# weak FATCA enforcement



## Nononymous

This forum long ago stopped debating the morality and merits of US tax policy, or lack thereof, and has happily returned to practical advice for people who find themselves in the unhappy situation of being US persons abroad (citizens or green card holders). Typically we give the range options from full compliance through "partial compliance" to glorious unrepentant non-compliance.

However, on the subject of FATCA enforcement I did see something today over at the Isaac Brock Society which I thought significant and worth sharing: 

EBF notes fresh US guidance on ‘accidental Americans’

Essentially this says that for countries with Model 1 IGAs (Canada, Australia, the EU, etc.) if a bank has US indicia for a customer, but the customer cannot provide a US tax identification number (i.e. a social security number, which is difficult to obtain when you're an accidental who lives outside the US and speak no English) then the bank itself is not "systematically in significant non-compliance" if it simply reports the customer's date of birth and issues an annual request to the customer that they supply an SSN. 

In practical terms this means that the bank won't be in trouble if you as a US-born customer refuse to provide them with an SSN. Which means, hopefully, less chance that you'll be denied banking services as a US citizen. The bank will simply report your name and date of birth under FATCA, which is largely useless to the US unless you are the very wealthy target of an investigation for criminal tax evasion, as opposed to being an ordinary person living an ordinary life in your country of residence. 

In Canada and some other countries, place of birth information is not recorded with bank account data, so there are very little US indicia to go on. Customers must self-report US personhood, but answers are not validated so if the customer is forewarned about FATCA, it is very easy to lie. In other countries, however, more personal information is collected.


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## Yossarian1

Nononymous said:


> This forum long ago stopped debating the morality and merits of US tax policy, or lack thereof, and has happily returned to practical advice for people who find themselves in the unhappy situation of being US persons abroad (citizens or green card holders). Typically we give the range options from full compliance through "partial compliance" to glorious unrepentant non-compliance.
> 
> However, on the subject of FATCA enforcement I did see something today over at the Isaac Brock Society which I thought significant and worth sharing:
> 
> EBF notes fresh US guidance on ‘accidental Americans’


That's very interesting, and speaking of "practical advice", I am looking for one somehow related to this subject.
I am a EU person living in US with non resident Visa.
Because of the Substantial presence Test I am resident for tax purposes and I have been compliant since a few years on the FBAR reporting (since the time I discovered what it was, my CPA never mentioned it...)
Now, in my Italian bank account I have recently changed my contact phone number from an italian to a US one. That was flagged by the bank as "indicium" of "US customer".
Choices are:
- filling a W9 (including the SSN)
- filling a W8BEN
- not returning any form within 30 days: in this case my bank told me that would in any case report the details of my bank account to the IRS.
- close the bank account

Now, since I am currently compliant with the FBAR the obvious choice would be the W9. But I am pretty sure that would at least increase considerably in the future the chances of being audited.

Any suggestion?
thanks!


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## Bevdeforges

> Now, since I am currently compliant with the FBAR the obvious choice would be the W9. But I am pretty sure that would at least increase considerably in the future the chances of being audited.


Seriously, just file the W-9 and be done with it. All it does is give your bank your US SSN so they can report that along with the other data they have (y/e balance in the account, plus your name and maybe other identifying information). 

Unless you are stashing millions away in your Italian accounts, chances are they won't do anything with the information. (And haven't you been giving them your SSN when you file your FBARs anyhow?)

Given that you are living in the US, you're probably at a greater risk of question (or audit, I guess) if you have US assets. It probably puts you at a greater risk to have reported bank accounts without the Italian financial institute having reported their side of things. But so far there is little or no evidence that the IRS is systematically matching up what is reported by the foreign banks with what is on your tax returns. (And there are any number of reasons why you could have money in a foreign bank account without having anything to report on your tax returns.)
Cheers,
Bev


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## Nononymous

Agreed. Just file the W9 the Italian bank. You are already living and working in the US, filing tax returns and FBARs correctly. I can't see how your bank adding FATCA reporting to the mix would increase the chances of an audit. 

Also, if your bank balance in Italy is below the limit for FATCA reporting, nothing will happen anyway. The bank will just keep the W9 on file. (If in the future you leave the US and give up your green card, be sure to change your status with the bank.)


