A few weeks ago, I mentioned that the Fifth Amendment is supposed to protect Americans from the the Federal government confiscating their property without due process. Yet the capital gains tax is exactly that: a seizure tax which actually impoverishes Americans. The Cato Institute has done an excellent video explaining why capital gains taxes is theft, pure and simple:
So first the central bank robs savers blind by devaluing the dollar. Then government taxes the nominal capital gains (that are actually losses when inflation is considered). “Nominal” means the dollar figure goes up but the actual buying power of the sale price remains consistent with the earlier purchase price. The house owner hasn’t made any real gains at all.
Now this is one good reason that Canadians enjoy zero capital gains tax on their primary residence. Moreover, housing tends to go up everywhere at once, and when Canadians sell a house, there is no actual extra money anywhere because they often just go out and buy another house which has been subject to the same nominal gains.
Let’s say that an American in Canada bought a house at CDN $500,000 in 1999 which is now worth CDN $1,000,000. If he sells it, it would have a nominal capital gain of CDN $500,000; now the CRA says the gains are all exempt because it is his primary dwelling, but the United States says he owes 20% on the $250,000 because only the first $250,000 is exempt; and so now he must pay the IRS $50,000 in taxes. But of course if you take the exchange rate into consideration, the tax owing would be higher–since the exchange rate when he bought the house was around 1.50 CDN/US; now it is one to one. So the initial purchase price was CDN $500,000/1.5=US $333,333; capital gains= US $1,000,000 (sale price) – US$ 333,333 (Original purchase price)=US $666,667-$250,000= 416667*20%(Obama’s capital gains tax rate)= $83,333 in taxes.
But of course, the IRS knows nothing about real estate transactions in Canada so you have to hand over this information voluntarily and then voluntarily write the cheque to them, because if you are a Canadian citizen, the CRA will not collect these capital gain taxes for the IRS. But now, if that man turns around and buys a new house, he will find that he needs all $83,333 in taxes that the IRS received even just to be able to access a house similar to the one he sold. I.e., the gains were all nominal, since the house didn’t really go up in real value during the 13 years that he lived in it.
Well, this should make you want to go out and renounce your citizenship. Or not. For how would the IRS ever find out that you sold your home–or that you even own a home in Canada–unless you tell them? Our worst enemy is the IRS. It is the greatest threat to our prosperity. The second worst enemy we have is ourselves, because of our voluntarily ratting on ourselves to our worst enemy by giving them information that they wouldn’t otherwise have, whereby they can assess us huge tax liabilities.
@aaa,
I am the messenger again for another comment from anonymous person to my email:
Hi anonymous, aaa, Calgary411 and Petros, thanks all for your information and responses.
I have no idea regarding rental income properties taxes. I came across this free online seminar(s) organized by http://www.keatsconnelly.com, with the RBC, thought that some of you might be interested.
weblink:-
http://www.eventbrite.ca/event/4399797914
I have emailed http://www.keatsconnelly.com and asked if they could take on my case regarding the Gifting of the principal residence in Canada taxation but have not yet heard anything back. Not sure, guess maybe they are not really interested in my business?
I would appreciate very much if anyone who have used a good competent US tax lawyer who also knows the Canadian laws very well could kindly provide some recommendations.
Thanks very much everyone for helping and sharing with me their opinions and advices.
@M, @aaa,
I haven’t had time to read this carefully, but it may be an article that you and others have an interest — “Avoiding Last Minute Gift Traps” http://online.wsj.com/article/SB10001424052970204755404578101234093774800.html#articleTabs%3Darticle
and, http://www.forbes.com/sites/robertwood/2012/11/10/grab-the-5m-gift-and-estate-tax-perk-its-gone-in-2013/ “Grab The $5M Gift And Estate Tax Perk: It’s Gone In 2013”
I don’t have any good feelings at all regarding finding a tax lawyer, well-versed in US/Canadian law. Only one of them has replied back to me, without much information but just indicate that I need to set up a consultation to “Talk”. One Real Estate lawyer referred by the Upper Law Society just hung up on me. ;(( If anyone know a good lawyer in the Toronto area pl’s kindly refer me one that they have used and they like! I have got much more information from “anonymous”, this forum and Google search than any lawyers.
@
Hi, Saddened123, have already contacted Petros. Many thanks.
@M, rude of that lawyer to hang up, for sure. That aside, it can be difficult to get a useful referral from the Upper Canada Law Society because their categories are pretty broad and this type of stuff is sort of a niche that’s a speciality within a speciality.
