FATCA awareness in the Quebec Eastern Townships
Dual Canadian-U.S. citizens are having tax headaches this year because they have to file in both countries. @Alibrunet has the story, next.
— Susan Campbell (@susancbcquebec) March 30, 2015
The interview and discussion – March 30, 2015
— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) September 29, 2019
Feedback and discussion invited
— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) March 30, 2015
This is a good opportunity to engage the people of Quebec on the issues caused by FATCA and U.S. citizenship taxation. In Standtead Quebec approximately 25% of the town residents, including the Mayor Phillippe Dutil (featured in the interview), were born in Vermont, U.S.A.
I guess there must be a few FATCA border babies in Stanstead.
CBC Quebec AM is seeking your comments. Your options are:
1 888 691 3476
Updated – March 31, 2015 – Some thoughts for the residents of Stanstead, Quebec
— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) March 29, 2015
Welcome – Executive Summary and Reality Check
I am assuming that you are one of the many people who has just learned (and experiencing your OMG moment) that:
1. Because you were born in the United States that you may be considered to be a U.S. citizen (it may never have occurred to you that you were a U.S. citizen); and
2. Because you may be considered to be a U.S. citizen that you are required to file taxes and information returns with the U.S. government.
All U.S. citizens have “dual citizenship”. The first is “citizenship for nationality purposes”. The second is “tax citizenship“.
Compliance with “U.S. Taxation Abroad” will create problems for you. The problems will range from the “minor” inconvenience of having to file tax and information returns (at significant cost) to having to live with severe life restrictions and impediments that can interfere with your ability to earn a living and invest for retirement.
Therefore, it is necessary that you learn about the reality of “U.S. citizenship” and “U.S. taxation” for those living outside the United States BEFORE dealing with outstanding tax issues.
The basic question is whether, if you do NOT live in the United States, you are willing to live under “U.S. tax jurisdiction”. U.S. citizens living outside the United States are subject to a different and “alien” tax system that will conflict with the tax rules in Canada (or your country of residence).
The U.S. rules affect you in a number of aspects of your life:
– The possibility of owing U.S. taxes. This is a real possibility because of both double taxation AND the U.S. levying taxes on things that Canada does not
– The added restrictions that compliance with U.S. tax laws will add to your life. Retirement planning and business options that are normal to your non-U.S. citizen neighbour will difficult for you
– U.S. Estate taxes. Canada does NOT have estate taxes. The U.S. does
– the requirements of annual disclosure of almost all of your financial information to the U.S. for the rest of your life
– not to mention the constant worry about how to comply with U.S. rules
– and the significant financial costs of this exercise
U.S. Taxation Abroad and you
It is important that you understand how compliance with U.S. tax laws will impact your life. Right now you are feeling unease because you have NOT been filing U.S. tax returns (very few “U.S. citizens” have been filing them). Your focus on having NOT filed U.S. tax returns means that you are NOT THINKING about how “filing your U.S. tax returns” will impact your life. Can you live under U.S. tax rules? SOME U.S. tax issues that affect Canadians who are “subject” to the U.S. tax system are here.
Put it another way:
As a U.S. citizen abroad, your problem is less “coming into U.S. tax compliance” than “living as a “U.S. tax compliant person” outside the United States.
You will NOT solve your problem by being in “U.S. tax compliance”. You will create the problems of having to live under U.S tax rules when you do NOT live in the United States.
Yes, recently discovered “U.S. citizenship” (if you really are a U.S. citizen) is a serious “problem to be solved”. You will NOT solve your problem by simply “coming into U.S. tax compliance”. It is essential that you understand how “U.S. tax compliance” will affect your life. If you are a U.S. citizen, do you want to remain a U.S. citizen?
Here are two interesting posts, written from a Canadian perspective that have appeared at Forbes in 2014:
— U.S. Citizen Abroad (@USCitizenAbroad) September 12, 2014
Dear Mr. President, Why I'm Leaving America http://t.co/VopDyN2wsI
— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) March 31, 2015
The letters referenced in these tweets are deserving of serious reflection. (Simply click on the links in the tweets.) I am also suggesting that you read them because of the numerous comments. Sobering stuff indeed!
In a moment, I will explain how to “come into U.S. tax compliance”. That’s the easy part. By coming into U.S. tax compliance, you will solve your U.S. tax problems in accordance with the law.