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## Yossarian1

Thank you both for the answers.
Now, I agree that the best choice would be to file the W9 and end, I don't have issues to hide (I started doing the FBAR with the tax year 2014 when I learned about this).
However one thing that bothers me is "investigative" attitude of the bank. I understand that for the FATCA requirements banks have certain obligations to report accounts of "US" citizens, but I would assume this should be limited to obvious cases, like for instance where the customer provides a US form of identification to open the account, not going to the extent of monitoring changes in the contact phone number.


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## Nononymous

Welcome to the brave new world of FATCA and CRS. Ain't nobody too happy about this.


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## Yossarian1

Bevdeforges said:


> It probably puts you at a greater risk to have reported bank accounts without the Italian financial institute having reported their side of things.
> Bev


This is the part I don't agree, or at least I am not sure about.
You can have 2 cases:
- report the W9. Now, without any effort, the IRS has all the records that prove you have foreign assets. Fine, there is no wrong doing, but I am quite sure that the people in this list have a higher chance of being audited than the average Joe; even without any issue it would still be an audit more complex and stressful than someone who claimed a wrong deduction.
- not report anything. The bank would provide the name of the taxpayer, the italian address (when I opened the account), no SSN. If it wanted to start an audit, the IRS would have to put some effort in to reconciling the US and italian info, and given that they are short on resources, perhaps they would move to to the next taxpayer.
Or maybe the opposite, the italian bank would flag to the authorities the account holder as uncooperative and that would raise a flag in the IRS, who knows.

I don't know, maybe I am just overthinking it because I come from a country where the tax authorities consider you guilty until prove otherwise...


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## Bevdeforges

I think you are probably overthinking it - unless you actually have something to hide. (Not saying that you do - just food for thought.)

The odds of getting audited are small and getting smaller with constant cuts to the IRS budget. Overall, there is no more than a 1% chance of getting audited - and don't forget that, to audit a taxpayer's return, there usually has to be something to indicate that the "return" on the time and effort invested in an audit will meet a certain threshold.

Yes, there are strictly "random" audits. But to keep the averages up, those cases selected for audit really do need to be likely to return a significant amount of additional tax plus interest and/or penalties. 

You plays the game and you takes your chances. But making it "evident" that you are reporting all that you need to report is one very good way to reduce your chances of audit.
Cheers,
Bev


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## Nononymous

You are overthinking it.



> report the W9. Now, without any effort, the IRS has all the records that prove you have foreign assets


You are *already* telling the IRS about those assets in your returns and FBARs, so what exactly is the problem if the bank does it too?

If anything I'd think you are better off having the matching FATCA reports sent by the bank.


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## whistlerexpat

What after all the years complying reporting correctly you just stopped and never sent in another return or report on your accounts.


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## Bevdeforges

To get back to your point about the "investigative" attitude of the bank - the bilateral agreements actually do lay out pretty clearly the "due diligence" procedures the banks are expected to use to "detect" possible US persons amongst their clientele.

Those include a US birthplace, a US address on the account, a US phone number on the account, standing orders to transfer funds to an account in the US, someone with power of attorney on the account who is in the US or a mail drop or "in care of" mailing address for the account in the US.

Not much the banks can do about it - those criteria are part of the agreement. Any one of those can be overcome if you can (legitimately) file a W8 BEN with proof that you are NOT a US person.
Cheers,
Bev


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## Nononymous

whistlerexpat said:


> What after all the years complying reporting correctly you just stopped and never sent in another return or report on your accounts.


It depends on various factors, but in many cases, nothing would happen. If you have citizenship in your country of residence, no US assets or income or other financial ties, then it's pretty hard for the IRS to do anything to you. It's also possible they'd never notice, as if you'd died or suddenly stopped earning.


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## whistlerexpat

Nononymous said:


> It depends on various factors, but in many cases, nothing would happen. If you have citizenship in your country of residence, no US assets or income or other financial ties, then it's pretty hard for the IRS to do anything to you. It's also possible they'd never notice, as if you'd died or suddenly stopped earning.




