform: What U.S. Taxpayers Need to Know

The U.S. Senate voted early Saturday morning to pass a tax overhaul worth just about US$1.4 trillion. The final vote was 51-49. Although the Bill is not yet finalized, the vote means that both the U.S. Senate and the U.S. House of Representatives have passed similar plans for tax reform. Negotiators from both chambers will begin meetings on Monday to agree on a single Bill that both chambers must agree on before it is sent to the President.

 

 

U.S. Taxpayers will be affected in the following ways:

Deductions

The Senate Bill retires Federal deductions for state and local income and sales taxes, but does however, allow deductions of up to US$10,000 in local property taxes.

The Senate Bill nearly doubles the standard deduction from US$6,350 to US$12,000 for individuals and from US$12,700 to US$24,000 for couples.

The Senate Bill retains the current limit for the home mortgage interest deduction to interest paid on the first US$1 million of the loan. It also retains the deduction for medical expenses not currently covered by insurance. It has retired deductions for moving expenses and tax preparation.

Personal Exemption

The Senate Bill removes the US$4,050 personal tax exemption.

Tax Brackets

The Senate Bill reduces the seven tax brackets to 10%, 12%, 22%, 24%, 32%, 35%, and 38.5%.

Small Businesses

The Senate Bill allows sole proprietors to deduct 23% of their earnings and pay the remainder at a personal income tax rate.

Corporations

The Senate Bill cuts the corporate tax rate from 35% to 20%.

Timeline

The President and the Republicans are aiming to make tax reform into law before the end of the year. Most provisions would come into effect on January 1, 2018, if this happens.

The House and Senate will vote on a motion to go to a conference on the tax bills starting Monday evening. Congress is scheduled to adjourn for the Holidays on December 15, however House Speaker Paul Ryan has stated that he will keep the House in session past that date if necessary.

 

The U.S. Senate vote brings the Trump Administration closer to its first major legislative victory.

December 2, 2017 0 Comments Taxes, U.S. , , , , , , ,

Important 2016 Tax Changes

Principle Residence

The Canada Revenue Agency has made a significant change to its policy regarding principal residency. Prior to 2016, there was a requirement to fill out form T2091 to designate your home as a principal residence. The form required you to designate the years in which the home was your principal residence. Although this form was required to be filed in the year of disposition, most individuals never filed the form because the resulting capital gain was often fully eliminated by claiming the principal residence exemption. Administratively, the CRA had waived this requirement to file if the exemption eliminated the gain.

Rule Changes

For the taxation years that end on or after October 3, 2016 (e.g., the 2016 calendar year), if you sell your principal residence, you are required to report the sale and the resulting capital gain or loss on Schedule 3 of your T1. You are also required to file the form T2091 if you are claiming the principal residence exemption. These requirements are imposed regardless of whether or not the gain is fully exempt as a result of the designation.

A failure to file and disclose the information will have serious implications. Firstly, there is no limitation period (i.e., after which your returns are considered “statute-barred”) on the CRA’s ability to reassess in the future. Therefore, the deadline which would otherwise restrict the CRA’s ability to re-open the tax return would not start unless the information had been fully disclosed in the year of disposition.

Secondly, the principal residence exemption itself will only be allowed if the sale and the designation of principal residence are reported on your income tax return. Should you realize subsequent to the year of sale and filing of your income tax return that you did not file the sale of your principal residence, the CRA is not obligated to accept a late filing that designates the sale as a principal residence sale. Even if the CRA accepts the late filing, the taxpayer will be liable for penalties that are the lesser of $8,000 or $100 for each complete month from the original filing due date to the date the required information was received by the CRA in an acceptable format.

Since these rules will be effective for the 2016 calendar year, you should remember to report the sale of your principal residence if you had a disposition during the year. If you have any questions, please contact AMR Services.

February 27, 2017 0 Comments Tax Returns, Taxes
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