# dual US-Can citizens in Canada - annual temperature check



## Nononymous

As another tax seasons passes by without my doing anything to become compliant with US filing obligations, it's possibly a good time to take a temperature check of Canadian residents. 

Assuming it isn't delayed by court challenges of course, FATCA is coming on 1 July (Canada Day - how ironic) but to me it seems pretty toothless - most registered tax-protected savings vehicles are excluded, plus the limits for triggering proactive collecting of citizenship information for existing accounts are, I believe, fairly high. (In other words, I'm not expecting any calls from my bank.) 

On the one hand, given the streamlined program and apparent reluctance of the IRS/Treasury to punish ordinary folks for coming in from the cold, which may not last forever, it's not a bad time to begin compliance.

On the other hand, FATCA is not likely to rat too many of us out, and as we know, the US government cannot assess penalties against dual citizens living in Canada (US assets are another matter of course). So I don't see huge incentives to become compliant if it means a lifetime's paperwork, plus the possibility of paying money in edge-case scenarios.

So in honour of tomorrow being 15 April, what are the Canadian duals doing this year: becoming compliant, planning to renounce, or staying off the radar?


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## maz57

Well I never was a dual, having unilaterally declared my US citizenship terminated as of the day I became a Canadian. The USG might beg to differ with me as I haven't bothered to go through the rigamarole of trying to get a CLN because I couldn't stand suffering all the obnoxious security paranoia at a consulate. Besides, I didn't believe I needed to ask for their permission. My US passport sits unused in a drawer where it will expire. Some day it will be a rare museum item. Somewhere in the vast US Code it actually says getting a CLN is not required.

Naturally I not only quit filing 1040s, 8938s, and FBARs, I skipped the 8854 business as well. So from the perspective of the IRS am I a "covered expatriate" or did I simply drop into a black hole? Who knows? Who cares? Trying to get a CLN might actually increase my risk.

So I'm feeling pretty good about things. CBT has been called many things but after agonizing over this whole mess for a couple of years I've come to realize above all else it is unenforceable. I have taken the trouble to make sure accounts are under 50k, etc., etc. On a hunch I went and checked the records for my online trading account and discovered that when I opened the account decades ago I lied and said I was a Canadian. I remember thinking at the time it would just be simpler that way. Boy was I ever right! For those who might take issue with this small dishonesty, I point out that it has now become a true statement! Sometimes when governments cause problems you have to take executive action.

The ironies of this whole situation are many. The CRA admitted today the personal information of approximately 900 Canadian taxpayers had been breached by the Heartbleed bug. They are wringing their hands over that, yet come July 1st they plan to leak the information of a million Canadians to a foreign government. All because that other government said so. They must have picked July 1st as a special insult to Canada.

So to answer your question Nononymous, for me at least, I'd describe the temperature as seasonally cool. I'd summarize my strategy as; relinquish, reject, refuse, and rejoice. 

P.S. Memo to the CRA: your check is in the mail.


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## DonMurphyCanada

For me (well fir my wife actually - she is the USC living in Canada) we just found out about all this. She pure ally has just started earning income the last two years as she's been raising our kids at home. But we backfiled 1040s, 3520s 3520as this year and fully intend on filing the FBARs for the last 6 soon too. Yes it was a pain but to the best of my ability it was done right. 

Later thus year we fully instead to liquidate the blasted resp that caused all this work in the first place. Then it's not so bad filing a 1040 every year. We will just watch what we do from a financial perspective moving forward. I don't mind final lying FBAR it's very simple.

Don


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## BBCWatcher

maz57 said:


> They are wringing their hands over that, yet come July 1st they plan to leak the information of a million Canadians to a foreign government.


No, it's an agreed bidirectional exchange of data, not a leak.

The most severe consequences of previously commenced data exchanges between the U.S. and Canadian governments have been related to Canada's turning away many thousands of Americans from entering Canada. Canada doesn't routinely admit Americans with DUIs, for example. Canadian border officers only know that an American has a DUI because Canada gets huge dumps of sensitive criminal (and "criminal") records from the other side of the border.

For perspective, lots of Americans are quite angry that their government is sharing criminal history data with a foreign government, but that started many years ago. The Canadian government _loves_ receiving those data. But if the Canadian government wants to curtail data exchanges with foreign governments, maybe it ought to start with the records I just described.


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## Nononymous

DonMurphyCanada said:


> Later thus year we fully instead to liquidate the blasted resp that caused all this work in the first place. Then it's not so bad filing a 1040 every year. We will just watch what we do from a financial perspective moving forward. I don't mind final lying FBAR it's very simple.


Could you not have just taken her name off the RESP and ignored all the backfiling?

And if your kids have US citizenship and are the beneficiaries of it, aren't they obliged to report the RESP at some point? (Which I guess is the point of liquidating it.)


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## Nononymous

BBCWatcher said:


> No, it's an agreed bidirectional exchange of data, not a leak.
> 
> The most severe consequences of previously commenced data exchanges between the U.S. and Canadian governments have been related to Canada's turning away many thousands of Americans from entering Canada...


That one cuts both ways. There have been some truly asinine episodes on both sides of the border crossing.

A particularly good example occurred at the airport here a few years back, where someone heading through the US customs pre-clearance was observed to have a flake of something that looked suspiciously like oregano stuck to the bill of his baseball cap; customs agents marched him across the terminal (definitely Canadian soil there) to an ATM and encouraged him to withdraw $500 to pay a fine, cash on the nail, to avoid being barred entry for the next five years. Nice one.

But we're way off topic. I'm just trying to get a sense of who's complying and who's not.


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## DonMurphyCanada

I am not sure how to take her off. It's stupid really we could have just taken it out in my name if we knew. 

As for my son reporting the distribution, you are correct. I'm still working on that. It is my understanding that because I filed the 3520 3520as correctly the income was already reported and claimed correctly. He will need to file 3520 and 350a to disclose the distribution but won't pay tax on it is my understanding. If anyone has any guidance here on this it would be greatly appreciated.


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## BBCWatcher

Ideally the data exchanges start to lead to some better, more consistent results for residents on both sides of the border. As it has for social security -- the U.S.-Canada Social Security Treaty works rather well, and the systems work together. In particular, it'd be nice if the U.S. and Canada could agree on a Cross Border Retirement Account (CBRA) that unifies and simplifies the complex retirement savings programs on both sides of the border and extends tax benefits across North America -- and eventually beyond. It's not possible to implement a CBRA (or anything like it) without data exchanges, so we're moving a step closer.

U.S. Individual Retirement Accounts (IRAs) and 401(k) are occasionally tax-protected via tax treaties, but I'm talking about something simpler. A combined, single program, ideally, or at least something closer to how social security operates.


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## Vangrrl

I also just started checking this forum again in my annual "lets see what's new in expat taxes" event.

So I think I'm compliant. I showed up on this forum 3 years ago convinced the IRS was going to hunt me down and levy enormous fines. Here we are, 3 years later, I'm not really concerned about it at all. I have filed tax returns and FBARS from 2007 onwards (quiet disclosure of the first 3, the last 3 on time). I've never owed anything in tax, and likely never will. I've never filed any 3520's or other "foreign trust" forms. I had an RESP and we did move it to my husband's name (I can't remember the details of how it was done). I'm a signatory on my husband's corporation accounts and that's the primary concern I have with FATCA - I don't know how those accounts are going to be reported. Will FATCA reporting involve us receiving a T5 type statement from the bank? Some sort of summary: "The following accounts have been disclosed to the IRS..."? On the one hand, I'm concerned about the zealous over-reporting of information by our banks but on the other hand, a massive dump of data on the understaffed and underfunded IRS's lap is going to bury us all even further.

We cleaned up some accounts that we had, took my name of some joint accounts we had with my mother-in-law (I didn't really need to be there anyways) and opened an account for my husband that we can use for any unusual high-balance events that are none of the IRS's business.

Before I saw a post about filing free tax returns using TaxAct, I was seriously considering not filing this year because I don't feel like paying $20 for TurboTax. I have 6 consecutive years on file that are virtually identical where I haven't owed any tax. I feel like filing every other year would continue to establish my pattern of non-owing.

I'm one of the few people who had been asked on a few occasions about why I am not travelling on a US passport by Border guards. For that reason, I do keep a valid US passport and that's the primary reason I am maintain some form of compliance. I live on the border and we travel to the US often.

I'm not happy about being in compliance. The whole system is ridiculous. But I'm more pragmatic than I am rebellious. It is beneficial to my family and I that I maintain US Citizenship and easy access to the US. If circumstances change, then I'll consider renouncing.


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## Bevdeforges

From everything that has been said and posted here, it does sound like Canada is under some sort of intensified scrutiny when it comes to US taxation matters. I suppose the same is true for Switzerland, too, in the wake of the big tax "busts" there.