I have only lived in US when born of Canadian parents and my father was a Canadian pilot stationed in US for one year. I am a Canadian citizen and lived over 70 years in Canada. No US assets


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## Nononymous

whistlerexpat said:


> I have only lived in US when born of Canadian parents and my father was a Canadian pilot stationed in US for one year. I am a Canadian citizen and lived over 70 years in Canada. No US assets.


You should never have been filing in the first place. If you are filing, stop immediately.

You are a textbook case of an accidental US citizen who has zero reason to be tax compliant. 

I could go on at great length, but the quick version is the IRS has no ability to assess penalties against you in Canada, so unless you have US assets or some other tie to the country, there's just no reason to be filing.

If banks are not reporting your accounts under FATCA, great. If they are, that's unfortunate but no huge deal.


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## whistlerexpat

Nononymous said:


> You should never have been filing in the first place. If you are filing, stop immediately.
> 
> 
> 
> You are a textbook case of an accidental US citizen who has zero reason to be tax compliant.
> 
> 
> 
> I could go on at great length, but the quick version is the IRS has no ability to assess penalties against you in Canada, so unless you have US assets or some other tie to the country, there's just no reason to be filing.
> 
> 
> 
> If banks are not reporting your accounts under FATCA, great. If they are, that's unfortunate but no huge deal.




I have been filing fbar with my account numbers but the banks themselves up here in Canada do not know I am a US citizen so have not asked for a w9. 


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## Nononymous

whistlerexpat said:


> I have been filing fbar with my account numbers but the banks themselves up here in Canada do not know I am a US citizen so have not asked for a w9.


Stand by for a long reply, in three parts: the first concerning banks and FATCA, the second concerning tax compliance, the third concerning passports.

In your case, since you are currently compliant, it would not be a problem for you if your banks began reporting under FATCA. But if you wish to stop filing US taxes, you should probably conceal US citizenship from the banks so that you aren't reported in future (not that it would be the end of the world if it happened, for reasons explained below). 

Note also that banks only report balances over US$100k (I think) and reporting excludes many of the common registered savings accounts like RRSP, RESP, TSFA etc. Technically you are still obliged to include those on FBARs and so on with your US return, but they are not part of FATCA so not subject to automatic bank reporting.

1. Banks and FATCA

Canadian banks do not normally keep place of birth data, but at some point you may be asked about US citizenship or even place of birth. If you wish to avoid FATCA, you simply answer no to any questions about US ties. You are Canadian born in Canada. Banks do not verify these answers by demanding proof, but might one day require you to self-certify by signing a piece of paper. 

One form of self-certification is having you sign a W8-BEN. This is a US government form with a little perjury warning on it. I object to Canadian banks using these and would refuse to sign one. (I've done this successfully with a brokerage.) There is now a Canadian government form for CRS (the Common Reporting Standard) which asks you to check a box for "US citizenship or tax residency" and provide an SSN or TIN. Do not check this box. If you're comfortable lying on a form, it's one way to make FATCA go away. These forms are only kept on file with the bank, not distributed to CRA - it's their due diligence. But for existing accounts it's possible that nothing will happen, or you'll only be asked verbally.

You mention your father being in the military, stationed in the US at the time of your birth. On another forum a few years ago I was involved in a discussion with a chap from Victoria in a very similar situation. Retired, lived and worked all his life in Canada, but born on US military base while his father was down on some posting as a naval officer. Left at the age of three weeks. He went to his bank (HSBC) to move some money and in the guise of updating account information they asked where he was born and he answered truthfully. Huge mess. He refused to acknowledge US citizenship or sign anything - he never thought he had it, and wasn't going to change his mind now - which caused all sorts of problems with the bank. I don't know how it all ended but I advised him to tell the bank that while he was born in the US, as the child of a military officer on an official posting he could not acquire US citizenship. This is probably only true for diplomats, but it's a common misconception, especially when you use words like "military attache". But more importantly, you don't need to convince an immigration court, you're only trying to convince a bank employee. It's a much lower bar. Make a convincing case and they will not add you to the FATCA list. If you honestly believe it to be true, then you're not lying when you don't check US citizen on a form.

2. Tax compliance

You say you've been filing US tax returns and FBARs. This is unfortunate, because you don't need to have been, despite what the American government thinks. 

