Considering renouncing US citizenship? Meet a person who I suggested NOT commit #citizide

For most U.S. citizens attempting to live outside the United States (in compliance with U.S. laws), their days as U.S. citizens are coming to an end. Those who have ignored the fiscal demands required of Americans abroad (meaning they have not entered the U.S. tax system) will be able to retain U.S. citizenship for the foreseeable future. But, for those who do file U.S. taxes and attempt to comply with the outrageous demands of the United States (FBAR, forms, PFIC, Transition Tax, GILTI, Subpart F and more), they experience life like this:

1. They can’t both – as a person who is subject to both the U.S. tax laws and the laws of their country of residence – be in compliance with the demands of the Internal Revenue Code AND engage in necessary retirement and financial planning in their country of residence.
2. Because they must engage in normal financial and retirement planning they are forced to renounce U.S. citizenship.
Therefore, because they cannot be “subjects” to the demands of the U.S. Government they are forced (it’s like constructive dismissal) to renounce U.S. citizenship. (The wait times for appointments to renounce U.S. citizenship in Toronto have doubled in the last six months.)
For most “dual citizens” (those who are tax residents of other countries) the burdens are too difficult and sooner or later they have to renounce U.S. citizenship. There is a small group of dual citizens who are in a position to retain U.S. citizenship. Retention is possible if they are careful about how they manage their U.S. citizenship. Who are these people? How do they manage their U.S. citizenship?
(In theory (as the following Quora discussion suggests) there are benefits to dual U.S./Canada citizenship. In practice the U.S. government makes demands on its citizens abroad that makes the retention of U.S. citizenship (at a certain point) impossible.)
Young adults beginning their careers who have not yet accumulated retirement assets
This week I met with a dual citizen who I suggested retain U.S. citizenship. The reasons include:
– he is at the beginning of his career meaning that U.S. citizenship could be a potential benefit. After all the United States is a source of many job opportunities
– he has not yet accumulated much in the way of investment assets. Therefore, he is able to slowly build his investment portfolio (that with advance notice) allows him to avoid the most difficult aspects of the U.S. tax system. To be forewarned is to be forearmed. He can easily avoid mutual funds. His pension and RRSP are protected by the Canada/U.S. Tax Treaty. Contrary to the “advice on the street” I believe that he can hold a TFSA. Most TFSAs are not “foreign trusts” and therefore should not require special reporting. The income from the TFSA is taxable on the U.S. tax return so he does need to track that. However, the TFSA may not earn enough income to be actually have to pay U.S. tax. Finally, I believe that one can reasonably take the position that under the Canada/U.S. Tax Treaty, the income from TFSAa should be deferred in the same way that the income from the RRSP is deferred.

– he is savvy enough to avoid carrying on business through a Canadian Controlled Private Corporation which will allow him to bypass GILTI, Form 5471, Subpart F, etc.
– Most importantly: He is in a position to learn to file his own U.S. tax returns. This is critically important. He needs to learn to file his own U.S. tax returns so that he can keep control of his life. Let me put it another way:
The ability to file your own U.S. tax return is an essential life skill for U.S./Canadian dual citizens living in Canada!
In Conclusion: It is probably too early for a person fitting this description to renounce U.S. citizenship. I am not saying he shouldn’t ever renounce. Just not yet. He should wait and see the direction that his career moves and follow all the advocacy efforts which may lead to a change in U.S. tax laws.

What follows is the Quora discussion which discusses the benefits of dual citizenship.
Read John Richardson‘s answer to What are the advantages, if any; of having (newly appointed) dual Canadian/American Citizenship? on Quora

One thought on “Considering renouncing US citizenship? Meet a person who I suggested NOT commit #citizide

  1. Karen Post author

    Thanks for this post, John. It is important to realise that “citizide” isn’t for everyone. The other group of dual citizens who should probably consider keeping their US citizenship are those who spent a large portion of their working life in the US and have returned to their country of origin. For those returning to Australia with significant social security benefits, renouncing would mean that the US would tax those benefits at a flat rate of 25.5%. If social security is a significant portion of their retirement income, this could be a problem. (The taxation of social security to non-citizens depends on the tax treaty, so it varies by country)
    Many of the problems that arise from being considered tax resident in two countries at the same time affect those in the middle of their working life who are trying to save for retirement or run a business.


Leave a Reply