TAXATION T he seismic shift in U.S tax law continues to unfold. The ramifications can be felt in many areas, including new proposed legislation that will dramatically impact reloca- tion. It will affect not only U.S. citizens, but also foreign nationals relocating to the country as well as Canadian companies moving staff into the U.S. or U.S.-based professionals into Canada. The ripple effects are manifold. Andrew Stevens, a senior manager of global mobility services with KPMG, sees the growing divide between the two countries’ tax rates as an inherent part of the challenge and one that could contribute to a brain drain in Canada. While tax cuts are a strong component of tax reform in the U.S., north of the border rates keep rising, which could undermine efforts to bring talent to Canada and keep it here. In Ontario, for example, Stevens notes that those earning $220,000 or more are taxed at 53.53 per cent, while in the U.S. the highest tax bracket only kicks in when one’s annual income reaches a million dollars. And at 39.6 per cent, it is substantially lower than Canada’s highest tax bracket. As a result, senior U.S. executives based in Canada could choose not to extend their assignments here. Tax protection or equalization will become an increasingly important tool in managing the growing challenge; however, it too comes with its own challenges. Other tax changes that will impact the cost of assignments are those being made to itemized deductions. As Jennifer Connell, practice leader for consulting and advisory services at Weichert IMPACT OF U.S. TAX REFORM ON COMPANIES: •  Increased costs related to additional gross-up on benefits. •  Without tax deductions on moving expenses, employees may be more reluctant to apply for positions that require relocation. A robust policy with tax protection will be key to overcoming resistance. •  A qualified home-sale program will be the most effective way to reduce the tax gross-up bite while offering the kind of benefits most valuable to employees. IMPACT OF U.S. TAX REFORM ON RELOCATEES:  •  Increased possibility of being placed in a higher tax bracket. •  Employees may be more reluctant to move if they are not fully supported financially or if benefits are reduced. •  Employees considering relocation may be less inclined to move to states with high property or income taxes. Source: How the Proposed U.S. Tax Reform Can Impact Relocation (Dec. 14/17, weichertworkforcemobility.com) TAX HURDLES By Kelly Parker Concerns grow over the impact of U.S. tax reform on cross border relocation Spring 2018 PERSPECTIVES 21