News Flash: The United States government is so desperate for cash that the IRS has put the RRSP back into the penalty base for the Offshore Voluntary Disclosure Initiative. You can read about here and at the Serbinski Forum (see comments by Tacova and tsanaha).
Imagine that. The United States is now raiding the retirement accounts of Canadians. Way to take the high ground Mr. Shulman. Way!
The United States keeps telling us that this is about punishing big tax cheats. Right. FATCA is about getting account information so that every single “United States person” resident in Canada can get FBAR fine for 50% of what is in their RRSP/TFSA/RDSP/RESP accounts. Are you watching this Minister Flaherty?
@all This makes me furious to the point of vomiting. Uncle Sam is not a man of his word. Bait and Switch is illegal under the US Uniform Commercial Code (UCC) and by analogy, I don’t think the government may in it’s right mind go against that principle, especially as to so called “civil penalties” that destroy lives. Who is really in charge over there??
@ Jeff Who is in charge??
President Obama, who promised hope and change.
Well, at least we have seen change.
@Jefferson: Doug Shulman is in charge. He’s thrown out the Declaration of Independence, Constitution and any other annoying statues which may prevent him from reigning Supreme. Now, he’s trying to shred Constitutions, Charters, treaties and laws of other nations to protect their citizens.
Not even Queens, Kings or Emperors have Shulman’s kind of power. And, that’s exactly how Congress seems to want it.
Thanks goodness for Isaac Brock warriors!
@Petros, it IS also hope: Hope for more tax revenue collections from US persons “hiding” income from unrevealed taxable assets stashed in Canada and elsewhere abroad.
The only way this self-destructive nonsense can ever possibly end is for the US to abolish citizenship-based taxation and adopt residence-based taxation like every other civilized nation on the face of the earth. This appears to be an unattainable goal, but that is what we have got to keep working on if it is ever going to happen.
Today’s WSJ reports agreement between the US Treasury Department and 5 EU nations to exchange FATCA data both ways between the US and these countries, but points out that substantial costs would be involved. My guess is that the costs would exceed the additional tax revenue generated, but there is no indication that the tax authorities would reimburse their banks for any of these costs.
I wonder if anyone in the US government has the brainpower to figure out that citizenship based taxation is what’s acting as a shield for the real tax evaders.
So much time is going by and the millionaires are able to arrange their finances such that they’ll never be caught. Meanwhile the IRS wastes precious resources harrassing little guys who owe no taxes and destroying their image further.
The only way this thing was going to work was if the whole world cooperated and out of almost 200 countries they have tentative deals with only 5 who may eventually back out anyway. Hardly a success.
In spite of the impracticalities, the US sees it as a moral issue, that we expats have a patriotic DUTY to be tax-compliant and to do our bit for our country. American exceptionalism and all that…:P
@omghe’sstillanamerican
It’s called straining a gnat and swallowing a camel. The banksters get away with huge dollar figure crimes (Jon Corzine); meanwhile, law enforcement looks like its busy by putting the little guys in jail–they go after Jonathan Lebed (14 year-old penny stock pumper/dumper) and Charlie Engle, the only person who went to jail because of the 2008 sub-prime mortgage collapse. See
@monalisa1776, you mentioned “…patriotic DUTY to be tax-compliant and to do our bit for our country. American exceptionalism and all that…”
According to the Tax Advocate’s annual report to Congress, 91% of the tax returns filed with outside-of-the-US addresses showed a balance due of zero. Foreign tax credits and the Foreign Earned Income Exclusion (FEIE) completely satisfied their US tax obligation. But to prove that you owe nothing you must employ a tax professional and probably spend a minimum of US$2,000 to make sure the documents you file are accurate and letter perfect, or you will be subject to horrendous penalties for an inadvertent error that has no effect on what you owe to the IRS.
The remaining 9% produced 100% of the revenue because they were filed by citizens living and working in countries which either have low income tax rates or no income tax at all. Instead those countries raise the bulk of their tax revenues through consumption, net worth and other kinds of taxes unheard of in the US, rather than income taxes. The reason this percentage of revenue-producing tax reurns is so small is very simple: The tremendously large extra cost of this additional tax that US citizens must pay to the IRA makes it so costly that few can compete for jobs in these countries. This makes survival very difficult and in most cases impossible. So few go to these countries.
This US citizenship-based tax system is not primarily a tax to generate tax revenues, but instead it is a “punishment” tax for the “crime” of living in a country with a different kind of tax system than that of the US. I have not been able to find anything in the criminal code that classifies this to be a crime, but Congress aparently believes that it is so it has legislated that US citizens should pay taxes to th US “through the nose” if they live, either voluntarily or because they were born there to a US parent, for engaging in such a dispicable act.
And it is precisely in these countries where the US has its largest trade deficits. Products don’t sell themselves. It takes feet on the ground to do this, which the US does not have, but all of its trade competitor nations do. This is known as killing the goose that lays the golden egg. It is in these countries that foreign competitors have free reign because they don’t have to worry about competition from US exporters.