OTOH, we get little if any hype about this stuff in France. I know several "accidental Americans" (both those with one US parent and those born in the US while their parents happened to be there) who don't bother filing at all. One of the accidentals was detained on entry to the US when someone noticed her US birthplace on her French passport while she was traveling with her mother. But basically, I think the result was that she's far less likely to visit the US again - with or without her mother.

Enforcement may change a bit with all this FATCA information floating around, but in general I suspect the IRS will continue to focus their enforcement efforts on cases where it's clear there are hefty recoveries of "evaded taxes" and leave the little people alone (simply because they lower the agent's average collection rate).
Cheers,
Bev


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## DonMurphyCanada

Hi Bev,

The issue is that Canada has had some personal investments (TFSA - personal tax free savings accounts or RESP - tax free savings accounts that can be used for your kids post secondary school education) where the USA does not recognize those as tax free accounts they are labeled/classified as foreign trusts. 

As us citizens living in Canada (there are other situations that arise as well like dual citizens living in the us and I think green card holders too) you must declare and income (think any matching contributions and interest) on your 1040 as separate items interest income and other income. You must also file 3520s and 3520as after been through that process they are quite complex. The income also also be declared on FBAR. There are potential other requirements too (PFIC for. Example).

Really for most people I think the additional paperwork for most people affected by this does NOT generate any additional tax revenue for the IRS because the Us Canada tax treaty allows for a credit of the Canadian taxes paid to the CRA on your US taxes.

Come July 1 there is also a new law where the Canadian banks will be required to divulge who of there account holders are are citizens. If they don't apparently a pretty large withholding tax could be levied. I don't pretend to understand this part so those interested May have to research for themselves.

I have done my best to get compliant but apparently there are a lot of people who are not. Think accidental Americans.....


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## DonMurphyCanada

vangrrl that a great summary. That a outs sums things up for us too. My wife is considering renouncing her citizenship. What makes it a little complex is we gave three American children and three accidental American children lol

Don



Vangrrl said:


> I also just started checking this forum again in my annual "lets see what's new in expat taxes" event.
> 
> So I think I'm compliant. I showed up on this forum 3 years ago convinced the IRS was going to hunt me down and levy enormous fines. Here we are, 3 years later, I'm not really concerned about it at all. I have filed tax returns and FBARS from 2007 onwards (quiet disclosure of the first 3, the last 3 on time). I've never owed anything in tax, and likely never will. I've never filed any 3520's or other "foreign trust" forms. I had an RESP and we did move it to my husband's name (I can't remember the details of how it was done). I'm a signatory on my husband's corporation accounts and that's the primary concern I have with FATCA - I don't know how those accounts are going to be reported. Will FATCA reporting involve us receiving a T5 type statement from the bank? Some sort of summary: "The following accounts have been disclosed to the IRS..."? On the one hand, I'm concerned about the zealous over-reporting of information by our banks but on the other hand, a massive dump of data on the understaffed and underfunded IRS's lap is going to bury us all even further.
> 
> We cleaned up some accounts that we had, took my name of some joint accounts we had with my mother-in-law (I didn't really need to be there anyways) and opened an account for my husband that we can use for any unusual high-balance events that are none of the IRS's business.
> 
> Before I saw a post about filing free tax returns using TaxAct, I was seriously considering not filing this year because I don't feel like paying $20 for TurboTax. I have 6 consecutive years on file that are virtually identical where I haven't owed any tax. I feel like filing every other year would continue to establish my pattern of non-owing.
> 
> I'm one of the few people who had been asked on a few occasions about why I am not travelling on a US passport by Border guards. For that reason, I do keep a valid US passport and that's the primary reason I am maintain some form of compliance. I live on the border and we travel to the US often.
> 
> I'm not happy about being in compliance. The whole system is ridiculous. But I'm more pragmatic than I am rebellious. It is beneficial to my family and I that I maintain US Citizenship and easy access to the US. If circumstances change, then I'll consider renouncing.


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## Bevdeforges

Don, the same thing can be said of any number of European countries, too. The main difference here is that we aren't sitting "right next door" to the US, and so we aren't subject to the same level of publicity and (let's be honest about it) scare tactics on a regular basis.

We've had any number of Americans in the UK ask about retirement and other tax-free savings plans that aren't recognized by the US. And there are similar plans here in France, too. In reading over the Bilateral Agreements regarding this new FATCA reporting that starts this year, I note that most of the agreements specifically exempt many of these "problematic" types of savings and investment plans from being reported back by the foreign financial institutions. Not sure if it's due to our countries of residence actually defending our interests, or if it just means that the IRS really doesn't intend on messing with those types of accounts and any "technical violations" resulting from what amounts to stock standard financial accounts, especially for those of us living in a country that has its own procedures in place for tax compliance. I strongly suspect it's the latter, as there has never been much IRS interest in regular bank accounts and ordinary retirement accounts held by overseas residents.
Cheers,
Bev


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## Nononymous

DonMurphyCanada said:


> I am not sure how to take her off. It's stupid really we could have just taken it out in my name if we knew.


They aren't being reported under FATCA so you could have also just ignored it.


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## Nononymous

Bevdeforges said:


> Don, the same thing can be said of any number of European countries, too. The main difference here is that we aren't sitting "right next door" to the US, and so we aren't subject to the same level of publicity and (let's be honest about it) scare tactics on a regular basis.


I honestly don't see too much pressure and scare tactics here. There was a burst of front-page publicity about FATCA and the IGA a few months ago, but if you Google now, there's barely been anything since. Otherwise there have been a handful of articles in the business and personal finance sections of the major papers over the last couple of years, but not much more - so very easy to miss.


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## maz57

BBCWatcher said:


> No, it's an agreed bidirectional exchange of data, not a leak.


There's nothing bidirectional about it. FATCA doesn't require the US to send information on Canadians resident in the US to Canada. Even if they did it would be useless because Canada does not attempt to tax its citizens once they have exited the Canadian system. And its not an agreement either. FATCA was unilaterally forced upon Canada under threat of extortionate 30% withholding of payments passing through the US system. The Canadian government caved in order to prevent serious economic harm to Canada's banks. FATCA and the citizenship based taxation of the US combine to create an asymmetrical arrangement whereby other countries "agree" to help the US hunt down US citizens resident in their country while the US offers nothing in exchange.

The tax treaty between the two countries includes provisions that either government can request tax info from the other government about specific individuals whom they suspect are engaged in evasion. The treaty also includes language that Canada will not collect a US tax liability imposed upon a Canadian citizen resident in Canada if that liability arose while that person was a Canadian citizen. The US has a similar exclusion for its citizens resident in the US. FATCA does not change these treaty provisions which is one reason it will never achieve its objective.


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## Vangrrl

There was a good bit of local publicity in 2011 when I learned of this. Almost all of it coming from cross border tax accountants and lawyers who made a ton of money off people's fears. I wrote to my MP and finance minister and I'm pretty sure I'm not alone. But honestly nothing has happened since then as far as I can tell: no fines levied, no one arrested at the border for non compliance etc.... In fact I believe the question about taxes that was on the passport application is no longer there in the latest version? 

I live in a town where people cross the border weekly to get gas and there's at least 5 other kids in my son's class with American parents. As far as I can tell, none of them are filling US taxes and none of them have been warned at the border. And these aren't even dual citizens.


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## Vangrrl

I wasn't aware that registered accounts wouldn't be reported! RRSP and RESP? Ironically the RRSP appears on the tax return (form 8891) so you still end up reporting it if you file. 

I think TFSA's will eventually be included in the tax treaty but they are still fairly new.


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## Vangrrl

DonMurphyCanada said:


> vangrrl that a great summary. That a outs sums things up for us too. My wife is considering renouncing her citizenship. What makes it a little complex is we gave three American children and three accidental American children lol
> 
> Don


Hi Don - it's always nice to know that we aren't alone in this predicament! Our situation is similar - with young kids, I haven't earned much in the past few years. The bulk of my "wealth" is from my Canadian husband's earnings. 

We have 2 kids, one born in the US and one in Canada who is as far as I can tell is completely Canadian. I am an accidental American myself and the rules appear to be that you must have lived in the US for 5 years to pass on citizenship to a child. I'm keeping her off the radar in any case. We joke that she's our "tax haven" if things ever go awry.


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## maz57

BBCWatcher said:


> The most severe consequences of previously commenced data exchanges between the U.S. and Canadian governments have been related to Canada's turning away many thousands of Americans from entering Canada. Canada doesn't routinely admit Americans with DUIs, for example. Canadian border officers only know that an American has a DUI because Canada gets huge dumps of sensitive criminal (and "criminal") records from the other side of the border.
> 
> For perspective, lots of Americans are quite angry that their government is sharing criminal history data with a foreign government, but that started many years ago. The Canadian government _loves_ receiving those data. But if the Canadian government wants to curtail data exchanges with foreign governments, maybe it ought to start with the records I just described.


