To ensure their sustainability and growth, Quebec SMEs will have to overcome several major challenges in the short- and medium-term, particularly in terms of labour and technological investments.

These are the results revealed by a recent Raymond Chabot Grant Thornton (RCGT) survey of 300 Quebec business leaders. According to the telephone survey conducted by Léger, the main challenges they will have to face in the next three years are recruiting and retaining staff, and technological change and competition.

In the near future, market competitiveness and accelerating information processing are issues for most businesses.

Updated on August 17, 2023

Do you own U.S. property or shares? Even if you’re not a U.S. citizen, your estate may be subject to tax.

You may be subject to U.S. estate tax if the market value of the U.S. property owned is greater than US$60,000. Your estate will then have to file an estate tax return in the nine months following the date of death, even if no tax is payable.

Property most often subject to estate tax includes land and buildings, U.S. securities (shares, bonds, ETF, etc.), tangible property located permanently in the U.S. (vehicles, boats, works of art, etc.), safety deposit box contents but not the funds in a personal U.S. bank account.

So, if you own shares in, for example, Google, Apple or Coca-Cola, you could be subject to estate taxes, even if those shares are held in a Canadian brokerage account, including a Registered Retirement Savings Plan (RRSP) or Tax-Free Savings Account (TFSA).

Estate taxes are calculated on the market value of the property using progressive rates ranging from 18% to 40%.

Calculating your tax credit

However, under the Canada-United States tax treaty, you are entitled to a credit in calculating the estate taxes. The credit is based on the proportion of property in the U.S. at the time of death to worldwide property.

As a result of this credit, generally, no estate tax is payable if the value of the worldwide estate is below the applicable exemption threshold, which is US$12.06M in 2022.

Your estate may also qualify for a marital credit if the U.S. assets are bequeathed to the person to whom you are legally married. Note that the Canadian capital gains tax can be reduced by deducting U.S. estate taxes.

Filing a declaration of inheritance rights

In all cases, your estate will have to file a declaration of inheritance rights in the nine months following the date of death, even if no tax is payable. It is very important to file this declaration as it will be used to determine the relief provided by the tax agreement, which is designed to reduce or eliminate double taxation of inheritances.

Planning your estate

Legislation provides that in 2026, the estate tax exemption threshold will revert to the 2017 level of $5.49M. This exemption is a highly politicized issue and in our firm, we consider it more prudent to plan on the basis of a US$5.49M exemption.

In fact, it is essential to properly plan for what will happen at the time of your death, particularly in order to pay as little estate tax as possible and facilitate the transfer of ownership to your heirs.

How you hold your assets is especially important. There are a number of strategies to avoid U.S. estate tax, such as transferring the property to a Canadian personal trust or corporation and dividing the ownership of an asset.

It is recommended that you seek advice from an international tax specialist.

In the United States, each state has its own tax system, with specific rules, obligations and tax credits.

Canadian businesses exporting to the U.S. may have some state tax obligations in those states where they do business. The criteria vary by state.

These obligations are in addition to their U.S. federal tax and commodity tax obligations.

Additionally, many states have a variety of tax levying methods which could be based on income tax, gross receipts or net assets in the state, minimum gross receipts, etc.

According to the Tax Foundation’s 2019 tax rates, 44 states impose a corporate tax, with rates ranging from 2.5% to 12%. Four states (Nevada, Ohio, Texas and Washington) impose a gross receipts tax instead of corporate income taxes. The combined rate of the state corporate tax and U.S. federal tax (21%) is an average of about 25%, considering that state tax is deductible from federal tax.

Do you have nexus?

Nexus means you have a taxable presence in each state where you do business because you have a sufficient connection with the state.

Each state has its own definition of nexus, as a result, the types of activities that create a taxable presence vary from state to state. Generally, the following activities create nexus:

• Having an office or a business establishment in the state;
• Owning property in a state (e.g. consignment inventory);
• Providing installation services in a state;
• Having employees in a state who solicit the sale of services;
• Delivering products in a state using your own trucks.

In some states, an economic presence may be sufficient to create nexus. The volume of sales in a state (in dollars and as a percentage of total sales) determines the level of economic presence that triggers nexus.

Note that the criteria for determining nexus for state tax differ from those for commodity tax purposes.

Tax exemptions

In many states, even if you have nexus, you may be exempt from the state income tax (and other types of tax, depending on the state), under Public Law (PL) 86-272.

In this case, your activities in the state must be limited to those stipulated in PL 86-272, i.e. soliciting the sale of tangible property (but not services).

Also of note, PL 86-272 is a federal law, and some states will not apply it to foreign corporations.

Additionally, if you have nexus, you may also be exempt from paying tax in states that are parties to the Convention Between Canada and the United States of America.

In this case, you must not have a permanent establishment in the state, as defined in the tax convention. For example, the presence of an employee in the U.S. who has authority to sign contracts is considered a permanent establishment but using independent agents or simply storing goods are not (for more information on this topic, consult our U.S. federal tax article).

Tax returns

You are required to file tax returns in every state where you have nexus within three and a half months from the end of your fiscal year end (two and a half months if it ends on June 30th). You can, however, apply for a six-month extension by paying the estimated tax.

Some states do not require the filing of tax returns if you use PL 86-272.

To summarize, there are numerous considerations when it comes to your tax obligations in each U.S. state where you do business. We invite you to contact our team if you have any questions in this respect.