Another general point about professional help. Some lawyers and accountants are themselves quite misinformed in this area of law, and don’t realise it (the basic misconceptions I’ve run into are amazing). So, in order to choose a good one, it’s really good that we do our own research on the substantive issue, as you have done. That way, although we don’t become “overnight experts,” we know enough basics to be able to tell that the lawyer does indeed know their stuff and we can have confidence in them.
One of the Brockers was quite pleased with a Toronto US/Can tax lawyer. I’ll shoot him off an e-mail and let him know about your query.
@pacifica777
Yes, and yes. Good advice.
Yes, hope that one of the Brockers would provide some insights. Thanks.
@M Hi. Pacifica called my attention to your post on this thread, which I don’t normally monitor.
One Toronto lawyer who I know would be appropriate in your case and meets your stated requirements is Christine Perry, see this link:
http://www.keelcottrelle.com/directory.php?lawyer=cperry
There may be others in Toronto, but she is the only one I know of personally in this field. I found her initially as she was interviewed as an expert on these issues in a Financial Post article back in September 2011 about US taxation as it applies to US duals in Canada.
When I was researching lawyers on behalf of my wife, before finding Ms. Perry in the FP site, I too tried the Upper Canada Law Society website for referrals. All the referrals I got were inappropriate, as it sounds were yours too. IMO that website and referral process, at least for these very focused issues, seems to be a waste of time and space. You’re better off trying referrals from other clients with similar problems, which is one of the benefits of this Brock website.
If anyone reading this thread knows of other lawyers in Toronto, please post links in a reply. I don’t think we want to get into steering business only to specific lawyers; I’m mentioning Perry because I know from personal experience (I’ve spoken with her on the telephone on these matters at some length) that she knows this area very well. I am given to understand she has handled “hundreds” of renounce and relinquish cases (and related taxation issues) in the past year or so.
I also know of a couple of lawyers in Ottawa who may be of some help, though probably without as much experience so far as Ms. Perry (especially as most of us “in the know” are going out of our way to steer potential renunciants and relinquishants away from the embassy in Ottawa and toward the consulates in Toronto or Montreal, where the consular staff are a lot more understanding and reasonable than a couple of the horror shows Pacifica and others ran into at the embassy). However if anyone wants information on Ottawa options please contact me through private email via the IBS forum (see upper right corner of home page). Ms. Perry will do, or at least has done in the past, telephone consultations so you don’t necessarily need to live in or near Toronto to work with her.
Many many thanks Pacifica777 and schubert1975, I have just emailed Ms. Perry and hope to hear from her very soon. I understand that the best way to find a suitable lawyer/consultant is through referrals from other people in the same situations. ;)) Much appreciated!
FWIW, knowing nothing else about her at all, she seems to have sent a lot of her clients into OVDI:
http://www.jamiegolombek.com/printfriendly.php?article_id=1148
Granted, practitioners were and are as confused about how to satisfy the IRS as the rest of us, but for most of her clients, unless they were large-scale US citizen tax evaders, it will have been a terrible mistake. (In fairness, a) that seems more obvious now, and b) some of them will have been asking to go into OVDI.)
@broken man, Fairness aside, consider that the tales of 2009 OVDP woe started showing up in early 2010 on Phil Hodgen’s website–numerous horror stories of how innocent expats had received extortionate fines. I read them and decided that the IRS was not going to get my bank information, and I have stuck with that position. Finally, the instructions from the IRS were that if you had not done FBAR, you should simply fill out the back forms and send them in with a letter explaining why you hadn’t done them. Thus, the road to noisy disclosure had already been blazed. Thus, a competent lawyer would have known better. I am not a specialist and no lawyer, and I knew that a minnow should not enter OVDI. It didn’t take much research, just a little google search and competent specialist would have come upon Hodgen’s blog.
Now if Hodgen’s blog was available to cross border lawyers, why did they lead so many people into the 2011 OVDI? This is the reason we had to have the Isaac Brock Society. One of our first actions was to do our press release on the 2012 OVDP, warning Canadian residents to stay out. But the negligent Canadian media kept announcing the new programs over and over. So I don’t have much sympathy for the lawyers who advised clients to waive their constitutional rights by entering OVDP. No sir.
What boggles my mind about anyone going into OVDI, never mind a lawyer recommending it, is this simple point that immediately occured to me when my wife returned from a lunch in August 2011 with her friend (a wife of an American expat in Canada) and told me the horrors of OVDI 2011. After spending about an hour researching the thing on the Web, I said to my wife, “this is an amnesty program. Amnesties are for criminals. If you come forward and claim amnesty, you’re essentially admitting you’re a criminal. We’re not criminals. We’ve both been paying (lots of) taxes to Canada for more than 40 years, we both believe we lost our USC when we became Canadians, we have no property nor income in or from the US. Why the hell would we even think of filing for any of this, or worry about it?”