Interesting, I haven't heard that was an issue from the American side. That's something which is definitely bilateral and an issue on the Canadian side. I personally know the young daughter of a friend who is banned from entering the US because of a DUI on her Canadian record. Its understandable that countries would want to prevent criminals from entering their borders. Now that DUI is classified as a criminal offense in either country it will, of course, show up in the criminal database. A criminal record is bound to result in consequences. (That would be an advantage to being a dual; they've got to let you in whichever direction you are headed!) 

I don't know if its actually happened but imagine you are a Canadian pot smoker who got dinged on a minor possession charge years ago. You decide to go down to Washington state to avail yourself of their now legal marijuana but are denied entry at the border because of your criminal record for doing that which has now become perfectly legal! (Yeah I know its state legal but not federal legal. Just an interesting thought experiment.)

There was recent case where a Canadian woman was denied entry to the US because of a previous suicide attempt which resulted in the police being called to her residence. It was most definitely not a criminal event. Its unclear how that police incident report wound up in a database and ultimately on US customs computers. That seems to me to be personal medical information which shouldn't be part of any data exchange. Its a graphic example of the pitfalls of big data. Once you are in the system it is very difficult to undo. 

Come to think of it, if you follow this trend to its logical conclusion, eventually no one will be allowed to cross any border. There are so many laws nowadays that all of us are in violation of some obscure law just about all the time.


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## Nononymous

Vangrrl said:


> I wasn't aware that registered accounts wouldn't be reported! RRSP and RESP? Ironically the RRSP appears on the tax return (form 8891) so you still end up reporting it if you file.
> 
> I think TFSA's will eventually be included in the tax treaty but they are still fairly new.


The various registered accounts (RRSP & RESP certainly, not sure about TFSA) are excluded from FATCA reporting under the IGA. You would still have to report them yourself if you are choosing full compliance, of course, but if you decide not to you are not at risk from FATCA.


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## Nononymous

Vangrrl said:


> In fact I believe the question about taxes that was on the passport application is no longer there in the latest version?


Correct. The passport application only asks that you truthfully supply your SSN, if you have one; if not you report zeroes. 

Which is why I felt more comfortable renewing my passport last fall, albeit from a temporary European address that will not forward mail.


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## Bevdeforges

Nononymous said:


> I honestly don't see too much pressure and scare tactics here. There was a burst of front-page publicity about FATCA and the IGA a few months ago, but if you Google now, there's barely been anything since. Otherwise there have been a handful of articles in the business and personal finance sections of the major papers over the last couple of years, but not much more - so very easy to miss.


Way back when, when I was in business school in the US, our tax prof was the first to admit that you'll generally see a rash of reports in the US newspapers about tax offenders being arrested, tried and fined or sent to prison in the last couple of weeks before the April 15th tax filing deadline. It's basically a publicity thing to "encourage" folks to file on time.

It was a couple years ago that we set up the Expat Tax section here - due to a sudden flood of questions and concerns coming from Canada about articles in the press there on the issue of Americans being taxed based on nationality. Things have quieted down quite a bit since then. However, Canada has the "advantage" of being not only next door to the big US, but also sharing a language. Oddly enough, there is very little of this being reported from the US or Australia, despite the common language. Unless, of course, you are in contact with the US expat groups, either within the country or the international ones (AARO and ACA primarily).

The Swiss and the Germans have taken FATCA to heart - in large part because of the IRS "raids" on a couple of big Swiss banks, and I suppose because of the German project to find its own citizens/residents with "secret" bank accounts in other countries. 

I got an enormous kick out of reading through the Bilateral Agreement for France on FATCA. The US is offering in exchange to inform the French fisc of all French residents who are receiving $10 or more of interest income from US banks. Oddly enough, the US already withholds 30% on non US citizens with US bank accounts and for those of us who are still US citizens, we have to report our US interest, though we aren't taxed on it in France - because we're already taxed on it in the US. So I think you're right - the agreements are pretty much one-sided things. I still wonder why/how the US "backed down" on so many of the types of accounts that seem to instill the most fear and terror in the hearts of innocent expats (i.e. retirement savings and tax-free general savings accounts). One might almost think they really aren't looking for those.
Cheers,
Bev


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## maz57

Bevdeforges said:


> I still wonder why/how the US "backed down" on so many of the types of accounts that seem to instill the most fear and terror in the hearts of innocent expats (i.e. retirement savings and tax-free general savings accounts). One might almost think they really aren't looking for those.


Yes, that's the only concession the US agreed to in the US/Canada IGA as far as I can tell. Its obvious the Canadian "registered" accounts are not likely to be used as tax evasion vehicles, but even though they are not "reportable" accounts under FATCA, they are most certainly still taxable in the eyes of the IRS. Its almost as if they are inviting US filers in Canada to neglect to report them on their US returns. 

They reason they instill fear is because with the exception of the RRSP, the rest of the accounts generate a filing nightmare with 3520, 3520a, possible PFIC reporting depending on whats actually in the account, and God knows what else. The IRS treatment of these accounts totally eliminates any advantage they might have if you are unlucky enough to have a US connection. IRS Form 8891 addresses those issues for the RRSP and the IRS could easily fix the treatment of the rest of the registered accounts with 8891 or a similar form. This has been a known issue for a long time; the IRS has chosen not to fix it.


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## Vangrrl

maz57 said:


> Its almost as if they are inviting US filers in Canada to neglect to report them on their US returns.


That thought has definitely crossed my mind.


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## BBCWatcher

maz57 said:


> This has been a known issue for a long time; the IRS has chosen not to fix it.


You mean the U.S. Congress (with the President's approval, or with a veto override) has chosen not to change the U.S. tax treatment of those accounts.

Before we lob too many stones in one direction, has the Canadian Parliament exempted all U.S. tax-advantaged accounts -- and there are a lot of them -- from Canadian tax? I doubt it.


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## Vangrrl

BBCWatcher said:


> You mean the U.S. Congress (with the President's approval, or with a veto override) has chosen not to change the U.S. tax treatment of those accounts.
> 
> Before we lob too many stones in one direction, has the Canadian Parliament exempted all U.S. tax-advantaged accounts -- and there are a lot of them -- from Canadian tax? I doubt it.


Well until the Canada chooses to tax based on citizenship instead of residency, I don't think you can even compare the two scenarios.


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## maz57

BBCWatcher said:


> You mean the U.S. Congress (with the President's approval, or with a veto override) has chosen not to change the U.S. tax treatment of those accounts.
> 
> Before we lob too many stones in one direction, has the Canadian Parliament exempted all U.S. tax-advantaged accounts -- and there are a lot of them -- from Canadian tax? I doubt it.


Congress doesn't bother to micromanage IRS's treatment of non-US retirement accounts. I doubt they even know what a mess this all is. If they do know , they don't care. The IRS fixed the RRSP problem with Form 8891 without asking Congress. The IRS could do the same with the other registered accounts if it wanted to.

Parliament doesn't need to exempt anything. Canada doesn't attack its citizens who choose to live elsewhere. Once a person exits the Canadian system they are free to invest freely according to the local rules wherever they live without interference from Canada. That includes the United States and US tax-advantaged accounts.


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## BBCWatcher

You're both missing the point.

Congress (and the President) have preeminent responsibility in deciding what is taxable and what isn't. The IRS can't decide that. The IRS only can design forms to implement the tax rules that Congress writes.

Whether you have a residency-based tax system or a (limited) citizenship-based one, there are myriad U.S. tax-advantaged savings accounts that are not respected by other governments. Including Canada's. And it's up to the Canadian Parliament to fix that if they choose, and thus far they haven't. Should a resident of Canada be subject to taxation on, say, a U.S. 529 or Coverdell education savings account which is U.S. tax free when used for qualified purposes? Good question, but the point is that the Canadian Parliament decides. Same as the U.S. Congress. This very much cuts both ways.

To pick another example, the State of New York imposes income taxes on everyone, regardless of citizenship, who engages in economic activity (e.g. work) in the State of New York. Even for one day. If you attend a business meeting or your employer's training class in the State of New York you're supposed to pay New York State income tax on your worldwide income for the portion of the year you spend in New York. Should the State of New York treat all Canadian tax-advantaged accounts as New York tax-advantaged? They don't, but maybe they should.

Tax-advantaged accounts are inherently not residence-based. Their tax treatment can be complicated. Maybe they should be taxed, and maybe they shouldn't -- policymakers could easily decide one way or the other. What I would suggest is that Canadians drop the "holier than thou" attitude around here because the Canadian Parliament isn't the world's model for how to treat non-Canadian tax-advantaged accounts. Far from it. If a resident of Canada put $1,000 into Country Q's tax-advantaged account (and paid tax on it at that time), and followed all of Country Q's rules when she lived there and for that account, should Canada then tax that account? Under the present system, that's exactly what happens. In fact, Canada pretty much (bleeps) over someone in that very situation.

