Americans in Canada have heavy tax burden
U. S. citizens living in Canada face an enormous tax-filing burden. Not only do they have to file Canadian tax returns, but they also must contend with U.S. tax-filing requirements as the U.S. imposes taxes based on citizenship, not residency.
What’s particularly challenging is the enormous cost of U.S. tax compliance, which goes well beyond simply filing a U.S. tax return. For example, all foreign financial accounts — including a bank account, brokerage account, mutual fund, trust, or other type of foreign financial account over $10,000 — must be disclosed annually to the U.S. Department of Treasury. If the value of those accounts is large, they must also be disclosed on an additional form to the IRS.
Furthermore, if the U.S. citizen holds a TFSA, RESP or RDSP, these accounts are not recognized as tax-preferred by the U.S. and the income from these must be reported annually on a U.S. return. Most U.S. tax professionals consider these Canadian plans to be foreign grantor trusts from a U.S. tax perspective.
While most dual citizens find that, at the end of the day, no U.S. tax is owing, the compliance burden and costs of filing are prohibitive and have caused many U.S. citizens living abroad to explore the process of renouncing their U.S. citizenship. Indeed, the number of renunciations has increased exponentially in the last number of years, up from 231 people in 2008 to 3,415 in 2014.
But all hope is not lost: There is a growing movement to lobby the U. S. government to change the rules.
Last week, University of Virginia School of Law professor Ruth Mason presented a paper titled, “Citizenship Taxation” at the Second International Tax Research Symposium in Basel, Switzerland. In her paper, she states that the U.S. is the only country that taxes its citizens’ worldwide income, even when those citizens live indefinitely abroad.
Mason argues that while citizenship-based taxation was originally designed to punish “economic Benedict Arnolds” who fled the U.S. during the American Civil War, in today’s global, interconnected economy, there are both professional and personal opportunities U.S. citizens can only obtain by moving outside the U.S.