Somehow I haven’t been able to figure out just how this harmonizes with the UN’s Declaration of Human Rights which states that every person should have the right to freelhy leave and freely return to his own country. If anybody has any ideas, I would love to hear them. Somehow this just doesn’t seem to harmonize with the concept of American exceptionalism.
@monalisa1776, you mentioned “…patriotic DUTY to be tax-compliant and to do our bit for our country. American exceptionalism and all that…”
According to the Tax Advocate’s annual report to Congress, 91% of the tax returns filed with outside-of-the-US addresses showed a balance due of zero. Foreign tax credits and the Foreign Earned Income Exclusion (FEIE) completely satisfied their US tax obligation. But to prove that you owe nothing you must employ a tax professional and probably spend a minimum of US$2,000 to make sure the documents you file are accurate and letter perfect, or you will be subject to horrendous penalties for an inadvertent error that has no effect on what you owe to the IRS.
The remaining 9% produced 100% of the revenue because they were filed by citizens living and working in countries which either have low income tax rates or no income tax at all. Instead those countries raise the bulk of their tax revenues through consumption, net worth and other kinds of taxes unheard of in the US, rather than income taxes. The reason this percentage of revenue-producing tax reurns is so small is very simple: The tremendously large extra cost of this additional tax that US citizens must pay to the IRS makes it so costly that few can compete for jobs in these countries. This makes survival very difficult and in most cases Americans must be compensated from 3 to 5 times more than persons of any other nationaliy in order to net the same after-tax income. So few Americans go to these countries.
This US citizenship-based tax system is not primarily a tax to generate revenues for the US Treasury, but instead it is a “punishment” tax for the “crime” of living in a country with a different kind of tax system than that of the US. I have not been able to find anything in the criminal code that classifies this to be a crime, but Congress aparently believes that it is so it has legislated that US citizens should pay taxes to th US “through the nose” if they live, either voluntarily or because they were born there to a US parent, for engaging in such a dispicable act.
And it is precisely in these countries where the US has its largest trade deficits. Products don’t sell themselves. It takes feet on the ground to do this, which the US does not have, but all of its trade competitor nations do. This is known as killing the goose that lays the golden egg. It is in these countries that foreign competitors have free reign because they don’t have to worry about much of any competition from US exporters.
Somehow I haven’t been able to figure out just how this harmonizes with the UN’s Declaration of Human Rights which states that every person should have the right to freelhy leave and freely return to his own country. If anybody has any ideas, I would love to hear them. Somehow this just doesn’t seem to harmonize with the concept of American exceptionalism.
@Roger, after being treated like this, I doubt that I will ever be able to support any kind of “Buy American” campaign. We’re thinking about buying another car; I will not be buying a Ford or Chevrolet, that’s for sure.
@Roger
I have to be honest and admit despite the hardship these policies of the US are creating I believe they are providing a large and unique competitive advantage to Canada. If the US tax did tax on the basis of residency instead of citizenship people like the Li clan of Hong Kong(Li ka-shing, Victor Li, Richard Li) would have probably become American citizens instead of Canadian citizens and all of this investment they put into Canada would be in the US instead. I actually think some day the US will change I just wonder how long.
Tim,
Unquestionably you are correct. Canada closed 2011 with a $0.2 billion trade deficit. That is just about as close to totally balanced trade as you can get. Canada paid for its imports by exporting enough to pay for them.
The US ended 2011 with a $730.2 billion trade deficit. Inasmuch as in the US the employed person generates as an average $95,000 in GDP, this trade deficit represents 7.6 million manufactuing-for-export jobs that were destroyed; not by importing too much but because of exporting far too little. And the US had to borrow money from China to pay for its imports.
Just think how the US could be creating jobs if it would just remove the ball and chain of double taxation from its citizens so they, just like the Germans, Canadians, Swiss, Dutch, Koreans, Japanese, Chinese and every other nationality is able to do and relocate abroad to capture a respectible share of the export market that has been taken over by our higher-cost trade competitors. On a per-capta basis Switzerland exports 4.3 times more to other nations than the US and 9.3 times more to China. And it certainly is not because Swiss products are cheaper. Draw your own conclusions. They are pretty obvious.
@RogerConklin
I agree with you and suspect underneath the US economy would be quite competitive with everyone else if it was not shackelled by thiese job killing policies. I think the problem in the US is you actually have people who benefit from big trade deficits and actually lobby for policies in favor of them as crazy as it seems. Canadian companies are quite active in “putting boots on the ground” so speak around the world. Its hard for me to actually think of places off the top of my head where there isn’t a Canada expat presence. According the Canadian Expat Association there are about 2.8 million Canadian citizens living outside of Canada compared to a resident population of about 38 million give or take.
@petros,
From the numbers you quote, about 7% of Canadian citizens live in a country other than Canada.