Instead, I'd like to see people advocate for cross-border tax advantaged savings accounts with common rules. That's something that might be achievable, as it is for social security between many countries.


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## Nononymous

I actually completely did not follow much of that...

I was just curious as to whether duals are more or less likely to become compliant now that the tax-free accounts are not reportable under FATCA - they can stay off the radar.

Also I think there is some sort of tax treaty recognition of tax-advantaged retirement savings things, is there not? It's just the more obscure ones that cause problems.


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## Vangrrl

All I know is that if the situation was reversed, and my family had moved to the US from Canada when I was 6 months old, I would not have to know or care about the treatment of tax deferred US investments by the Canadian government because as a non-resident those rules would not apply to me. I would have no financial connection and no tax obligation to Canada. 

The taxation of Canadian residents with investments abroad is not of concern to me. As an adult with financial investments, if you choose to permanently change your country of residence, you can expect that there will be tax implications and you make your decision to relocate accordingly.


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## Vangrrl

Nononymous said:


> I actually completely did not follow much of that...
> 
> I was just curious as to whether duals are more or less likely to become compliant now that the tax-free accounts are not reportable under FATCA - they can stay off the radar.
> 
> Also I think there is some sort of tax treaty recognition of tax-advantaged retirement savings things, is there not? It's just the more obscure ones that cause problems.


If the details of FATCA had been more clear 3 years ago, I would have stayed off the radar. I'm seriously considering intermittent compliance going forward....

I'd like to see FATCA in action this year.


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## Vangrrl

Nononymous said:


> Correct. The passport application only asks that you truthfully supply your SSN, if you have one; if not you report zeroes.
> 
> Which is why I felt more comfortable renewing my passport last fall, albeit from a temporary European address that will not forward mail.


I had wondered what you had ended up doing about your passport from prior discussions. 

I've only crossed the border on my US passport for the past 3 years so I don't know what the current situation is for US born Canadian passport holders.


----------



## Nononymous

Vangrrl said:


> I had wondered what you had ended up doing about your passport from prior discussions.
> 
> I've only crossed the border on my US passport for the past 3 years so I don't know what the current situation is for US born Canadian passport holders.


Last year I crossed on the Canadian passport maybe half a dozen times after getting the warning, without anyone asking any questions. But then I figured why not take advantage of a temporary relocation to renew from an address that would soon cease to exist, so I did.

It's the most embarrassing thing I have ever seen. Covered in pastel-coloured bald eagles and other assorted patriotic heraldry. I was speechless when I first opened it.


----------



## Bevdeforges

Nononymous said:


> Also I think there is some sort of tax treaty recognition of tax-advantaged retirement savings things, is there not? It's just the more obscure ones that cause problems.


As a matter of fact, no - I don't believe there are (m)any tax advantaged retirement plans that are recognized in any of the US tax treaties. The Canadian RRSP thing is the only one of which I'm aware.

They certainly do not recognize the French tax-free or tax-deferred retirement vehicles, and I've heard complaints from those in the UK. The tax treaties themselves make mention only of retirement pension plans (and normally only government pension plans at that). And, in fact, the treaties don't seem to claim any jurisdictional priority for the US tax-deferred plans, either.
Cheers,
Bev


----------



## Bevdeforges

BBCWatcher said:


> You're both missing the point.
> 
> Congress (and the President) have preeminent responsibility in deciding what is taxable and what isn't. The IRS can't decide that. The IRS only can design forms to implement the tax rules that Congress writes.


It depends - the laws that Congress passes regarding tax tend to be pretty vague, and generally they leave writing the regulations for actually assessing and collecting the relevant taxes up to the IRS.
Cheers,
Bev


----------



## Nononymous

I was curious/bored enough to Google and saw something about how Canada treats some US plans the same as government retirement plans and does not tax the gains, if you make some sort of election on your Canadian return. Or something.



> Under the Canada - U.S. Income Tax Convention (the treaty) Canadian residents may enjoy continued tax deferral of their IRA, 401(k) plan and Roth IRA balances once they return to Canada, just as they would if they were still U.S. residents.


----------



## BBCWatcher

Nononymous said:


> I was curious/bored enough to Google and saw something about how Canada treats some US plans the same as government retirement plans and does not tax the gains, if you make some sort of election on your Canadian return. Or something.


Right, some but not all. The U.S. has certain tax-advantaged accounts that Canada whacks once you become a resident of Canada, even briefly.

It's a significant problem with, for example, Roth IRAs and Roth 401(k)s with many countries (not necessarily Canada -- I'm making a general observation now). Those U.S. tax-advantaged accounts involve paying all U.S. income taxes on those funds up front, depositing a limited amount of funds per year in a segregated account, following rules about when the funds can be withdrawn, and then getting a future U.S. tax break upon withdrawal.

That deal simply doesn't work when most Americans move almost anywhere else. Even temporarily -- some other countries tax gains, at least the realized ones if there are some dividends generated within those accounts. The U.K., to pick an example, apparently doesn't offer any treaty protection to Americans with Roth accounts. (Italy might be an enlightened exception.)

U.S. tax-advantaged retirement savings vehicles are increasingly heavily weighted toward "pay tax now, save later" Roth arrangements. Most Americans have no idea that Roth accounts are not generally attractive in terms of international taxation.

Does it make any sense that an account that (hopefully) grew in value for decades until Monday in the U.S. is suddenly subject to taxation on 100% of the gains simply because you moved to another country on Tuesday? What might make _some_ sense is if the pro-rata share of the gains attributable to your residence time in the new country is taxable by the new country. For example, if the money grew for 20 years and you've spent 1 of those 20 years in the new country, then 1/20th (5%) of the gains would be taxable in the new country. But that's not how it works. It's certainly not how the Canadian tax system works.

No, the Canadian tax system is not always "fair" either. _Frequently_ it isn't fair. Every nation's tax system has quirks, oddities, and "unfairnesses." The Japanese tax system, for example, has gift and inheritance taxes (and very hefty taxes, with a limited spousal exemption) that last as long as you're a resident of Japan plus 5 years beyond. "Fair"? Maybe not, but so it is -- and it's neither purely residence-based nor citizenship-based but rather _past or current_ residence-based. Should it matter if someone who dies happened to live in Japan 4 years ago for, say, one month? Well, it does, in a major tax way. And you cannot renounce that tax liability, unlike U.S. citizenship -- you're stuck with it for 5 years after you leave Japan.


----------



## maz57

BBCWatcher said:


> Instead, I'd like to see people advocate for cross-border tax advantaged savings accounts with common rules. That's something that might be achievable, as it is for social security between many countries.


I think most countries would agree it is desirable to encourage people to personally save for their retirement because it tends to relieve the burden on the public pension system. In an increasingly mobile world it's not at all uncommon for a person to spend a part of their working life in two or more countries. To then screw that person when they retire with brutal taxation rules makes no sense and is not a desirable outcome. The basic principal is simple enough; upon retirement those accounts get taxed once by only one jurisdiction. It just needs to be agreed which one.

A universal fix for that problem is probably not achievable; there are too many countries, too many retirement saving schemes, and too many bureaucracies. If two closely aligned economies, the US and Canada, can't work it out there is little hope for a larger solution. The US dropping CBT (at least for retirement accounts) would be a prerequisite for such a fix. That's exactly what the US did with the US/Canada totalization agreement for US Social Security and Canada Pension Plan. No agreement is possible if one country taxes only its residents and the other country insists on taxing everyone. I can't imagine the US totally dropping CBT in our lifetimes but I can imagine they might agree to limited residence based taxation for retirement accounts.


----------



## maz57

BBCWatcher said:


> Those U.S. tax-advantaged accounts involve paying all U.S. income taxes on those funds up front, depositing a limited amount of funds per year in a segregated account, following rules about when the funds can be withdrawn, and then getting a future U.S. tax break upon withdrawal.


Congratulations, substitute "Canadian' for "US" in the the above and you have just described a Canadian Tax Free Savings Account (TFSA). Explain to me again why the IRS effectively disallows a Canadian citizen resident in Canada to have one of these accounts if that person is unfortunate enough to have some lingering US connection. (The IRS doesn't actually forbid them, it simply imposes such punitive reporting and taxation they are rendered useless and turned into a liability.) What public policy objective is achieved by such treatment? Why does the US want to hurt its own citizens?


----------



## BBCWatcher

maz57 said:


> Why does the US want to hurt its own citizens?


Why does Canada also?

The U.S. and Canada have a tax treaty. Canada obviously did not agree to respect all U.S. tax-advantaged accounts. Why is it any surprise the U.S. doesn't honor all Canadian tax-advantaged accounts?

