Crossposted from RenounceUScitizenship
- Not if you are U.S. citizen
Introduction – The Four Principles Of US Taxation Abroad
The U.S. tax system (at least in relation to U.S. citizens abroad) operates on the following four basic principles:
1. If something is “foreign” it should be punished.
2. The “principle of penalty” – There is no way that somebody can clean up innocent mistakes without paying penalties or the threat of penalties.
3. “No good deed goes unpunished” – Those who have filed (and are in the system) will have greater problems than those who have never filed. (Look at the new Streamlined compliance procedures for US citizens abroad for evidence of this – those who have filed cannot use the procedure to amend returns)
4. U.S. citizens abroad are tax cheats.
Those four principles sum it up.
This morning I came across an article preaching the virtues of the TFSA (“Tax Free Savings Account”) for Canadian residents. The article points out that:
Among the top reasons for the rise in popularity of TFSAs is their flexibility. Money can be pulled out without penalty in case of a financial emergency, TFSAs don’t have to be converted into a RRIF upon retirement, and they can contain a variety of different types of investments. Investors don’t get an immediate tax break the way they do with an RRSP contribution, but investments inside a TFSA grow tax-free
The TFSA is going to become a very significant means of investing and savings for Canadians.
Well, not all Canadians. As you know “Not all Canadians are created equally”. Those Canadians who are also U.S. citizens are, by virtue of “American Exceptionalism”, simply exceptional. They are exceptionally different. They are also targeted for exceptionally harsh tax treatment. For those who just want the bottom line:
Under no circumstances should a U.S. citizen invest in a TFSA. I came across a TFSA video on the Globe web site (it’s only one minute you can view it now) that suggests that TFSAs might be a good investment for U.S. citizens in Canada. The video is full of half truths and IMHO is wrong. As discussed in some of the comments, the reporting costs and potential for penalties for investing in a TFSA (not to mention the LCUs) are so extreme that you should run. This comment is particularly succinct:
As the “Interested Layman” stated below. TFSAs are only recognized as Trusts. As a trust form 3520A is supposed to be filed by March 15. (I know that is before US income filing is due). Then form 3520 when you file your US income tax. Fun, fun, fun! Just adding the income to your income tax is not what they want. My US tax accountant would not do my income tax unless I filed this form and back-filed it for years 2009 and 2010 (TFSA started in 2009). The IRS fine for not filing these forms is $10,000 or 35% of the account.
Next any Dual (like myself) or US citizen living in Canada who has opened a RESP must also file the same forms. Unlike RRSPs an RESP is recognized as a TRUST and also is taxed by the IRS. I know individuals who have paid the accountant more to file the forms then they have in the RESP account. Fun, Fun, Fun!
Now for the rant!
I find it very interesting that the IRS insists on pursuing law abiding citizens as if they are criminals. One of the reasons for the Revolutionary war was to keep King George from taxing the colonies. Very ironic. Canada only taxes by residency. The US taxes by birth. Once a citizen always a citizen. You pay tax no matter where you reside.If you want to give up your citizenship you have to pay all taxes you are deemed to owe. This means if you own a business or a home, you have to pay the taxes on unrealized capital gains on them to be free.
I left the US 40 years ago. I received no money from the US. I could not write off mortgage interest on my home to pay for it. Now if I sell my home I will be tax liable to the US for taxes on the Capital gains? Damn!
By the way, there are many investments that are prohibited to US citizens in Canada.
That’s the bottom line. For those who did not fully understand the above comment, let me explain:
1. Unless you have been living under a rock you know that U.S. citizens, regardless of where they live must file tax returns and pay tax on their world income. Since at least 2011 U.S. citizens abroad are presumed to be tax cheats. (Principle 4 – All U.S. citizens abroad are tax cheats.)
2. U.S. citizens abroad are taxed in the same way as U.S. residents. They complete the same tax return. They are subject to the same rules. (The only exception is that at least for the moment they have the possible benefit of the Foreign Earned Income Exclusion.)
3. From a U.S. perspective the TFSA is NOT tax free. Hence, you must include the income every year on your U.S. return. But, TFSA is not just any kind of income, it is income from a “Foreign Trust”.
4. The U.S. penalizes and puts special restrictions on anything “Foreign” including “Foreign Trusts”. (Principle 2 – If something is foreign it should be punished.)
5. All Foreign Retirement and Investing Plans are “Foreign Trusts”. TFSAs are “Foreign Trusts”.
6. Form Nation imposes special reporting requirements on Foreign Trusts. There are two forms. The first is Form 3520. The second is Form 3520A.
7. Form 3520 is the form where you as the taxpayer have to report the information on the Foreign Trust. This is complicated, time consuming and expensive to complete. US citizenship has been priced out of the market. It is filed along with your tax return and is due when your tax return is due.
8. Form 3520A is a form that the administrator of the trust/TFSA (for example the CIBC bank is required to complete. This particular form -are you ready for this – is due on March 15. Yes, you got it. Form 3520A is due before your tax return is filed. Do you really think you could get your bank to complete a 3520A for you and file it?
9. What happens if CIBC does not not file the From 3520A by March 15? Answer: as the beneficiary of the Foreign Trust, you will be subjected to draconian, idiotic and unfair penalties. (Principle 2 – The Principle of Penalty)
10. Who could possibly know about Form 3520A? Answer nobody. Well, not quite. Once you file your return with the Form 3520 and they see there was no Form 3520A, they will educate and threaten fines. (Principle 3 – No good deed goes unpunished.)
