Jamie Golombeck has an informative article in the Financial Post, “Americans in Canada still at the mercy of IRS“. Petros asks questions about aspects of the problem that seem to be missing from the article, such as, How the hell is this fair?
Thank you for keeping us informed about tax issues for US persons living in Canada. I have some questions though:
Most Canadian residents won’t owe anything. This is true Mr. Golombek, but could you please explain to us which Canadian residents would or should owe something to the IRS? Now, let’s also consider that whatever Canadian source income gets taxed by the United States unfairly dilutes our tax base here in Canada and gives the taxpayer a credit on the Canadian income tax. How is that fair to Canada? If even one penny of our tax base goes to the United States to be frittered away on the wasteful spending in the US, isn’t that one penny too many? Don’t you think that Canada’s wealth belongs to Canada? How is it fair then that the US has the right to demand Canadian residents to pay anything to the US?
Have you also considered that it is against the United States constitution to make US persons pay taxes when they have no representation in Congress? All US persons outside the US are considered to be resident in Washington DC for tax purposes? DC has no representative in the US Congress. How can the US treat people as though resident in DC when they are actually resident in other countries like Canada? How is that fair? Who is looking out for our interests? Is it the Canadian government?
Have you also considered that the most likely person to be destroyed by the new tax tyranny of the IRS are seniors and older workers, who have savings in bank accounts and need that in order to survive for retirement, whose income is not protected by the Earned Income Exclusion? The new application of the FBAR law treats those of us who have savings in our Canadian bank accounts as tax cheats as though we were hiding our money in another country to avoid taxes. Do you realize how unjust that is? Did you read the Reuters article by Amy Feldman? What happens when the IRS pillages the savings of those older folks–will they not become wards of the Canadian government? Most of course will not be able to go on welfare or Social Security in the the USA, will they?
Have you or anyone else at the Financial Post considered how many rights that the FBAR and FATCA laws violate? How FATCA is creating two kinds of Canadians, one Canadian who has full rights to bank accounts and TFSA, and second class citizens whose account information will be shared with the IRS by their Banks? Is that right? Is that not a violation of the Human Rights laws in Canada?
Your article also fails to mention the large number of US persons in Canada who are renouncing their citizenship over this issue. But that, of course, is another story.
“Most Canadian residents won’t owe anything. This is true Mr. Golombek, but could you please explain to us which Canadian residents would or should owe something to the IRS?”
The proportion of Canadian residents owing the IRS is probably much larger than you and most people think. Any US citizen and Canadian resident who holds an RESP, TFSA, or any other non-RRSP Canadian tax deferred or tax exempt account will owe tax the IRS. As a general rule the US refuses to recognize other countries’ tax advantaged savings plans.
Too true as I found out :'(
[Watcher]: Thanks very much for the comment.
What you say is true but the TFSA or other account would have to see significant gain, and secondly, it would be in excess of the amount of taxes you paid in taxes in Canada. Certainly, this is a tax issue that the Canadian government needs to settle with the Americans. It is totally unacceptable that US persons in Canada cannot take advantage of a TFSA.
Please choose a unique identifier to comment (a moniker that you can use each time you comment). Then I can change the name in this comment to. Unfortunately Anon/Anonymous won’t do. Because we’d like to get to the see each participant as a unique (if you get a few anonymous, then all of sudden you could have 30 or 40 people called that)–you have a desire to protect yourself and I understand that, but it helps the conversation to refer to you as other than Anon/anonymous. Ok? [Thanks Watcher!]
Another point I heard is that the Alternate Minimum Tax will kick in at a certain point; one person on another forum said that it caused him to owe taxes in the US.
Unfair, indeed. Not that I am optimistic about the IRS caring.
However, a couple of notes on your comments. As a dual citizen with investments (annuities and mutual funds) in the NYSE, I am one of those Canadian residents who sometimes owes something to the IRS.
Secondly, for U.S. voting purposes I am not considered a resident of Washington, DC but rather of my last registered voting address. So I get to vote for congresspersons in Florida who are then my representatives. Certainly a less than perfect solution, since expatriates are overlooked or dismissed as insignificant. But I do have representation of a kind.
Could somebody who is certain about this confirm – I was told by an accountant (if I was understanding him properly) that the alternative minimum tax no longer exists – but I am not sure enough to state that as a fact. Check it out.
As far as I know the AMT is still applicable. The rates are available through 2012, and on the IRS website the instructions for the AMT were updated in June 2011.
“What you say is true but the TFSA or other account would have to see significant gain, and secondly, it would be in excess of the amount of taxes you paid in taxes in Canada.”
I see what you’re saying but that’s probably inaccurate. Or at least misleading.
The tax one would pay to Canada for a TFSA is by definition zero, so there nothing against which one could offset US tax. And investment income doesn’t qualify for the US FEIE (the first E stands for “earned”). So even the smallest amount of interest, dividend, or capital gain in a TFSA generates income that the US would consider taxable for US persons.
And that’s without even considering the thorny issue of PFICs…
Hi Watcher:
I see that you are exactly right. Not being an accountant, I assumed that tax paid under the 90,000 earned income exclusion, using the Foreign Tax Credit, would offset anything except the most extreme capital gains in a TFSA. I see that is not the case, because Foreign Tax Credit is not available to the taxes paid in foreign country under the foreign earned income credit (IRS source):
If this is the case, then it is much better for me to not accept the Earned Income Credit, because on my earned income I would pay little tax in the states, and my unearned income, I believe because I have Canada qualified dividends (for which there is no benefit), I would have to pay more. So if I don’t claim the Earned Income Credit, and I pay a higher rate in Canada on it than in the states, then I can offset lower unearned income tax that I pay in Canada (and TFSA if their were gains in it) against the higher earned income tax that I pay in Canada. Thus, the earned income exclusion is of no benefit to me–and I would think many people. It is because, provided you are below $50,000 earned income, I am pretty sure you pay a much higher rate than in the US.
I saw that someone on the Expat Forum was penalized by this AMT.
Yes, I get to vote in Ohio but as I have learned from others here, there is no one there who can represent the concerns of expats here. It is unlikely there are many expats from that area so not much of a “voice” to be heard. IOW, my vote likely means little to nothing to them.
The only way to address this would be along the lines of having a “district” for say, Canada, and one for Europe, Asia and so on. A region where the concerns specific to the people there, are taken into account. And those people have the right and the means, to elect someone to speak for them.
Virtually impossible to imagine the government organizing something that would truly work for us. 🙁