The U.S. and Italy came closer to an ideal in their tax treaty, to pick another example. The terms can be negotiated if both sides are willing.


----------



## maz57

BBCWatcher said:


> The U.S. and Canada have a tax treaty. Canada obviously did not agree to respect all U.S. tax-advantaged accounts. Why is it any surprise the U.S. doesn't honor all Canadian tax-advantaged accounts?
> 
> The U.S. and Italy came closer to an ideal in their tax treaty, to pick another example. The terms can be negotiated if both sides are willing.


OK, I'll try one last time.

If a Canadian moves to the US and invests in US tax-advantaged accounts, the CRA will not tax those accounts or anything else for that matter because Canada does not tax it's non-resident citizens. So there is no taxing, no reporting, no nothing. So there's nothing to not respect.

If an American moves to Canada and invests in Canadian tax-advantaged accounts the IRS will tax everything except RRSPs. For ordinary income the Canadian tax paid will allow that person to claim a FTC to offset any US taxes owing. The registered accounts are by definition Canadian tax free so there is no Canadian tax paid, no offsetting FTC, and the IRS is happy to collect the tax instead. This means that for a US citizen in Canada there is no point whatsoever investing in those things because they aren't tax free. Even the RRSP must be reported all over again every tax season; not a big deal but slip up and the IRS will tax it as well. The other registered accounts generate a filing nightmare that would make them questionable even if the IRS didn't tax them. Now that is a lack of respect.


----------



## FilingLate

I have a coworker and a friend both canadian and dont know about Fatca.
My questions is how many are still not aware?
How many are not complaint?
Is their any data that suggest that
Thanks


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## Nononymous

Many many many. Hundreds of thousands are not compliant.

Many are not aware, and of those that are, probably a good percentage choose not to.

Whatever you do, don't wreck it for people by telling them, then they'll have to worry about it. Ignorance is bliss.


----------



## BBCWatcher

The Canadian government could have chosen (and could still choose) to offer a simple deal to the U.S.: financial accounts held in the respective countries are taxable (or not taxable, if tax-advantaged and qualified) only in their respective countries.

Canada evidently didn't do that. This has nothing to do with residency or citizenship. It has to do with the tax treaty. For Canada you terminate taxability on worldwide income (except Canadian source income) by moving out of Canada and informing Canada you did so. For the U.S. you terminate taxability on worldwide income (except U.S. source income) by moving out of the U.S. and renouncing U.S. citizenship (with a notice procedure to the U.S. government). The only difference is that it's easier to move back to Canada than it is to move back to the U.S., but both countries have procedures for exiting their tax regimes if that's your desire.

That aside, why didn't Canada negotiate a simple tax treaty provision concerning tax-advantaged financial accounts, exempting all U.S. financial accounts from Canadian taxes (and vice versa)? I don't know, but I can take a guess: the Canadian government vigorously protects its domestic financial institutions. Simple protectionism, in other words. If Canadian residents had better access to U.S. financial accounts and only had to worry about U.S. taxation on those accounts, not Canadian, then that'd be bad for Canadian financial companies and their shareholders even while being very good for Canadian consumers.

The U.S. has been prepared to be perfectly reciprocal in its tax treaties.


----------



## Bevdeforges

BBCWatcher said:


> The U.S. has been prepared to be perfectly reciprocal in its tax treaties.


I think you're being a tad "over generous" in attributing the motivation of the US to negotiate tax treaties. It might be fair to say that Canada should realize the power of the US to get the treaties to read in their own interest, but certainly here in Europe there is pretty much a complete lack of understanding regarding the tax laws of the US. Most treaty partners are simply looking to preserve their own rights to tax the income they consider to be "theirs" (primarily pensions and real estate income generated by property located within the country) and tend to be concerned primarily with the rights of their citizens while stationed in the US.

US tax law IS pretty much unique in the world. (Rumor has it that only Eritrea insists on taxation by citizenship, but how much power do they have to enforce this, I wonder.) And, depending upon the country, there are ways to ensure that certain types of deferred accounts aren't double taxed - though finding these ways can be complicated and frustrating.

There are also the practical limitations to the IRS' "enforcement" powers. How likely is it that they'll expend lots of energy hunting down "accidental Americans" who aren't filing? Especially those who ultimately wouldn't owe anything anyhow? There are more than enough big time tax evaders to chase after - mostly probably resident in the US.
Cheers,
Bev


----------



## maz57

BBCWatcher said:


> For Canada you terminate taxability on worldwide income (except Canadian source income) by moving out of Canada and informing Canada you did so. For the U.S. you terminate taxability on worldwide income (except U.S. source income) by moving out of the U.S. and renouncing U.S. citizenship (with a notice procedure to the U.S. government). The only difference is that it's easier to move back to Canada than it is to move back to the U.S., but both countries have procedures for exiting their tax regimes if that's your desire.


Thank you. You made my point. Canada doesn't punish a Canadian who decides to move, live and work another country. You can log out of the Canadian system and at some later date return with no problem.

The US, on the other hand, does punish its citizens who decide to move, live and work elsewhere. That's a hell of a choice the US gives it's people. Be beholden to the IRS (including restricted financial options and possible double taxation) wherever you go or renounce your citizenship to finally log out of the US system. 

This "only difference" is a very large difference indeed!


----------



## maz57

Nononymous said:


> Many many many. Hundreds of thousands are not compliant.
> 
> Many are not aware, and of those that are, probably a good percentage choose not to.
> 
> Whatever you do, don't wreck it for people by telling them, then they'll have to worry about it. Ignorance is bliss.


Meanwhile, back at the thread, I'd venture to guess that most are not compliant. Of that most, most of those are totally unaware mixed with a relative few intentionally not complying or selectively complying. 

I doubt FATCA will change much. The banks will unenthusiastically poke at their records, customers will lie, those concerned will gerrymander their accounts, and the sun will rise on July 2nd. The CRA will send the IRS a few records the IRS already knows about. FATCA doesn't even cover real estate which is where the IRS would score the really big hit.

The US government has absolutely no ability to monitor any of this.


----------



## BBCWatcher

maz57 said:


> You can log out of the Canadian system and at some later date return with no problem.


True. Under this operating principle, Canadian taxpayers often pay for the birth and superb education for individuals who then move to Dubai (for example), earn a tax free fortune thanks to that superb Canadian education (and without any reimbursement to Canadian taxpayers), then return to Canada to retire, enjoying excellent taxpayer funded healthcare and paying rather little in Canadian taxes. Which is Canada's choice, and I respect Canada in her ability to make that choice. If that's how Canada wants it to be, so be it.

A century ago, during the Gilded Age, the United States decided that wasn't the deal they wanted to offer to their citizens. The American view is lifecycle-aware, that taxpayers tend to heavily support the young and the old, and individuals who are highly successful -- well above the median -- ought to contribute a fraction of their fortunes if they don't contribute adequately elsewhere in the world. That's the U.S. view, and I also respect Americans in making that choice about how to treat their citizens. If that's how the U.S. wants it to be, so be it.

If you prefer the Canadian approach, no problem. You can renounce U.S. citizenship.


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## FilingLate

@BBC @Nonomous i was under the impression that their might be some data out their but it seems like their isn't

SInce i have known about this requirement i have lost 10 pounds just can't eat or sleep.
The Cpas and lawyers are like vultures.


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## DonMurphyCanada

Nononymous I think it might be better advise to tell people about the problem. Catch it while it's early. Most will not owe or owe very little US taxes. Wouldn't it be better to know so you can correct a small problem and not allow it to grow into a large problem. At least the individual has the choice to make the decision on what to do instead of being blind-sided years down the road and then they have to suffer the agony of filing out a bunch of unnecessary forms.

The informed person can make informed decisions on how to invest (example put RESP TFSAs in spouses name etc)

Don Murphy





Nononymous said:


> Many many many. Hundreds of thousands are not compliant.
> 
> Many are not aware, and of those that are, probably a good percentage choose not to.
> 
> Whatever you do, don't wreck it for people by telling them, then they'll have to worry about it. Ignorance is bliss.


----------



## Bevdeforges

BBCWatcher said:


> A century ago, during the Gilded Age, the United States decided that wasn't the deal they wanted to offer to their citizens. The American view is lifecycle-aware, that taxpayers tend to heavily support the young and the old, and individuals who are highly successful -- well above the median -- ought to contribute a fraction of their fortunes if they don't contribute adequately elsewhere in the world. That's the U.S. view, and I also respect Americans in making that choice about how to treat their citizens. If that's how the U.S. wants it to be, so be it.


Hm, interesting take on US history... Only wish they'd see it the same way now and "encourage" the 1% types to "contribute a fraction of their fortunes" while they're raking it in. (Wouldn't hurt to apply the rules to big companies, too.)