I am assuming here that you have absolutely no US assets, properties, income sources, investments, business interests, expected inheritance or other family or financial ties? If that is the case, then there is nothing the IRS can do to penalize or otherwise harm you. As a Canadian from birth, you are protected under the tax treaty from any and all attempts by the US to collect whatever taxes owing or other penalties it might choose to assess. They have zero leverage. 

In that case, why comply? There's nothing to be gained except a false sense of security, unless you're planning to renounce US citizenship and also want a clean exit from the tax system. (You can renounce without doing anything on the tax front, by the way. Compliance is not required. It's an increasingly popular tactic.) 

Even with fairly simple returns, there's a good possibility you can owe money due to differences in the tax systems. Have you owned a house for many years in Whistler or Vancouver? If you sell it, unlike in Canada, the capital gains exemption for a primary residence is only US$250k (or $500k for a couple). Do the math on how many older dual citizens in the Lower Mainland might owe significant sums under this rule. If one were to be fully compliant and pay up, that's a voluntary transfer of your wealth to the treasury of a country in which you have never lived.

So, if you were to stop being compliant, there's probably two things that would happen:

- absolutely nothing: lots people stop working, go broke, die, disappear; you might get an annual "what's up?" letter from the IRS for a few years, but nothing more

- the IRS devotes great resources to figuring out that you've been bad and owe it money; legally they can do nothing whatsoever to collect that debt

Without knowing lots of details about your situation, I can't really say more. But you're probably fine to stop filing and drop off the radar. Even if you later did get caught up in FATCA reporting, no huge deal because the US can't touch your money anyway.

3. Passports and travel

Legally, US citizens must enter the US using a US passport. Practically, it's rarely a problem for dual citizens to enter the US with a Canadian passport showing a US birthplace. But it's possible that customs will give you a hard time and demand that you obtain a US passport. This you can easily do, though it's a bit troubling to make the application if you've been completely off the radar otherwise, with no record of your existence and no tax compliance. But it's a minor problem in the grand scheme of things.

Now if you were seriously delinquent, the US is looking at new rules to deny passport renewals. Or if you were a very bad tax criminal you might be at risk of arrest. But that's not normal noncompliance, but rather serious tax evasion, and you'd be pretty aware of the risks.

That's enough for one day. Hope the advice helps.


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## whistlerexpat

Nononymous said:


> Stand by for a long reply, in three parts: the first concerning banks and FATCA, the second concerning tax compliance, the third concerning passports.
> 
> In your case, since you are currently compliant, it would not be a problem for you if your banks began reporting under FATCA. But if you wish to stop filing US taxes, you should probably conceal US citizenship from the banks so that you aren't reported in future (not that it would be the end of the world if it happened, for reasons explained below).
> 
> Note also that banks only report balances over US$100k (I think) and reporting excludes many of the common registered savings accounts like RRSP, RESP, TSFA etc. Technically you are still obliged to include those on FBARs and so on with your US return, but they are not part of FATCA so not subject to automatic bank reporting.
> 
> 1. Banks and FATCA
> 
> Canadian banks do not normally keep place of birth data, but at some point you may be asked about US citizenship or even place of birth. If you wish to avoid FATCA, you simply answer no to any questions about US ties. You are Canadian born in Canada. Banks do not verify these answers by demanding proof, but might one day require you to self-certify by signing a piece of paper.
> 
> One form of self-certification is having you sign a W8-BEN. This is a US government form with a little perjury warning on it. I object to Canadian banks using these and would refuse to sign one. (I've done this successfully with a brokerage.) There is now a Canadian government form for CRS (the Common Reporting Standard) which asks you to check a box for "US citizenship or tax residency" and provide an SSN or TIN. Do not check this box. If you're comfortable lying on a form, it's one way to make FATCA go away. These forms are only kept on file with the bank, not distributed to CRA - it's their due diligence. But for existing accounts it's possible that nothing will happen, or you'll only be asked verbally.
> 
> You mention your father being in the military, stationed in the US at the time of your birth. On another forum a few years ago I was involved in a discussion with a chap from Victoria in a very similar situation. Retired, lived and worked all his life in Canada, but born on US military base while his father was down on some official thing as a naval officer. Left at the age of three weeks. He went to his bank (HSBC) to move some money and in the guise of updating account information they asked where he was born and he answered truthfully. Huge mess. He refused to acknowledge US citizenship or sign anything - he never thought he had it, and wasn't going to change his mind now - which caused all sorts of problems with the bank. I don't know how it all ended but I advised him to tell the bank that while he was born in the US, as the child of a military officer on an official posting he could not acquire US citizenship. This is probably only true for diplomats, but it's a common misconception, especially when you use words like "military attache". But more importantly, you don't need to convince an immigration court, you're only trying to convince a bank employee. It's a much lower bar. Make a convincing case and they will not add you to the FATCA list. If you honestly believe it to be true, then you're not lying when you don't check US citizen on a form.
> 
> 2. Tax compliance
> 
> You say you've been filing US tax returns and FBARs. This is unfortunate, because you don't need to have been, despite what the American government thinks.
> 
> I am assuming here that you have absolutely no US assets, properties, income sources, investments, business interests, expected inheritance or other family or financial ties? If that is the case, then there is nothing the IRS can do to penalize or otherwise harm you. As a Canadian from birth, you are protected under the tax treaty from any and all attempts by the US to collect whatever taxes owing or other penalties it might choose to assess. They have zero leverage.
> 
> In that case, why comply? There's nothing to be gained except a false sense of security, unless you're planning to renounce US citizenship and also want a clean exit from the tax system. (You can renounce without doing anything on the tax front, by the way. Compliance is not required. It's an increasingly popular tactic.)
> 
> Even with fairly simple returns, there's a good possibility you can owe money due to differences in the tax systems. Have you owned a house for many years in Whistler or Vancouver? If you sell it, unlike in Canada, the capital gains exemption for a primary residence is only US$250k (or $500k for a couple). Do the math on how many older dual citizens in the Lower Mainland might owe significant sums under this rule. If one were to be fully compliant and pay up, that's a voluntary transfer of your wealth to the US treasury.
> 
> So, if you were to stop being compliant, there's probably two things that would happen:
> 
> - absolutely nothing: lots people stop working, go broke, die, disappear; you might get an annual "what's up?" letter from the IRS for a few years, but nothing more
> 
> - the IRS devotes great resources to figuring out that you've been bad and owe it money; legally they can do nothing whatsoever to collect
> 
> Without knowing lots of details about your situation, I can't really say more. But you're probably fine to stop filing and drop off the radar. Even if you later did get caught up in FATCA reporting, no huge deal because the US can't touch your money anyway.
> 
> 3. Passports and travel
> 
> Legally, US citizens must enter the US using a US passport. Practically, it's rarely a problem for dual citizens to enter the US with a Canadian passport showing a US birthplace. But it's possible that customs will give you a hard time and demand that you obtain a US passport. This you can easily do, though it's a bit troubling to make the application if you've been completely off the radar otherwise, with no record of your existence and no tax compliance. But it's a minor problem in the grand scheme of things.
> 
> Now if you were seriously delinquent, the US is looking at new rules to deny passport renewals. Or if you were a very bad tax criminal you might be at risk of arrest. But that's not normal noncompliance, but rather serious tax evasion, and you'd be pretty aware of the risks.
> 
> That's enough for one day. Hope the advice helps.




Thanks very much for your advise. I appreciate it. 


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## Nononymous

That's a lot to chew over, I realize. 

What lead you to becoming compliant, and for how long have you been doing so?


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## Bevdeforges

Let me just make a couple brief comments to what Nononymous has said.

You can check the bilateral agreement between the US and Canada on FATCA, but as far as I know, in most of the agreements, the threshold on reporting bank accounts to the US is something like $50K. This is separate from the threshold for having to fill out all those FATCA forms for your own US tax returns - which is $200K in financial assets located outside the US for an individual.

One other thing - it is perfectly feasible that someone might "suddenly" stop filing, if only because they no longer meet the filing threshold for their filing status. I've been in that situation a few times over the last 25 years of filing from "overseas" - and so I just don't file. It's also pretty common for folks past retirement age, if they are living off their savings and only receiving some sort of pension that is not taxable in the US. (Usually based on the tax treaty with the US.)