It’s not rocket science. And I’ve never been trained or educated as a lawyer, though I have worked extensively in the government with a couple of QCs on a thorny issue. But still … what is it with the lemming instinct, and with the wolverine legal instinct to prey on the lemmings? I still don’t get it. I don’t think I want to get it.
All together now:
@Broken man, exactly, and no competent offshore specialist would have ever led an innocent Canadian resident into the program with their innocent Canadian accounts, IMHO.
*@
Petros and @Shubert, I completely agree that many in the legal profession are fleecing these poor lambs simply to make a killing…it’s an industry and they’re in bed with the IRS…these attorneys and accountants don’t want reform and regard OVDI as a honeypot. They’ve never had it so good with FATCA on the horizon. Too many damn lawyers in this world! Caveat Emptor
From my understanding, the inter-spousal transfer of the principal residence in the Municipality of Toronto can be Tax Free based on Inter-spousal transfer for natural love and affection.
The consideration as a result of the existing mortgage needs to be resolved: paid back, or gifted, etc., before the transfer, in order to satisfy the requirement of the nominal value of transfer.
Then, the US Life Time gift exemption of $5 million for year 2012, needs to be filed.
The IRS paperwork Form 709 for year 2012 is needed. The form 709 need to be filed with the Canadian personal income tax together by April 2013.
Anyone have any dealings with Jonah Spiegelman in British Colombia, Canada before?
http://www.altrolaw.com/our-team/jonah-spiegelman/
He is currently the only lawyer has replied back to me and indicated I can set up a consultation over the phone with him.
Would anyone has any insights/advice to me regarding my key questions to ask? I have asked a few cross-border tax lawyers by email if they can take this case on to meet the $5 million Life Time Gift tax exemption deadline, and what are the associated costs, etc., but have not yet received any answers.
My American wife and I live in Canada. She holds title to our principle residence. We will be moving to the US ( our kids live there).
How can we avoid the US capital gains crunch on selling our house.
@diskjockey, sell it before you go or, assuming you live in this house and have done so for two or more years, within three years of arriving in the US. Should become a problem only where gains exceed $250k/$500k US. Same rules as for US homelanders.
http://en.wikipedia.org/wiki/Capital_gains_tax_in_the_United_States#Primary_residence
Hello, I have a question regarding the ownership of primary home and US tax. Hopefully, you can provide some helpful advice.
I am a US citizen living in Canada (Quebec) since 2004. I own a home, (primary residence) in Montreal, with my common-law partner (50%/50% ownership). My common-law partner (not legally married yet) is a Canadian citizen, and she has no intention of becoming a USA resident or citizen any time soon. I am thinking of transferring my part of the ownership (50% of our primary residence) to her. I know that from a Canadian Tax law perspective this will not have taxable consequences. However, how will this (or will it) have any consequences from a US Tax law perspective, are there anythings I should watch out for? Thanks. Herald
@Herald
If your common-law partnership is recognized by Quebec, the IRS is to also accept it:
“You are considered married for U.S. tax purposes if any legal jurisdiction in the world recognizes the status of your relationship as married. So, same-sex couples and couples in a common-law marriage can both be treated as married for U.S. tax purposes as long as they are treated as married in some applicable jurisdiction.”
http://www.ustax.bz/your-non-u-s-spouse-creates-tax-planning-opportunities/
Assuming that Quebec recognizes your relationship as a common-law marriage, then you should explore gifting to an “alien spouse”. Phil Hodgen has blogged on this topic several times:
“Gift tax when the recipient is a noncitizen
When the recipient spouse is not a U.S. citizen, the unlimited federal gift tax marital deduction does not apply. Instead of the unlimited marital deduction, gifts to noncitizen spouses have a large annual exclusion. The amount is indexed annually for inflation. For 2012, the amount that can be given to a noncitizen spouse tax-free is $139,000. (now $145,000)
This means that every property settlement where the transferee is a noncitizen must be scrutinized for potential gift tax liability for the donor.
But more important, this same rule applies even to a couple that never gets divorced. If the recipient is not a U.S. citizen, the unlimited marital deduction does not exist.
Example
Husband is a U.S. citizen and Wife is a green card holder. They live in the United States. Husband gives Wife 50% of a piece of real estate that he owns. The value of the interest in real estate is $500,000.
Husband has made a taxable gift to his wife. The first $139,000 of the gift is exempt from gift tax. The remainder ($361,000) is subject to gift tax. ”
http://hodgen.com/property-transfers-between-spouses-gift-tax/
http://hodgen.com/gift-to-noncitizen-spouses-and-preparing-the-gift-tax-return/