Ah well. 
Cheers,
Bev


----------



## Nononymous

FilingLate said:


> @BBC @Nonomous i was under the impression that their might be some data out their but it seems like their isn't
> 
> SInce i have known about this requirement i have lost 10 pounds just can't eat or sleep.
> The Cpas and lawyers are like vultures.


I suspect that when many folks hear about this they shrug their shoulders and say whatever, particularly those in Canada.

You on the other hand - I don't mean this critically, just repeating what you've said - suffer from a psychological disorder, one consequence of which is that you need to spend huge amounts of money getting scary advice from multiple lawyers and CPAs. (They aren't vultures if you don't call them up and offer to pay their fees; they are professionally inclined and obliged to offer scary advice.)

Admittedly, if you're in the US it's maybe a little riskier to ignore, but you could have easily shuffled your Canadian accounts around to stay under the FATCA limits and just ignored this, or simply filed correctly for this year and waited to see what happens.


----------



## Nononymous

DonMurphyCanada said:


> Nononymous I think it might be better advise to tell people about the problem. Catch it while it's early. Most will not owe or owe very little US taxes. Wouldn't it be better to know so you can correct a small problem and not allow it to grow into a large problem. At least the individual has the choice to make the decision on what to do instead of being blind-sided years down the road and then they have to suffer the agony of filing out a bunch of unnecessary forms.
> 
> The informed person can make informed decisions on how to invest (example put RESP TFSAs in spouses name etc)
> 
> Don Murphy


That was mostly a specific reference to one poster's particular brand of sky-is-falling anxiety.

Beyond that I'm not sure. I tend to see this as a form of herd immunity. If half a million duals are completely non-compliant, with their RESPs and TFSAs and all that, then we're all safe - the analogy would be "too big to bust".


----------



## Nononymous

maz57 said:


> Meanwhile, back at the thread, I'd venture to guess that most are not compliant. Of that most, most of those are totally unaware mixed with a relative few intentionally not complying or selectively complying.
> 
> I doubt FATCA will change much. The banks will unenthusiastically poke at their records, customers will lie, those concerned will gerrymander their accounts, and the sun will rise on July 2nd. The CRA will send the IRS a few records the IRS already knows about. FATCA doesn't even cover real estate which is where the IRS would score the really big hit.
> 
> The US government has absolutely no ability to monitor any of this.


This is my view, and the rationale behind my personal course of (in)action.

I'm not sure it's particularly scientific, nor have I tried to quantify this, but one measure of interest level and awareness would be the number of people posting to this thread (six?) compared to the traffic levels back in 2011 when we saw the first blip of publicity for OVDP in the Canadian media. That seemed to generate more activity, but maybe my memory exaggerates things.


----------



## FilingLate

@nonomous that's one of the advice i got from a lawyer just file this year forget the rest i was told that they are looking for big account not something like yours under 60k or so. Problem is if it passes it passes if their is an audit the fbar fines are astronomical.


I have a call with the accountant today let's see what he has to say.
Thanks


----------



## Nononymous

Everyone you talk to will have a slightly different opinion. And there is no perfect answer. You could spend the rest of your life talking to lawyers and accountants and be no better off in the end. Or you spend so much on fees that there's nothing left to penalize.


----------



## Nononymous

DonMurphyCanada said:


> The informed person can make informed decisions on how to invest (example put RESP TFSAs in spouses name etc)


Actually it would be very useful if Canadian financial institutions asked that question, or included a little warning in the application materials, to help prevent US persons from unwittingly complicating their lives.

Our daughter's RESP is taken out in my parents' name (guess where the money's coming from?) so it's hidden. She's a US citizen and will ultimately have to make her own decision about whether to keep it or lose it, but with a non-US birthplace she's protected from border hassles using a Canadian passport and could easily choose to stay off the radar.


----------



## jbr439

DonMurphyCanada said:


> Nononymous I think it might be better advise to tell people about the problem. Catch it while it's early. Most will not owe or owe very little US taxes. Wouldn't it be better to know so you can correct a small problem and not allow it to grow into a large problem. At least the individual has the choice to make the decision on what to do instead of being blind-sided years down the road and then they have to suffer the agony of filing out a bunch of unnecessary forms.
> 
> The informed person can make informed decisions on how to invest (example put RESP TFSAs in spouses name etc)
> 
> Don Murphy


You forgot to mention that the informed person can make informed decisions about selling their principal residence or small business. These can result in *significant* tax hits for the unaware, and taking the right steps can mitigate much or all of the damage.


----------



## BBCWatcher

Bevdeforges said:


> Hm, interesting take on US history... Only wish they'd see it the same way now and "encourage" the 1% types to "contribute a fraction of their fortunes" while they're raking it in. (Wouldn't hurt to apply the rules to big companies, too.)


There's some pressure in that direction. It's more like 0.1% and even 0.01%, by the way.

Economist Thomas Piketty's recently published book "Capital in the Twenty-First Century" is getting a lot of attention. He advocates a global wealth tax on both physical and intangible (e.g. patent) wealth. I haven't read the book yet, but my understanding is that such a global wealth tax would be in lieu of other taxes, not in addition.

There are some wealth tax regimes in the world. France has one. Italy has a limited one. Of course there are property taxes (a specific wealth tax), inheritance and estate taxes (a deferred wealth tax), and even pseudo-wealth taxes like the required minimum distributions (RMDs) on many types of U.S. tax-advantaged retirement accounts. So they're not unprecedented.


----------



## maz57

BBCWatcher said:


> There's some pressure in that direction. It's more like 0.1% and even 0.01%, by the way.
> 
> Economist Thomas Piketty's recently published book "Capital in the Twenty-First Century" is getting a lot of attention. He advocates a global wealth tax on both physical and intangible (e.g. patent) wealth. I haven't read the book yet, but my understanding is that such a global wealth tax would be in lieu of other taxes, not in addition.
> 
> There are some wealth tax regimes in the world. France has one. Italy has a limited one. Of course there are property taxes (a specific wealth tax), inheritance and estate taxes (a deferred wealth tax), and even pseudo-wealth taxes like the required minimum distributions (RMDs) on many types of U.S. tax-advantaged retirement accounts. So they're not unprecedented.


Although most decidedly not wealthy myself, I have an instinctive uneasiness with the concept of wealth tax for several reasons: 

1. For those who are self-made wealthy at least, income tax was presumably paid along the way to generating that wealth; it seems unfair to subject them to tax again after they've already paid their share.

2. Those proposing a wealth tax are making the implicit assumption that such wealth isn't benefiting society. In actual fact it tends to be invested in businesses and industry; it clearly already provides a net benefit to society by creating jobs, technical innovation and, of course, corporate tax.

3. If you believe that whatever you tax you tend to discourage (I do), the concept of a wealth tax kind of flies in the face of the American dream; i.e. start and grow a business, invent a widget, invest in real estate, etc. Some seem to think that the wealthy deserve to be punished (I don't). I suspect this is why the US so far doesn't have a wealth tax.

Re property taxes: In view of the fact that national and state governments have pretty much staked out a monopoly on income tax, property tax is one of the few revenue raising options remaining for local governments. Besides, property is a sitting duck; you can't hide it and its not portable.

Re RMDs: RMDs seem fair enough to me. The government gave the person relief on their income taxes years ago when it was most advantageous to them. Now the government rightfully asks for pay back later in life. Sort of like a bill coming due. Without RMDs that money could be passed to the next generation and never be taxed. Besides, there are also "pay the tax now" types of savings schemes that don't require RMDs.


----------



## freedom1

@FilingLate

I can understand that those individuals who are prone to anxiety can suffer greatly from this. If CPAs and lawyers are telling you what they're telling you and it's very scary, it could be 
1. Circular 230 (search for it)
2. They want big fees
3. They want to fix your tax return but deny any responsibility for guiding you that way.
4. The specific agent wants your business before you get a second opinion.

Some lawyers and CPAs create fancy presentations that uses a ton of jargon to make it seem like only they can fill + file these forms. Then if you call their office they assure you they will fix everything. It's a contradiction - "you're in hot water. prison, fines, lose your right arm. But hire me and I'll fix it".

If it makes you feel any better - I've contacted 3 CPAs and they told me that in my case fixing the issue with the IRS is the best course. An audit is really just an examination of documents that support your filing. Any potential charges and penalties ought to occur only if those documents are inconsistent with your filing and/or the officials 'discover' more documents from external sources. That makes sense to me. So would you rather be audited ? Or, go to the IRS with a guilty plea with only the penalty left to negotiate ?


----------



## BBCWatcher

I'm having a hard time following your arguments since you seem to be saying that wealth taxes are both good and bad.



maz57 said:


> For those who are self-made wealthy at least, income tax was presumably paid along the way to generating that wealth; it seems unfair to subject them to tax again after they've already paid their share.


"In lieu of" means "instead of," not "in addition to."