You should NOT “come into U.S. tax compliance” UNTIL you understand what is your “long term plan”. Are you willing to live as a “U.S. tax compliant person” outside the United States?
As a U.S. citizen you are required to obey U.S. laws. Most people understand this point. Therefore, most people will obey, those laws and become “U.S tax compliant”. But, you must still ask yourself a hard question.
The question is:
Are you becoming “U.S. tax compliant” to REMAIN a U.S. citizen?
Are you becoming “U.S. tax compliant” to RENOUNCE U.S. citizenship?
To remain a U.S. citizen or to renounce U.S. citizenship, whether tis better to …
Before getting to “how to come into U.S. tax compliance” (you will all do that anyway), I want to suggest what you need to do before filing those taxes. Here is a “step by step” process to coming to terms with your “U.S. citizenship”.
1. Determining whether you are a U.S. citizen. You may NOT be one.
If you were born in the U.S., you begin life as a U.S. citizen but it is possible to have relinquished U.S. citizenship.
If you were not born in the U.S. there is NO presumption of U.S. citizenship. Your citizenship will depend on other facts (citizenship and residence of your parents).
2. If you are a U.S. citizen, consider whether you want to remain a U.S. citizen
Living as a “tax compliant U.S. citizen abroad” as enormous disadvantages and problems. Take my word for it. You will want to do some research on this topic. The Government of Canada has passed “FATCA laws” which have turned Canadians with U.S. citizenship into “second class” Canadian citizens. Google “FATCA Canada” to learn more.
To learn about “relinquishing U.S. citizenship” you could start at Renunciation Guide.
3. If you do NOT want to remain a U.S. citizen and wish to “renounce U.S. citizenship”, what will be your costs to renounce?
There are three costs associated with “renouncing U.S. citizenship”. Some of the costs are ‘tax related” and some of the costs are “citizenship related”.
The costs are as follows:
A. The costs of five years of U.S. tax compliance – which is tax cost – and includes
– professional fees to prepare your tax returns
– the payment of any U.S. taxes owing
– the payment of any interest charges on any taxes owing
– the possibility of being subjected to various penalties for failing to file various information returns (although there is a general “reasonable cause” defense)
B. The payment of a $2350 USD fee – which is a citizenship cost – to the U.S. consulate
The U.S. government charges a $2350 USD fee to renounce U.S. citizenship.
C. The possibility of being subjected to “Exit Taxes” which is clearly a “tax cost”
If you are a “covered expatriate” you will be subject to the “Exit Tax” regime. Yes, you read correctly.
To repeat: If you are considering renouncing U.S. citizenship you need to understand the costs.
4. Are you one of those Canadians who does owe U.S. tax?
You should determine this (to the extent that you can) BEFORE engaging tax professionals.
The information at U.S. Taxation Abroad may alert you to areas of U.S. taxation.
5. You do NOT have a “tax problem”. You have a “compliance problem” – How do you address this “compliance problem”?
In other words, the question what specific steps should you take to “comply with U.S. tax laws”? Are you complying with U.S. tax laws because you want to remain a U.S. citizen or because you want to relinquish U.S. citizenship?
Many of you will be “well served” by seeking outside, independent advice on “compliance”.
Some of my thoughts on the U.S. tax compliance problem are at “What to do before consulting a lawyer“.
6. How should you file your U.S. tax returns?
For example, should you use the “Streamlined compliance” program? Imagine that the IRS has a number of different “doors”. How should you announce yourself to the IRS?
7. How should you select a U.S. tax preparer?
Only after you have given consideration to the previous questions should you engage a tax preparer to file those outstanding U.S. tax returns.
You must approach these questions in a calm manner. In other words, “respond” to this situation and do NOT “react”.
Finally – the disclaimer!! Please note that this information is not intended to be legal advice (or any other kind of advice). It consists of “general information”. It is intended ONLY to help you organize your thinking and emotions. You should seek specific advisers to help you with this issue.
The problems caused by U.S. “place of birth taxation” are enormous. I present seminars on this topic across in Canada. You can keep in touch with the “sessions”. I have conducted “Problems of U.S. citizenship” information sessions in Montreal and other locations across Canada. Keep your eye on the list.
Enjoy life in the Eastern Townships. It’s a great place.