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U.S. President Joe Biden’s administration scored a major win earlier this month with the passage of the Inflation Reduction Act – a much different-looking piece of legislation than previously proposed. That’s largely a relief for U.S. persons living in Canada, as well as Canadians who own U.S. assets, since it excludes many of the international tax changes that were previously proposed.
“In order to get through the Senate, they had to remove things,” says Steven Flynn, partner and Canadian and U.S. cross-border tax expert at Andersen LLP in Vancouver.
But advisors with U.S.-citizen clients aren’t standing down. While the Inflation Reduction Act of 2022 may be focused on climate change, it does boost funding to the Internal Revenue Service (IRS) to nearly US$80-billion, more than six times its current budget of US$12.5-billion, with a focus on funding areas such as compliance and enforcement.
It’s a significant amount of funding, Mr. Flynn says, and points to a greater crackdown on U.S. citizens at home and abroad (in countries like Canada) who haven’t filed or paid their taxes.
“There’s more initiative now [for the IRS] to try and chase down corporate and personal taxpayers who either have delinquent filings in the U.S., or maybe haven’t filed or disclosed everything,” he says. “There’s now a lot more money available to try and chase that down.”
He says advisors with U.S.-citizen clients may need to dig deeper to ensure they’re compliant with the IRS.
“If someone is delinquent on their filings or they’re not sure they’re up to date, the risks are getting higher and higher,” he says.
Mr. Flynn also notes the IRS announced in the fall of 2019 that it would be closing some of its formal amnesty programs that enabled delinquent filers to catch up with minimal or no penalties.
“While COVID-19 delayed the closure plans, we anticipate the IRS will eventually follow through with its announcement,” he says.
Terry Ritchie, vice-president and private wealth manager at Cardinal Point Capital Management Inc. in Calgary, also adds the biggest risk to U.S. taxpayers is the increased “poking and prodding” that is expected amid the beefing up of IRS employees.
He cited reports that about 87,000 new IRS employees will be hired – some as enforcement agents, while others will handle customer service and IT needs.
Mr. Ritchie also notes that the IRS has been quick to come out and suggest the new agents and enforcement will not target people and small businesses making less than $400,000 a year.
“However, several taxpayers and other opponents fear that this will not be the case,” he says.
On the bright side, Mr. Ritchie says the new money may help reduce the IRS backlog that has been an issue lately, making contacting the agency and processing returns more timely and efficient.
“Time will tell,” he adds.
- Brenda Bouw, special to the Globe and Mail.
Must-reads from Globe Advisor this week
Why recent tech firms’ stock splits is positive for portfolios
A handful of big technology companies have split their shares this year after pandemic-induced bull runs of the past two years. Tesla Inc. TSLA-Q became the latest on Aug. 25 with a 3-for-1 split. The question for investors is how to view these moves. Are they a signal it’s time to jump into these stocks or a development that should be ignored? Adam Mayers looks at the pros and cons of stock splits and whether it should be the main reason to buy a company’s shares.
Three ways advisors can add unmatched value during volatile markets
Investors’ patience and discipline have been tested repeatedly over the past several years. From the onset of the pandemic and the wild swings in the market to rising worries over inflation and geopolitical conflict, there’s a lot to consider when navigating the current environment. The latest market turbulence has only amplified the recognized value that financial advisors provide to clients in the moments that matter. Tim Huver of Vanguard Investments Canada points out three strategies advisors can utilize effectively to help clients.
New rules to require U.K. advisors to deliver good outcomes – will Canada follow?
The U.K.’s Financial Conduct Authority finalized its rules and guidance for the new consumer duty last month, which introduces a principle that requires firms and their advisors to deliver good outcomes for clients. Specifically, it includes requirements to simplify processes for switching or cancelling investment products and to provide more timely responses to customer queries. Many in the U.K. are skeptical of whether the new rules will benefit consumers, even as investor advocates in Canada are urging regulators to adopt similar measures. Jameson Berkow reports on what this means for advisors and their practices.
Why the turn in global oil markets may be shortlived
For now, cheaper oil is being welcomed by global leaders battling decades-high inflation. As an energy crisis engulfs Europe, global oil markets have offered modest relief, with crude prices drifting lower while traders grow anxious about the global economy. But the turn may be shortlived. Today’s price is softening not because supply is ample, but because fears of recession are rising. Derek Brower of the Financial Times gives an outlook for the market.
What you and your clients need to know
Growing demand for fixed-income ETFs
As shaky markets steer investors toward safe-haven investments, Canada’s largest exchange-traded fund (ETF) duo, BlackRock Inc. and Royal Bank of Canada are seeing growing demand for fixed-income products, as well as sustainable funds with an ESG focus. Since joining forces in 2019, the collaboration between RBC Global Asset Management and BlackRock’s Canadian arm – under the brand RBC iShares – has brought in $40-billion in assets. Clare O’Hara reports on which products are getting the most attention.
Banks brace for slowdown as profits come under pressure
Two major Canadian banks are once again building reserves to guard against loan defaults as uncertainty mounts about the prospects of an economic downturn. RBC chief executive officer Dave McKay warns that “the end of an economic cycle” is getting nearer as the bank’s third-quarter profit fell 17 per cent, hampered by rising loan loss provisions and unusually weak results from capital markets. National Bank of Canada fared better with profit dipping just 2 per cent year over year. James Bradshaw breaks down the earnings results.
Here’s why it may be two years until stocks truly bottom
The countertrend market rally really took off in the middle of June. Why? Because that was when the markets started to believe that the Federal Reserve, by frontloading rate hikes, was blazing the trail for an earlier pause and pivot. But, alas, there are many at the Fed who are stepping out and sounding more hawkish than the Chair Jerome Powell. The Fed is not done, says David Rosenberg of Rosenberg Research. He looks at why investors need to play the long game by being patient and nimble.
- Globe Advisor Staff