Resolved: #americansabroaddisabled from effective retirement planning – your thoughts? isaacbrocksociety.ca/2012/06/17/u-s… #FATCA #FBAR #expats #OVDI
— U.S. Citizen Abroad (@USCitizenAbroad) June 17, 2012
Subject to applying for an extension, your U.S. tax return was due this past Friday June 15. During tax season, the discussion of the problems of citizenship-based taxation have become louder and louder. After many discussions with U.S. citizens abroad, I have concluded that:
There is not a single investment vehicle outside the United States that will not plant the seeds of future U.S. tax problems. These problems if not attended to early (translation they must be eradicated) will eventually grow so big that:
A. Not only is financial planning and saving impossible; but
B. Your honest attempts to save and invest will bankrupt you with either incredible expensive compliance requirements or “surprise taxes and penalties”.
C. U.S. tax compliance is now so expensive and complex that U.S. citizenship has been priced out of the market.
I invite your comments on this topic. Please refer to the specific financial product and any tax or reporting issues. I desperately want to be proven wrong on this point. So, please explain the financial products that are viable for those who are subject to U.S. tax laws.
Those who missed my earlier post on PFICs – your future financial solvency may depend on reading it!
Thanks in advance.
As in Canada, I have been led to believe that the US does not recognise most of the deferred savings plans in my country nor any pension plans, which should be tax free here. The Brussels-Capital Region (where I live) currently has an inheritance tax rate of 3%…which is nothing compared to the US one which my heirs would also unfairly suffer should I be successful later on(I believe that it would be either 35 or 45% top rate if more than $1 million).
This would be especially harsh for someone who has worked his or her entire life in Belgium since the two tax systems are entirely incompatible: We have very high income tax rates (capping at around 56%) and high VAT, but no capital gains taxes and a low inheritance tax rate. Basically as a dual Belgian-US citizen you would get the worst of both and be taxed to death as a result, since how people here structure their savings and investments would be murdered in the US system. Its a mess.
One tip for those at certain levels of unearned income: don’t claim your RRSP contribution on your Canadian taxes until after you have relinquished your US citizenship.
*Talk about incompatibility in the UK you can contribute up to £50,000 per year into a pension with a maximum pot of about £1.5Mish. So in the US it’s only $15,000 year. I can’t keep track of both and I keep loading up my UK pension and forget about the US.
Which pension plan do you think I’m going to follow? If the US doesn’t like it screw them.
I’ve been told by my accountant that the “gratuity” payment for government employees in Canada is fully taxable by the U.S. even though it flows directly from the employer into the retired employee’s RRSP.
This is very possible – you need to be very careful with this stuff – all I can say is to get competent (and make sure it is competent) legal advice in this area.
Interesting comments in the links below re recent IRS revisions to form 8891 – RRSP reporting form – annual election for them to be tax deferred under the Canada-US treaty. The comments in these two forums seem to be indicating that the most recent IRS revision is specifically designed to make it even harder to report your Canadian RRSPs by quiet backfiling if making the treaty election was missed. As we know that RRSPs are supposed to be covered under the Canada/US treaty (but only IF the annual election is made – not automatic), and that Ambassador Jacobson assures us that the IRS and US is “not unreasonable” or “unsympathetic http://canada.usembassy.gov/ambassador/news-and-speeches/18-october-2011-ambassador-jacobsons-remarks-to-the-canadian-club.html , one would have thought that the IRS would either be making RRSPs exempted via an automatic presumption, OR making it easier to backfile, and retroactively report the RRSP when inadvertant errors were made – not harder. Especially since they’ll get the reporting, or their money in the end when the RRSP is cashed in – and it will certainly be taxed first by the Canada Revenue Agency – there is no possible way to evade taxes, or to launder money via an RRSP, or to withdraw money or dissolve it without the full knowledge and oversight of the CRA. But then, making it harder brings the IRS revenue in PLRs (private letter rulings @ aprox. $2,000. US per) and bolsters US tax revenue in subjecting our legitimate RRSP savings to US taxes – or by causing them to be ‘foreign trusts’ and subjected to the 3520 penalty fundraiser. It’s all about the US and IRS getting at our Canadian assets one way or the other, by hook or by crook. If they can’t double tax us one way, the US, Treasury and IRS are obviously dedicated to extorting money through creating even more complexities, and the confiscatory penalties to go with them. Even when it involves RRSPs – legitimate tax deferred Canadian retirement savings.
Where is our Finance Minister on this one? He hasn’t protected RESPs, TFSAs, RDSPs, or PRPPs, and now, despite all the evidence that the US is exploiting Canadian taxpayers, he hasn’t been able to make any progress ensuring that Canadian RRSPs are to be automatically treated as they should be.
“Posted: Fri Dec 21, 2012 11:26 am” ” Post subject: New Form 8891 forbids “back-filing” the election”
……….”As expected, with the official release of revised
Form 8891 for RRSP reporting, it is no longer permitted to “quietly”
back-file these forms for RRSPs for which one has not made an election
One will have to “seek relief from the IRS” for the failure to file —
most likely by an expensive Private Letter Rulling (PLR).
Otherwise, one can back-file the 8891 and report the internal income
from the RRSP, amend one’s 1040, and expect to pay interest and
‘Article for Canadians with Unreported Canadian Retirement Plans and Accounts’ (2/6/13)
“Hale Sheppard has a new article that should be of interest to Canadians.
The article is introduced on his firm’s Blog, IRS Introduces Two
Unique Remedies for U.S. Persons with Unreported Canadian Retirement
Plans and Accounts, here. The article can be linked to in that blog entry or can be linked here.”……..
Came across this discussion which is a recent example of the continued staggering lack of awareness that Canada has > 1 million individuals and families disabled by US citizenship and US ‘taxable person’ status:
The forum discussion is comparing Canada vs. US savings vehicles and strategies, yet, no-one seems aware that Canadian citizens and residents with an extraterritorially imposed ‘US taxable person’ status makes them ineligible for what are ordinary savings and retirement strategies for those living in the US, AND for those in Canada without the US toxic taxable UScitizenship-based or greencard burden.
Awareness of FBARs and FATCA has still not penetrated very deeply.