> Those proposing a wealth tax are making the implicit assumption that such wealth isn't benefiting society. In actual fact it tends to be invested in businesses and industry; it clearly already provides a net benefit to society by creating jobs, technical innovation and, of course, corporate tax.


Customers create demand, and demand creates jobs. There are no jobs without customers. One only needs _adequate_ capital to support sufficient investment to serve customers. There's plenty of excess, underutilized productive capacity in the world.

There's a significant oversupply of investment capital in most of the world at the present time and for the foreseeable future. That's not an assumption, that's just a simple observation based on real interest rates. Investment capital is priced, and the price (the real interest rate) is extremely low, even perhaps negative.



> If you believe that whatever you tax you tend to discourage (I do), the concept of a wealth tax kind of flies in the face of the American dream; i.e. start and grow a business, invent a widget, invest in real estate, etc. Some seem to think that the wealthy deserve to be punished (I don't). I suspect this is why the US so far doesn't have a wealth tax.


The U.S. has lots of wealth taxes in practically every municipality. They're called property taxes. In several places in the United States there are even wealth taxes on possessions such as cars, boats, and airplanes. Federal, state, and local estate taxes are also wealth taxes.

Hedge fund managers impose huge private wealth taxes on their clients, and their clients (quite strangely) don't seem too bothered.

See above regarding why this is precisely the right time to shift from consumption and income taxes to wealth taxes. All taxes have some impact on behavior, but what's in short supply and what isn't? Wealth is presently abundant, and consumption (customers) are in short supply. Consequently it's quite sensible for tax burdens to shift dramatically from the latter to the former.

A lot of wealth is held by corporations, by the way. Corporations are sitting on record amounts of cash that they're simply not investing in expanding their factories, researching new products, training their workforces, or in any other reasonably productive pursuit.

I'm not sure why it's more "noble" to tax consumption or income rather than wealth. Why do people think that? Consumption, income, and wealth are all already taxed in practically every developed economy. I suppose if you are extremely wealthy you wouldn't like trading higher wealth taxes for lower consumption and lower income taxes, but that's an argument solely based on self-interest, not on any higher moral purpose that I can determine.


----------



## maz57

BBCWatcher said:


> I'm having a hard time following your arguments since you seem to be saying that wealth taxes are both good and bad.
> 
> 
> "In lieu of" means "instead of," not "in addition to."
> 
> 
> Customers create demand, and demand creates jobs. There are no jobs without customers. One only needs _adequate_ capital to support sufficient investment to serve customers. There's plenty of excess, underutilized productive capacity in the world.
> 
> There's a significant oversupply of investment capital in most of the world at the present time and for the foreseeable future. That's not an assumption, that's just a simple observation based on real interest rates. Investment capital is priced, and the price (the real interest rate) is extremely low, even perhaps negative.
> 
> 
> The U.S. has lots of wealth taxes in practically every municipality. They're called property taxes. In several places in the United States there are even wealth taxes on possessions such as cars, boats, and airplanes. Federal, state, and local estate taxes are also wealth taxes.
> 
> Hedge fund managers impose huge private wealth taxes on their clients, and their clients (quite strangely) don't seem too bothered.
> 
> See above regarding why this is precisely the right time to shift from consumption and income taxes to wealth taxes. All taxes have some impact on behavior, but what's in short supply and what isn't? Wealth is presently abundant, and consumption (customers) are in short supply. Consequently it's quite sensible for tax burdens to shift dramatically from the latter to the former.
> 
> A lot of wealth is held by corporations, by the way. Corporations are sitting on record amounts of cash that they're simply not investing in expanding their factories, researching new products, training their workforces, or in any other reasonably productive pursuit.
> 
> I'm not sure why it's more "noble" to tax consumption or income rather than wealth. Why do people think that? Consumption, income, and wealth are all already taxed in practically every developed economy. I suppose if you are extremely wealthy you wouldn't like trading higher wealth taxes for lower consumption and lower income taxes, but that's an argument solely based on self-interest, not on any higher moral purpose that I can determine.


Great response, BBC. I admit that even though I know what "in lieu of" means, I totally missed the actual meaning of that sentence; I just saw "wealth tax" and my mind took it from there.

I would comment that technical innovation is dramatically changing society. Products are invented, jobs are created to produce those products, and in a sense, customers for those products are "created" as well. (At the same time other products are rendered obsolete, those jobs are lost, and customers move on to something else.) Can innovation create products, jobs, and customers faster than the old ones are lost? Beats me, but this is a trend not likely to reverse anytime soon.

Imagine a world where most things are produced by robots or automated processes. Who would the customers for those products be? Should the owners of those automated factories be taxed and the revenue distributed to the rest of us so there are some paying customers for all of those efficiently produced goods? I don't think society has really come to grips with ever more efficient production, i.e. less human input. So first efficient production reduced the price of goods to the point that almost all could afford them. Now it's reached the point where there are not enough decent jobs (and corresponding income) to ensure an adequate supply of customers for all those nifty products. Who would ever have imagined that efficiency would become a problem that society would have to deal with?

I can see why taxing those who own the trappings of wealth is a natural tendency for government. (Go where the money is.) The problem is that it is possible to be "property rich and cash poor". During the last downturn our local government actually had to implement a property tax deferment program (taxpayer bailout?) because people simply didn't have the money to pay those taxes due to lost jobs and reduced business income. The alternative, of course, was a forced sale into a depressed market further depressing property prices, further reducing tax revenues, etc, etc. That would have been a downward spiral benefiting no one.

So thanks for your reasoned arguments. I think we all agree government is necessary, therefore taxes are necessary to fund that government. The trick is to tax in such a manner that causes the least impediment to society at large. So, yes, I can see that there may be logical reasons for shifting the balance between the various types of taxes. Congrats. You managed to get some new ideas into an old guy's head!


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## BBCWatcher

maz57 said:


> The problem is that it is possible to be "property rich and cash poor". During the last downturn our local government actually had to implement a property tax deferment program (taxpayer bailout?) because people simply didn't have the money to pay those taxes due to lost jobs and reduced business income. The alternative, of course, was a forced sale into a depressed market further depressing property prices, further reducing tax revenues, etc, etc. That would have been a downward spiral benefiting no one.


In addition to payment timing flexibility (tax deferrals), even all the way until you reach the estate tax, there are other alternatives such as reverse mortgages.

Ironically many wealthy people do this, albeit to avoid taxes (and support income requirements/lavish lifestyles) rather than settle wealth tax bills. In order to defer already favored capital gains taxes indefinitely, they frequently take out secured loans using their largely financial assets as collateral. For example, let's suppose you have $1 billion in Facebook stock, and you want to enjoy $5 million in annual income. You simply borrow $5 million and secure the loan with, say, $10 million in Facebook stock. (The lender will want you to pledge more than the value of the loan if you're securing your loan with an asset that can decline in value.) Let's suppose you pay 5% interest (which is much higher than current market rates for this illustration) on a 1 year fully secured loan. A year later you must pay $5.25 million to retire the loan. You then finance $10.25 million, secured with $20.5 million in Facebook stock. You take $5.25 million of the new loan to pay off the old loan. Loop, repeat for your entire lifetime and with ease -- and never pay income tax! Indeed, you might actually get a significant tax break on mortgage interest if you keep some real estate mortgaged, and the more lavish the better. This approach works really, really well if your Facebook stock gains just a bit of value each year, although that's optional. (And it also helps explain why stock buybacks are popular. It's better than sending dividends to shareholders who then have to pay taxes.)

This perfectly legal tax avoidance scheme is only supposed to work until you die or until you exhaust the borrowing potential of your vast fortune versus your less vast annual income needs. Then the estate tax is supposed to kick in. Except there are many legal ways around the estate tax, too.

Note that in this example you didn't pay much if any tax at the beginning either. Maybe you paid tax on the 10 ground floor/pre-split shares of Facebook you received as income when they were worth $1 each. Then they became worth $100 million each (with lots of stock splits and appreciation). You now own less than 1% of the company, and you're still a paper billionaire -- with zero tax paid on those splits and market appreciation. A paper billionaire can live like a king (or at least a major prince) for life, tax free, via the simple rolling secured loan technique described above.

OK, perhaps you think a Facebook billionaire ought to be rewarded for his/her success. I agree! But _tax free_ rewarded, while others who are far less financially successful (but who often work much harder) pay ~30% total effective tax rates?

If you don't like the Facebook example, how about cigarette industry heirs and heiresses, for example? Their ancestors made their fortunates selling products that kill people, and they inherited that wealth simply as an accident of birth. Should they live tax free? I'd argue no, but maybe there are a few people who'd disagree, starting with cigarette heirs and heiresses.