Assuming there are some 6 million US citizens living abroad, that equates to about 1.8 % of the US population. The 6 million is a wild guess because it is probable that a significant portion of US citizens living abroad do not make this fact known to US embassies for rather obvious reasons. The State Department ceased publishing these numbers, I think it was in 1998, at which time the number of Americans abroad was estimated at 4.5 million.
Nevertheless the contrast is significant. Do you suppose this has anything to do with why Canada’s foreign trade is almost perfectly balanced, whereas the $730.2 billion US trade deficit represents some 60% of the world’s total trade deficts?
It takes boots on the ground to sell exports. Canada clearly has them but the US falls far short.
@RogerConklin
The breakdown I have seen is about 1 million Canadians live in the US however, the really interesting number is about 300,000 live in Hong Kong almost all of which are tax non-residents. Hong Kong is a place where under current US tax law Americans get incredibly penalized to live given Hong Kong’s low income taxes but HIGH cost of living. On the otherhand Hong Kong Canadians are quite an influential group and real jewel in Canada’s expat crown. Some in fact are not even ethnic Chinese.
Here is an interesting article in the WSJ about all the Hong Kong Canada ties.
http://online.wsj.com/article/SB10001424052748704653204576111333724415592.html
My own daughter, an international tax accountant, lived and worked in Hong Kong for 6 years as an American expat with a large international accounting firm. She was the last US citizen with this company in that office. When her 6-year term ended one of the requirements specified for her replacement was “US citizens need not apply since they will not be considered for this position.” The reason of course was the tax cost which to provide her with the same take-home pay as a citizen of any other country made her compensation about 4 times higher than if she had not been a US citizen.
Of course a requirement like that in the US would be illegal because US anti-discrimination legislation prohibits employment discrimination based on national origin. US laws also prohibit compensation discrimination based on national origin so if other nations taxed their expats living abroad like the US taxes its citizens, no US employer would be allowed to provide additional compensation to nationals of any country that double taxed its citizens in the US like foreign emplyours often have to do abroad if they employ US citizens.
Just shows how what is sauce for the goose isn’t always sauce for the gander, thanks to US citizenship based taxation.
@RogerConklin
It would be interesting whether at some point Canada would fast track citizenship for US expatriates trying to get out from under the IRS. Right now you currently have to wait three years after becoming a permanent resident of Canada to become a Canadian citizen. I suppose you could renounce immediately up becoming a Canadian permanent resident and become a “stateless” person for three years while you wait for Canadian citizenship. I would have to study what the legal consequences of doing this would be for anyone who would be interested.
@RogerConklin
I found my answer from Passport Canada.
Certificates of Identity are issued to permanent residents of Canada who are not yet Canadian citizens, and who, although not considered to have refugee status in Canada, are otherwise stateless or unable, for a valid reason, to obtain a national passport or travel document from any source.
@Roger, Tim, Then after the 3 years there is a 19 month processing time to get the Citizenship.. A real pain and long wait.
@saddened123
Perhaps we need to lobby to get that shortened. What I am curious is what will happen when some really rich American that everyone in the US knows moves to Canada and then renounces their US citizenship. You best bet if you truely want to get into Canada is to come on a NAFTA visa in certain professions then after two years you fall into the seperate Canadian experience class for permanent residency.
I think what will start to happen first is any Canadians with FBAR issues living in the US like IJ will start getting out as soon as possible. Depending on how truely tied I was to the US if I was facing these FBAR issues and couldn’t sleep all night I would feel awfully tempted to pack every belonging I had and drive all night to the nearest border crossing and get the hell out.
@Tim, I agree!!
Tim,
I am tied to US more than to Canada. I have three little kids born in US, and my wife has green card of US, and myself recently became a US citizen. And most of my assets (not a lot — not even a home owner) in US. I have retirement in US (IRA, 401K and social security). RRSP (the only offshore to me at this moment) is small compared what I have in US. So moving back to Canada (I am still Canadian citizen and so do my kids as they are due) is not in consideration — but this whole OVDI process may build my resentment to US, and that may be a possible reason to move back to Canada. I won’t have any exit tax issue as I am not that rich.
As a native Chinese, I always used to look up to US -:) but this whole FBAR/OVDI certainly change my view on my newly adopted country. Why it can not treat its own people with some decency/fairness ?
Just out of curiousosity when did you roughly move to the US. I know a lot of people did in the late 1990s during the tech boom and some have started to move back to Canada due to the better economy. I just remember in the 1990s a lot of people did move to the US and by that time period probably had an RRSP in Canada so I am thinking there are quite a few people in your boat.
@Tim, do you know if stateless persons who are Canadian permanent residents can obtain some sort of a passport-like document that will allow them to leave and return to Canada?
Tim,
I moved to US in late 1998, on TN then later on H1, and then green card. Yes, it was tech boom at that time, but I was never in any tech sector. I worked for university as tech staff for many years.
I almost spent each 1/3 of my adult life in China, Canada and US — yes, I have to say Canada is the best. Nice people, and especially in Maritimes.
My sister and her husband were thinking of to move to US on investment visa (they made good money in China), I suggested them go to Canada, and they took my advice.