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After much speculation, anticipation and the usual political rhetoric, the US Congress finally passed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (the “Act”). Signed into law by President Obama on December 17, 2010, the Act, which has been called the most significant tax bill in nearly a decade, extends many of the 2001and 2003 Bush-era tax cuts through to the end of 2012. The Act also provides partial relief from alternative minimum tax to the end of 2011, reduces payroll tax by two percentage points for 2011 and extends a host of other important tax breaks for businesses and individuals. The Act will affect most US taxpayers, including the many Canadian individuals and businesses that are subject to US taxation as a result of either working, investing, carrying on business, or holding property, in the US, or, holding US citizenship or a US permanent resident visa (Green Card).
The Act also addresses US estate tax which was repealed for 2010 under previous legislation. The Act reinstates Estate tax for 2010 with an exemption amount of $5 million and a maximum rate of 35%. Estates of decedents dying in 2010 may still elect to have the prior repeal apply, but beneficiaries of electing estates will be required to use the decedent’s tax basis for property they inherit. The 35% maximum rate will apply to estates of decedents dying prior to 2013 while the $5 million exemption will be adjusted for inflation after 2011. Commencing in 2011, if the estate of one spouse does not use the full $5 million exemption, the unused portion may be used by the estate of the surviving spouse, effectively creating a $10 million exemption for married couples. Unfortunately, like the legislation that preceded it, the provisions of the Act are temporary and without future legislative action, the pre-2001 estate and gift tax provisions will return after 2012 with an exemption of $1 million and a top tax rate of 55%. Given the uncertain future of estate taxes, it is important that estate tax plans are flexible enough to accommodate change and are reviewed regularly as new legislation is enacted.
Although the Act provides clarity for 2010 and a degree of certainty for planning through to the end of 2012, the two-year term of many of the Act’s provisions means that much of the uncertainty we saw in 2010 will likely arise again in 2012.
There are many provisions in the Act that will affect specific groups of taxpayers. To find out how you are affected by the Act and how MNP can assist with planning for your US tax and related affairs, please contact me at 604.637.1528 or any member of our US Tax team.
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