Im­por­tant info for dual cit­i­zens

Stanstead Journal - - FRONT PAGE -

Yes­ter­day,

Amer­i­can Am­bas­sador to Canada, David Ja­cob­son, gave a speech to the Cana­dian Club in Ot­tawa. The fol­low­ing is an ex­tract from his pre­pared speech that all dual cit­i­zens in our read­er­ship should read.

As I was think­ing about what to say here this af­ter­noon, I was re­minded of a com­ment by H.L. Mencken, the great Amer­i­can jour­nal­ist of the early 20th Cen­tury. He said: «A cynic is a man who --when he smells flow­ers --looks for a cof­fin.»

There are some peo­ple who look at the re­la­tion­ship be­tween the United States and Canada and walk past the flow­ers search­ing for the cof­fin.

(One of the cof­fin) …sight­ing arises from re­cent me­dia cov­er­age of an is­sue that has been around for about 100 years, since the United States im­posed an in­come tax in 1913. From the be­gin­ning, my coun­try has taxed the in­comes of Amer­i­can Cit­i­zens no mat­ter where they live, no mat­ter where they earn their liv­ings.

This is dif­fer­ent from the way Canada --and some other coun­tries --do it.

The good news, how­ever, for US and dual cit­i­zens liv­ing here in Canada, is that you get a credit for taxes paid to a for­eign coun­try. And be­cause tax rates in Canada are typ­i­cally higher than the rates in the United States, most US and dual cit­i­zens liv­ing in Canada who pay their taxes to Canada don’t owe any tax to the United States though they do have to file a US re­turn as all other Amer­i­can cit­i­zens do. (I might add for the record that some­one some place might have an ano­ma­lous tax sit­u­a­tion where they pay tax in Canada yet still owe tax in the United States. And I’m cer­tainly not here to give any­one tax ad­vice.)

The sit­u­a­tion, how­ever, is dif­fer­ent for Amer­i­can cit­i­zens liv­ing in some other coun­tries, par­tic­u­larly the so-called tax havens. In those places with lit­tle or no in­come tax, Amer­i­cans will owe tax to the US since their de­duc­tion for taxes owed to the Cay­man Is­lands, for ex­am­ple, will be much lower than the taxes owed to the US.

And given our bud­getary prob­lems, the United States wants to make sure we are paid all the taxes we are owed. Amer­i­can cit­i­zens shouldn’t be able to avoid their tax obli­ga­tions by es­tab­lish­ing a res­i­dence in a tax haven.

There are two par­tic­u­lar prob­lems with the op­er­a­tion of these rules here in Canada. First, there are so many dual cit­i­zens, typ­i­cally by birth, prob­a­bly more than a mil­lion. So this is­sue is much more com­mon here than in any other coun­try in the world.

Sec­ond, the penal­ties --at least in a the­o­ret­i­cal sense --can be quite se­vere.

So you could have a sit­u­a­tion where some 70-year-old grandma:

young child;

US; Canada.

She didn’t file a US re­turn be­cause she didn’t think she had to. And be­cause she didn’t owe any US taxes. None­the­less, grandma could be the­o­ret­i­cally sub­ject to se­ri­ous penal­ties. To my knowl­edge we have never gone af­ter a grandma in those cir­cum­stances.

But there has been a lot of press about this lately and peo­ple are wor­ried that we will come af­ter them.

When I read all of this I was con­cerned. So last week I called the Com­mis­sioner of the United States In­ter­nal Rev­enue Ser­vice to see what we could do. I ex­plained the prob­lem to him.

The re­sult is that both he and I are sym­pa­thetic to the con­cerns. We are go­ing to work to­gether to see if we can’t find a way to ac­com­mo­date grandma --and oth­ers --here in Canada. But we have to fig­ure out a way to do it with­out let­ting the per­son who is try­ing to evade taxes in the Cay­man Is­lands off the hook.

My mes­sage on this one is to sit tight. We are not un­rea­son­able. We are not un­sym­pa­thetic. We are not ir­re­spon­si­ble. So what’s the point of all this? Well, un­like Mencken, some­times when you smell the flow­ers you are ac­tu­ally in a gar­den and not at a funeral. And this is one of those times. The re­la­tion­ship be­tween our two coun­tries is in full bloom.

And with the con­tin­ued ef­forts of peo­ple like you on both sides of the bor­der we will be able to make the best re­la­tion­ship on earth even bet­ter.

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