Important info for dual citizens
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:
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.