I'm oversimplifying above but only _very_ slightly. The fact is that in the U.S. (and in some other developed economies) effective tax rates are inverted. If you're very wealthy you typically pay a lower effective tax rate than people earning much less than you. And that's a tax rate applied to income, itself highly misleading as illustrated above. That loan described above isn't even reportable as income and would never appear on a tax return as such.


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## BBCWatcher

By the way, the above illustration is part of the reason I can't figure out why Eduardo Saverin renounced his U.S. citizenship. He could have lived nearly tax free via the rolling secured loan technique, and instead he chose an immediate "deemed sale" U.S. exit tax combined with an effective lifetime ban on favored access to the world's #1 Internet and financial economy. I still don't understand why he did it. Surely there must have been a tax angle, but I can't figure it out.

Saverin was depicted as something akin to the "business village idiot" in the film "The Social Network" since he (according to the film) didn't read the contract he signed. Maybe he made another financial mistake? The only thing I can think of is that maybe he was able to argue (or thought he could argue) that pre-IPO Facebook was worth a heck of a lot less than post-IPO Facebook in order to reduce his exit tax substantially.

....But isn't most of his wealth still based on U.S. assets that are U.S. source income (eventually), now with 30% withholding on proceeds?

I'm just stumped on that one.


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## maz57

Did Saverin become or does he intend to become a Singaporean citizen? It's my understanding Singapore does not allow dual citizenship. (Presumably he also has or had Brazilian citizenship. If he renounced that citizenship as well that might be a clue.)

Another reason I can think of is the complication US citizenship would present for any new business ventures going forward. Looking at it from the perspective of potential new partners, wouldn't they be reluctant to take on a US citizen partner because of all the US reporting baggage that would imply? Perhaps he just decided he'd rather pay the exit tax and not be entangled in the US tax system for the rest of his life.

What I can't understand is why Saverin has been vilified by some US congressmen. He obviously researched and complied fully with the rules they themselves wrote, paid a hefty tax penalty as a result, will continue to pay hefty tax on US source income, and they are still apoplectic. You'd think they were taking it personally or something.


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## Bevdeforges

According to quotes from an interview with Saverin (quoted in Forbes, but the interview appeared in a Brazilian magazine):



> The decision was strictly based on my interest of living and working in Singapore. I am obligated and I will pay hundreds of millions of dollars in taxes to the American government. I already paid and I will keep paying whatever taxes I owe based on my time as a U.S. citizen.”


Frankly, the vilification of Saverin should surprise no one. It wasn't done primarily for tax reasons (at least not for the obvious "tax reasons" - i.e. to avoid US taxes) but rather to avoid the complications of doing business in Singapore as a foreign resident. Eduardo Saverin Finally Opens Up: 'No Hard Feelings Between Me And Mark Zuckerberg' - Forbes if you want to see the rest of the Forbes article.
Cheers,
Bev


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## maz57

Here's the money quote:

On this topic, Saverin’s father, Roberto, told Altman how he feels about his son giving up his U.S. citizenship:

“It was hard for me, because of the life I built in the U.S., hearing from Eduardo that he had to give up on his citizenship. But he did this not because he wanted to, but because he had no other choice as a foreigner living in Singapore, where financial transactions are more restricted and bureaucratic for those who hold a U.S. passport. There was no other way. Besides, after Facebook’s IPO, there would be much pressure on him if he stayed in America.”

This suggests to me that he might still have that Brazilian citizenship. Not sure how long one must reside in Singapore before being eligible for naturalization. It also suggests Saverin might be the type that is far more interested in starting companies than running them once they become successful.

Good find, Bev.


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## BBCWatcher

Saverin is a citizen of Brazil living in Singapore. Yes, the Singaporean government would insist he make every effort to terminate his Brazilian citizenship if he ever naturalized as a Singaporean citizen, but he hasn't done that. His U.S. citizenship had zero bearing on his immigration status in Singapore.

Yes, I've seen those quotes. I live in Singapore and still can't figure out his issue(s) from that word salad. Maybe he's referring to PFIC complications, but those are taxes. I wish he would have explained his real problem(s) in clear, understandable language. One wonders whether he's obliquely referring to the Foreign Corrupt Practices Act and that his U.S. citizenship was an impediment to his providing bribes in his new business ventures.


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## BBCWatcher

Here's more about why I don't believe Saverin's explanation. (Almost nobody does, by the way.)

First, he's de facto barred from entering the United States, even in transit. Brazilians need visas to travel to the U.S., and immigration experts think it's unlikely he'd ever get one. It's not helpful if you have entrepreneurial intentions, particularly in the Internet sector, to be barred from entering the world's largest economy (and by far the world's largest Internet incubator).

Second, he apparently hasn't actually engaged in very much entrepreneurship. His activities in Singapore seem to be mostly limited to having fun with his money -- lavish parties, for example. Not that there's anything wrong with that, but (as described upthread) U.S. citizenship is something of an asset if you want to have fun with your money. He's got one small (in his league) investment in one Asian company: "Rachel K," a Singaporean cosmetics company headed by the 2009 Miss Universe Rachel Kum. (Saverin and Kum are personal friends.) He's also invested in Qwiki and Jumio. Qwiki is based in New York, and Jumio is headquartered in Silicon Valley. Renunciation of U.S. citizenship runs exactly contrary to his personal financial interests in the latter two investments at least.

He renounced U.S. citizenship in 2011, and Facebook's IPO took place in May, 2012. There must be some tax-related reason why he decided to renounce pre-IPO. But I just can't figure it out, and I'm not the only one. There are various press reports quoting immigration and financial consultants who say they think he got bad advice. As I understand it, on the day he renounced he'd be assessed an exit tax on his worldwide assets. I'm sure his accountants tried to argue that his pre-IPO Facebook stake was worth less than post-IPO, with some merit. I'm also equally sure the IRS would be at least partially skeptical of that argument, and there'd be a "debate" about valuation. But let's suppose he got some discount. He then had to pay the 2011 capital gains tax rate (15%) on essentially his entire global assets on that valuation day. But, unless I'm mistaken, that 15% payment only sets a new cost basis from that point forward since the assets aren't liquidated and distributed. The subsequent gains in his holdings then attract capital gains tax whenever he sells the shares, and then he's also subject to 30% withholding on the sale proceeds -- a big, interest-free loan to the IRS.

Singapore doesn't give him a foreign tax credit to compensate. Singapore just lets him pay his U.S. taxes.

The only thing I can think of that _kind of_ makes sense -- but not really -- is that he wanted to pay the 15% rate in 2011 (on somewhat pre-appreciated assets) and avoid the scheduled increase in the capital gains tax rate to 23.8% in 2013. But that doesn't make much sense either since he'd be better off renouncing in 2012 in order to increase the 15% covered basis on his assets. He renounced pre-IPO which has to be a significant part of the calculus. Unless he was afraid to go too high on his basis because any subsequent fall in Facebook stock would not help him. (He can't reclaim any of that exit tax.) Even so, this seems way, way too clever by half.

It's a paradox. There's no way the U.S. State Department will believe he did not renounce U.S. citizenship for tax reasons, and there's a law on the books barring him from the U.S. in that event (even after paying his exit tax). Yet it's hard to figure out why he renounced if the reasons were tax-related, as the timing overwhelmingly suggests and as his own statements have done nothing to dispel.


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## CdnAllTheWay

Moving back to the OP.

CLN, just completed the lovely, 6 page exit tax form. Joyfully included a nasty statement regarding a lack of SSN, among other things. 

No taxes filed, no FBARs filed. A country that lies to people, denying US citizenship, then seeks to tax them decades later deserves only my disgust.

Their lovely $450 renunciation fee has bought them a boatload of bad will, and lost them future tourism dollars, and investment in anything in their rotten to the core country.

I may have been born there, but I certainly am happy to have been repatriated to Canada as an infant.

Good job, US. You took someone that looked fondly upon you, and turned that person (and family) into very anti-American people. My children are now venomously anti-American.


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## Nononymous

If I understand correctly, you renounced citizenship and filed the exit tax forms without bothering with the five years' compliance for tax and FBAR? 

If so, this is a grand gesture on your part. I applaud you. Please let us know if there's any blowback from the federales.


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## maz57

I wish I'd thought of that! My guess is that there will be no response from the either the IRS or the US government.


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## CdnAllTheWay

Nononymous said:


> If I understand correctly, you renounced citizenship and filed the exit tax forms without bothering with the five years' compliance for tax and FBAR?
> 
> If so, this is a grand gesture on your part. I applaud you. Please let us know if there's any blowback from the federales.


You understand correctly. I will post on any word from the IRS.


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## CdnAllTheWay

maz57 said:


> I wish I'd thought of that! My guess is that there will be no response from the either the IRS or the US government.


I expect nothing, or some dumb computer-generated form letter, and they'll receive a nastier letter in return. I'm quite good at writing nasty letters.

Oh...and the exit form will be late.


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