DSU Plans May Run Afoul of U.S. Deferral Election Timing Rules Resulting in Adverse U.S. Tax Treatment

A Canadian company adopting a deferred share unit plan (DSU plan) for its directors must consider U.S. tax implications for U.S. taxpayers.  It is important to remember that U.S. citizens and U.S. residents for tax purposes (including green card holders) are taxed on worldwide income, regardless of where they reside.  As such, participation by a U.S. director, including an expat or holder of dual citizenship, could result in significant adverse tax consequences under Section 409A of the Internal Revenue Code, as a typical Canadian DSU plan often runs afoul of Section 409A.  In a prior article, DSU Plans Require Careful Review to Avoid Adverse U.S. Tax Treatment, common payment timing violations of U.S....

Raising U.S. Funds Under Canada’s New “Listed Issuer Financing Exemption”

As many of our readers will have heard, the Canadian Securities Administrators (“CSA”) has announced the adoption of a new prospectus exemption for certain reporting issuers listed on a Canadian stock exchange (the “Listed Issuer Financing Exemption”), effective November 21, 2022.  To date, little attention has been given to the potential effect of the Listed Issuer Financing Exemption on the practices of Canadian listed companies raising funds from U.S. investors.  In this post, we discuss those implications and suggest methods for relying on the Listed Issuer Financing Exemption while still preserving the ability to raise funds from U.S. investors. Overview of the Listed Issuer Financing Exemption The Listed Issuer Financing Exemption will allow...

Mining Companies Subject To The SEC’S Subpart 1300 Of Regulation S-K Should Prepare Now For Next Year’s Annual Report

In 2022, many SEC reporting companies with mineral resource assets completed their inaugural SEC annual report on Form 10-K or 20-F subject to the SEC’s mining disclosure rules in subpart 1300 of Regulation S-K (“subpart 1300”), and filed their inaugural subpart 1300 technical report summaries, if applicable. As 2023’s annual reporting season approaches, we outline for our readers some important factors to consider in preparing for Year 2 of subpart 1300 compliance.  Depending on the situation, an issuer may need to begin its preparations well in advance of its fiscal year end (“FYE”), or risk being in default of its reporting requirements. Overview Subpart 1300 requires an issuer with material mining assets that...

Inflation Reduction Act: New U.S. Excise Tax on Stock Repurchase Transactions Applicable to Certain Canadian Companies

On August 16, 2022, President Biden signed the Inflation Reduction Act of 2022, HR 5376 (the “Act”), into law. Among other significant changes, the Act includes a new 1% excise tax on stock repurchase transactions by certain publicly traded corporations (the “Excise Tax”). As described below, publicly traded Canadian companies that: are treated as U.S. corporations for U.S. federal income tax purposes under the anti-inversion rules in Code Section 7874(b); became treated as “surrogate foreign corporations” for U.S. federal income tax purposes on or after September 20, 2021 under the anti-inversion rules in Code Section 7874(a)(2)(B); or are not subject to the anti-inversion rules but that effect a stock repurchase through one or...

Continuing a Company from One Country to Another Country Without U.S. Registration or Exemption Triggers Shareholder Rescission Rights

In Canada it’s considered no big deal to ask shareholders to approve a continuance or redomicile of a company from one province to another, or between Canadian provincial and federal jurisdictions. That’s also largely true from a U.S. securities perspective, but only because the continuance is being made within the same country. If a continuance or redomicile is made from one country to a different country, it’s a completely different story. Canadian counsel and their clients are sometimes surprised to hear that if a company continues from Canada to another country, or if a company continues into Canada, the failure to comply with U.S. securities laws may subject the company to rescission rights...

Form I-9 and Remote Workers: Is the Flexibility Almost Over?

As most Canadian employers are aware, the Immigration Reform and Control Act of 1986 requires employers to verify the identity and employment authorization of each of their employees inside the United States. This process is documented through the completion of the United States Citizenship and Immigration Service (USCIS) Form I-9, Employment Eligibility Verification, for each employee at or shortly after their hiring date for work in the United States. The Form I-9 has two Sections. Section 1 is for the employee to complete and asks basic personal questions such as name, address, and date of birth with further optional information such as Social Security number, email address, and telephone number. Section 2 is...

Cross-Border de-SPAC Structures

More special purpose acquisition vehicles (common known as “SPACs”) completed their initial public offering (“IPO”) in 2021 than in any prior year. In 2021, approximately 613 SPACs completed their IPO within the United States alone. An increasing number of Canadian companies are being approached by U.S. and tax haven SPACs with significant US shareholders. A SPAC is organized with no business operations and minimal direct assets (cash raised from private investors in the IPO is held in a trust account) for the purpose of acquiring a private company, effectively resulting in that company being taken public. Such acquisition is generally referred to as a “qualifying transaction” (or “de-SPAC” transaction). Private companies generally find...

States Expand Pay Transparency Requirements, Including for Remote Job Postings

In order to address income disparities and employer discrimination, a growing number of jurisdictions in the U.S. have implemented salary transparency laws that not only require disclosure of certain salary information during the hiring process upon request, but require public disclosure of salary ranges in all posted job advertisements.  Canadian companies with U.S. employees should familiarize themselves with such laws and consider implementing a uniform policy for salary transparency as more and more states start requiring affirmative wage disclosures. Most recently, Washington State amended its Equal Pay and Opportunity Act to require employers to affirmatively disclose in job postings a wage range, plus any other benefits or compensation to be offered, regardless of...

Dorsey releases Updated Guide for Canadian issuers to trade on the OTCQX and OTCQB

In conjunction with the OTC Markets, Dorsey has updated its Guide to Joining the OTCQX or the OTCQB Markets for Canadian and other Foreign issuers. Canadian issuers who trade on a qualified foreign stock exchange (which include the Toronto Stock Exchange, TSX Venture Exchange, Canadian Securities Exchange and the NEO Exchange) and who meet certain financial criteria can trade in the United States on the OTCQX or the OTCQB by relying on their Canadian disclosure and without needing to register with the United States Securities and Exchange Commission. The OTCQX is for more established companies that meet higher financial standards while the OTCQB is for early-stage and developing companies. The OTCQX and OTCQB...

Plan Ahead to Reduce (or Eliminate) U.S. Withholding Tax when Selling or Transferring U.S. Subsidiaries holding U.S. Real Property

Many Canadian companies and individuals own U.S. real property interests through a U.S. corporation. The Foreign Investment in Real Property Tax Act (“FIRPTA”) regime imposes a withholding tax (currently at a rate as high as 15%) on the gross proceeds realized by Canadians upon the sale or transfer of a U.S. real property interest. This withholding is imposed without regard to whether the disposition results in a taxable gain.  However, with advance planning, this withholding may be reduced or eliminated. A U.S. real property interest (“USRPI”) generally includes land, buildings, growing crops and timber, and mines, wells and other natural deposits (including oil and gas properties and mineral deposits) located in the United...