Posted on 02/17/2014 3:20:07 PM PST by SeekAndFind
The Foreign Account Tax Compliance Act (FACTA) requires Canadian residents with US or dual citizenship to file tax returns with the IRS, regardless of whether or not this income was earned in the US. This, on the outside looks like double taxation. To add insult to injury, filing a tax return with the IRS is costly and most US residents living in Canada have no idea of the requirement. Talk about picking on the Middle Class.
In their never ending desire for pork barrel politics, the US government has taken a G20 agreement to exchange tax information in order to catch tax cheats, who hide accounts offshore to a new extreme under the threat of fines and sanctions of foreign banks. Under the Reports Foreign Bank and Accounts (FBAR) foreign financial institutions were required to report on US citizen accounts. The Government of Canada opposed this measure since it was illegal under Canada’s Privacy Act.
Canada and the US have reached a bilateral agreement which negates the requirement under the Foreign Account Tax Compliance Act (FATCA) or Canadian financial institutions to report on accounts held by US citizens or dual citizens to the IRS directly under the threat of a fine.
Effect on long time Canadian residents with dual and US citizenship
While the overall goal to catch tax evaders, who hide millions if not billions of assets offshore may be a noble goal, it makes absolutely no sense to hit US citizens or dual citizens who make their living in their chosen country. It unnecessarily hits Middle Class and low income people and even residents who may never have placed a foot in the US and the only reason they are citizens is due to one of their parents being American.
The Toronto Star describes the current requirement in some detail and quotes the example of a Canadian-US citizen, who they name Sheila, and is over 70 years old.
Banks won’t have to report information to the Canada Revenue Agency, which will share it with the IRS – but this just shifts responsibility. If you are a U.S. citizen, you must inform the IRS about your registered accounts held in Canada.
“There’s a big caution. This doesn’t mean that you’re exempt from U.S. tax filing requirements,” says Veronika Chang, a lawyer and tax specialist with Morris Kepes Winters in Toronto.
Of an estimated one million U.S. citizens living in Canada, many don’t report to the IRS because they’re unaware of their filing obligations. Others dread the expense of catching up on years of unfiled returns.
Getting back to Sheila, she is over 70 and has a 40 year old daughter. Sheila is living on pensions. Her 40 year old daughter only earns $20,000 year, well below the poverty line. She lives with Sheila to make ends meet.
Sheila doesn’t consider giving up her US citizenship as an option, but checking with her accountant she determined that filing tax returns for the past three years is a costly option. She was quoted a charge of $350 to $500 a year to file tax returns each year and $50 for the Reports of Foreign Bank and Financial Accounts. Sheila figures that the bank would also charge fees for research of her financial information over the past six years, a requirement of FACTA.
“Giving up our U.S. citizenship does not seem to be a viable solution,” she says. “First, it is costly. Second, it is time-consuming.”
She checked with accountants, who said they’d charge $350 to $500 a year to file tax returns each year and $50 for the Reports of Foreign Bank and Financial Accounts (FBAR).
To get up to date, she has to file tax forms for three previous years and FBAR forms for six previous years. This is part of an IRS streamlined compliance program that took effect in 2012.
As well as accountants’ fees, she expects to pay bank fees to get access to many years of monthly statements to see how much interest was collected. Not knowing she needed them, she may have thrown them out.
Opinion
The majority of US citizens living in Canada have been here for decades and have been law abiding tax paying upstanding citizens in this country. Their only real association with the US is family and a birth certificate. They have taken nothing from the US and in essence contribute to the US economy with travel to relatives and catalogue or on line shopping from US businesses.
While the intention of Congress may have been noble, it is targeting the wrong people, who should be left alone by the IRS. While banks do not have to report on registered accounts it is unclear if the Canadian government had intended to exempt these accounts period. After all Registered Retirement Saving Plans (RRSP) and Tax Free Savings Accounts (TSFA) were accumulated in Canada, under Canadian law and tax regulations. Canadian permanent residents, who happen to be US citizens should be exempt from filing tax returns with the IRS.
Last week, Canada announced a bilateral agreement with the United States to clamp down on tax evasion by U.S. citizens living in this country.
Starting July 1, the Canada Revenue Agency will share financial information about Americans living in Canada with the U.S. Internal Revenue Service – information that will come from Canadian banks.