I have never received any sort of inquiry from the IRS regarding the years (pre-retirement) in which I did not (quite legitimately, I might add) file, and I know of at least a couple of retirees who no longer file US returns because they are quite literally living off savings. Heck, my Dad even got a letter from the IRS telling him not to file anymore because he wasn't claiming enough income to meet the threshold and the IRS didn't want to be bothered with processing his return any more. (I only wish I had a copy of that letter - but I did check with the IRS and they do send them out.)
Cheers,
Bev


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## whistlerexpat

Thanks very much Bev. I started filing back in 2000 when I was flying to Hawaii and the US customs gave me a real hassle as to why I was travelling on a Canadian Passport with a US birthplace. Almost didn’t let me fly so stupidly I decided to get a US passport then started filing. I only had an accountant do my taxes once then from your forum and help from members of the forum learned to do them myself. I went to a firm called Moody’s who help you renounce and they wanted over 10,000 to do the paperwork. Crazy considering I have never had to pay taxes to the IRS. 



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## whistlerexpat

Nononymous said:


> That's a lot to chew over, I realize.
> 
> What lead you to becoming compliant, and for how long have you been doing so?




A customs US gave me a real hassle about travelling on a Canadian Passport to the US. Started filing 2000. What a mistake that was


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## Nononymous

whistlerexpat said:


> Thanks very much Bev. I started filing back in 2000 when I was flying to Hawaii and the US customs gave me a real hassle as to why I was travelling on a Canadian Passport with a US birthplace. Almost didn’t let me fly so stupidly I decided to get a US passport then started filing. I only had an accountant do my taxes once then from your forum and help from members of the forum learned to do them myself. I went to a firm called Moody’s who help you renounce and they wanted over 10,000 to do the paperwork. Crazy considering I have never had to pay taxes to the IRS.


Common enough story. At least you've not spent a ton on having returns done, nor owed money. Getting the US passport wasn't a dumb thing to do. I use my Canadian but keep the US version in the back pocket in case of grief (it happened to me once). I did use a temporary address in Europe for the passport renewal, as a small security measure.

I would look at your real estate holdings and any future exposure before making any final decisions, but in general, you've got a few options:

1. Continue with compliance. Might be expensive one day in the future.
2. Stop with compliance and ignore any mail you receive from the IRS.
3. Renounce, since you're already up to date on your tax filings it might be worth doing.


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## Bevdeforges

Again, further to Nononymous' comments:

You can handle the renunciation paperwork yourself - just be aware that the consulate has to charge you $2350 for the "privilege" of renouncing your US citizenship. I have a friend in Germany who is in the process and, other than having to make an appearance in person at the closest consulate, it's mainly a matter of wading through it all.

There is a "final tax return" they say is required, but some folks through here have said that if it never gets done, it may not really matter. I don't know for sure about that - but the key thing is getting the CLN (Certificate of Loss of Nationality) and once you have that, you're free and clear.
Cheers,
Bev


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## jbr439

Bevdeforges said:


> Again, further to Nononymous' comments:
> 
> ...
> 
> There is a "final tax return" they say is required, but some folks through here have said that if it never gets done, it may not really matter. I don't know for sure about that - but the key thing is getting the CLN (Certificate of Loss of Nationality) and once you have that, you're free and clear.
> Cheers,
> Bev


I think the final return may not really matter in the sense that not filing it doesn't affect the 5 year compliance that is needed to not be a covered expat. So, as long as you wouldn't owe any taxes, there is no real penalty for not filing. Note that I am ignoring the penalties associated with not filing forms for foreign trusts (e.g. RESP, RDSP, TFSA(?)) and PFICs (Canadian mutual funds). Of course, there is a $10,000 penalty for not filing 8854 and, I believe, not filing it would make you a covered expat, so you probably want to file this one.


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## whistlerexpat

jbr439 said:


> I think the final return may not really matter in the sense that not filing it doesn't affect the 5 year compliance that is needed to not be a covered expat. So, as long as you wouldn't owe any taxes, there is no real penalty for not filing. Note that I am ignoring the penalties associated with not filing forms for foreign trusts (e.g. RESP, RDSP, TFSA(?)) and PFICs (Canadian mutual funds). Of course, there is a $10,000 penalty for not filing 8854 and, I believe, not filing it would make you a covered expat, so you probably want to file this one.




Thanks very much for your advise


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