Tax challenges for dual citizens
There are many people living in Stanstead and nearby who have dual Canadian and American citizenship, primarily because their parents were encouraged by the provincial government for decades to go to the hospital in Newport, Vermont, which was the closest, when it came time to give birth. Having dual citizenship seemed to be an advantage, however, thanks to FATCA, the Foreign Accounts Tax Compliance Act, this no longer seems the case.
FATCA is a United States federal law that requires all Americans, including those living outside of the country, to report and pay taxes on all of their foreign financial accounts and also requires foreign financial institutions to share information about American citizens (which includes dual citizens) with the IRS (Internal Revenue Service).
American citizens living abroad are now required to file income tax for the last three years and to declare all bank accounts and investments going back six years. Besides the expense of having to hire a professional to help them wade through the paperwork, which typically costs about $1,200 to $1,500 the first year and then about $350 a year after that, some people may discover that they also owe U.S. income tax. Even someone who sells their primary place of residence could be subject to American capital gains tax.
One way that dual citizens and even Americans living abroad are avoiding this extra tax burden is by renouncing their American citizenship, and they are doing it in large numbers. Unfortunately, this also comes with a hefty fee, having just gone up last year from $450 to $2,350.
There is presently a law suit, supported by the Alliance for the Defense of Canadian Sovereignty, challenging the Canadian law that allowed for the Canadian FATCA agreement. It has also been reported in the American media that the IRS is not ready to handle the extra workload this new law will entail.