Banks won’t have to report to the IRS on most federal registered accounts held by Americans, such as RRSPs, RESPs and tax-free savings accounts, Star reporter Les Whittington wrote about the deal.
While the exemption sounds like good news, U.S. citizens in Canada still have to report to the IRS on these tax-sheltered accounts if they hold $50,000 or more and may have to pay tax, as well.
Sources:
Canada/US Bilateral Agreement – Gov of Canada
US Tax returns required by dual US citizens – Toronto Star
No wonder why more and more people are renouncing their U.S. citizenship.
No kidding. Any American who plans on residing outside the United States should seriously consider dumping the American citizenship.
Could be because America continues, to not encourage jobs at home.
Just saying.
"We WILL make this country safe for Moslems only.
They shall be free of law, taxes, and ObamaCARE".
No one should be entitled to hold “dual” citizenship.
Pick a country.
Many of these Canadians are accidental Americans... they were born here but later moved to Canada, as a toddler, child or teen.
Now that they’re making money as adults, the US wants their money...
There’s something IMMORAL about this.
That is a HUGE untapped ‘resource’ which will be used to feed ours and Canada’s BLOATED Governments! Bet the IRS Puke who thought this up gets a big old bonus this year! *SPIT*
http://en.wikipedia.org/wiki/List_of_Canadian_actors
OK; tax and immigration law question for the forum.
You and your spouse leave the United States and live abroad. You have all of the income, the spouse does not earn income. You renounce citizenship, and become a citizen of the nation where you reside. Does the spouse avoid any tax consequences by filing separately, and claiming no income?
Can the spouse return to the United States later as a citizen, and bring you back on a spousal visa?
End Free Trade Communist Globalism....bring back tariffs to replace income taxes...and you no longer have this nonsense
Free Trade Communist Globalism is why you have so much big government...and you get all this tax nonsense
RE: No one should be entitled to hold “dual” citizenship.
Well, why don’t we rewrite our constitution to do away with citizenship by birth?
If both your parents are not Americans, then you CAN’T BE AN AMERICAN by birth.
But my issue really is with America’s OVER-REACHING its bounds.
If a German comes to America and earns his income here, he is taxed only in America and not in Germany. But if an American lives and works in Germany and earns his income there, he is taxed in Germany AND the USA.
I don’t think the American system is fair.
Yes, you are correct.
But you still have a lot of liberal folks here who think Globalism is just grand...
All US citizens,not just those living in Canada or those who also have Canadian citizenship,are required to file with the IRS...regardless of the source of their income.It’s just another way that Uncle Sam reaches out and gives his nieces and nephews a hug.
When I lived and worked in Canada as an American citizen, they withheld taxes and my submitting Canadian IRS documents was required.
RE: You renounce citizenship, and become a citizen of the nation where you reside. Does the spouse avoid any tax consequences by filing separately, and claiming no income?
I think the answer is YES. But what if you die and your wife inherits your money? AHA, she then has to file and claim income.
This is one reason a lot of Asians who come here and study eventually getting their degrees and then being hired by our top companies for their skills are GIVING UP their green cards or if they become American, are giving up their citizenships.
Many of them HAD INCOME AT HOME PRIOR TO COMING HERE.... say, money they deposited in the bank EARNED BEFORE THEY BECAME CITIZENS, rental property in their home country, or inheritance from their parents.
The insanity in our tax law is this -— THOSE FOREIGN INCOME MUST BE FILED WITH THE IRS EVEN IF THE ORIGINAL CAPITAL WERE EARNED PRIOR TO THEIR COMING TO THE USA.
You don't have to go even that far; make the tax-law [for income tax] a flat-rate with no exceptions, exemptions, or credits.
This guts a lot of social manipulation by the tax-law.
That's why I never worked while living over in England. It's absolutely insane.
RE: When I lived and worked in Canada as an American citizen, they withheld taxes and my submitting Canadian IRS documents was required.
But are you Canadian as well?
“Can the spouse return to the United States later as a citizen, and bring you back on a spousal visa?”
Well, one of you needs a sex change, then register as domestic partners. Then all is OK!
The Constitution never granted Citizenship merely by birth. The current interpretation of the 14th Amendment grants it, but the text indicates that the parents of the child must be subject to the jurisdiction of the United States at the time of birth.
Be that as it may, I believe that once you reach voting age, you must declare your allegiance to only one country. No dual citizenship. If you want to be a Mexican, you cannot be an American. Period.
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