Conclusion: Stay away from any Canadian investment plan except the RRSP. Although an RRSP is a “Foreign Trust”, they are covered by special arrangements. First, the IRS does not require the 3520 for RRSPs. Second, remember the Form 8891 every year. Form 8891 is required to ensure that the income from your RRSP does not have to be included on your U.S. tax return.
Who could have known all this? Nobody!
Also, US citizens in Canada should NOT purchase Canadian mutual funds (they are PFICs). Furthermore, for US citizens abroad, home ownership can be very taxing. There are many other problems, but I won’t wreck YOUR Thanksgiving weekend. And Homelanders wonder why US citizens expatriate. Now really.
Message to financial planners: Normal principles of financial planning do NOT apply to US citizens abroad!
_______________________________________________________________________________
From the IRS – As of October 5, 2012 – Seeing Is Believing – Note the Principle of Penalty
Form 3520 – This is the information the taxpayer must provide
http://www.irs.gov/instructions/i3520/ch01.html
Penalties
The U.S. owner is subject to an initial penalty equal to the greater of $10,000 or 5% of the gross value of the portion of the trust’s assets treated as owned by the U.S. person at the close of that tax year, if the foreign trust: (a) fails to file a timely Form 3520-A or (b) does not furnish all of the information required by section 6048(b) or includes incorrect information. See section 6677(b). Additional penalties will be imposed if the noncompliance continues after the IRS mails a notice of failure to comply with the required reporting. For more information, see section 6677.
Criminal penalties may be imposed under sections 7203, 7206, and 7207 for failure to file on time and for filing a false or fraudulent return.
Penalties may also be imposed under section 6662(j) for undisclosed foreign financial asset understatements.
Reasonable cause. No penalties will be imposed if the taxpayer can demonstrate that the failure to comply was due to reasonable cause and not willful neglect.
Note.
The fact that a foreign country would impose penalties for disclosing the required information is not reasonable cause. Similarly, reluctance on the part of a foreign fiduciary or provisions in the trust instrument that prevent the disclosure of required information is not reasonable cause.
Form 3520 A -This is the information that your bank must provide – I kid you not!
http://www.irs.gov/instructions/i3520a/ch01.html
Purpose of Form
Form 3520-A is the annual information return of a foreign trust with at least one U.S. owner. The form provides information about the foreign trust, its U.S. beneficiaries, and any U.S. person who is treated as an owner of any portion of the foreign trust.
A foreign trust with a U.S. owner must file Form 3520-A in order for the U.S. owner to satisfy its annual information reporting requirements under section 6048(b). Each U.S. person treated as an owner of any portion of a foreign trust under sections 671 through 679 is responsible for ensuring that the foreign trust files Form 3520-A and furnishes the required annual statements to its U.S. owners and U.S. beneficiaries.
Exception. Canadian registered retirement savings plans (RRSPs) and Canadian registered retirement income funds (RRIFs) are not required to file Form 3520-A with respect to a U.S. citizen or resident alien interest holder who is eligible to file Form 8891, U.S. Information Return for Beneficiaries of Certain Canadian Registered Retirement Plans, with respect to the RRSP or RRIF. In addition, other eligible Canadian plans within the meaning of section 3 of Rev. Proc. 2002-23, 2002-15 I.R.B. 744, are relieved of any obligation to file Form 3520-A with respect to a U.S. citizen or resident alien beneficiary who has made an election in accordance with section 4 of Rev. Proc. 2002-23 and has complied with the annual reporting requirements of Rev. Proc. 2002-23.
@Renouncecitizenship,
Great post. Explains all of the facts so that anyone should be able to understand them. Now how could we get this published in the mainstream media? Because I believe that needs to be done – as so many Brockers have discovered, even our friends and families do not understand the injustice put on Americans living abroad.
@renounceuscitizenship
Thanks for this. I can’t allow my US citizenship to continue to render me a second class citizen in the country I call home. How the US government can call itself the champions of freedom and treat its citizens like this is reprehensible. I regret that US’s renunciation registry won’t have my name in their Q3 report.
Great post @renounce. Every time I try to explain this, my listener’s eyes glaze over, and they wander away. Partly because it makes no logical sense, and partly because it is just too bad to take in. Obviously the reason for these forms is not just taxing income – because they could just let us report the income earned as interest – and assess US tax on it. They don’t recognize these as tax exempt for US tax purposes, so why not just treat it as income? That would be more straightforward to demonstrate with our bank statements.
Your explanation is great.
Why this obsession with ‘trusts’ when they are just a method of saving. If they want to count the interest earned as ‘income’, then there is nothing we can do about it, but all the added layers of complexity and penalties just make no sense at all – unless they just want us to fail so they can penalize us.
Good post, although nothing new…my problem with the whole 3520/3520a forms is the change in the IRC 6677 article 21 language which used to specify that the penalty amount good not exceed the gross reportable amount of the account.
It seems, to my understanding, is that the IRS has decided to modify the code to allow them to penalize you 10k on an account that might only have one hundred dollars in it.
@Tiger and @Bubblebustin
This post specifically impacts almost one million dual citizens in Canada and in a general sense another 4 million US citizens abroad. But most people are not interested. The reason is because they don’t want to be interested. The cost of knowledge is that you probably have to do something in terms of life planning and/or compliance. Here are the groups that should be interested and the reasons why they are not:
1. Financial planners – No, it means they can’t sell these toxic products.
2. US government – No, because any discussion of this is bad publicity.
3. Other governments – No, they don’t yet understand how citizenship-based taxation is quite literally stealing money from their countries.
4. Non-US citizens – No, why would they care.
5. Politicians – No, what’s in it for them?
6. The vast vast majority of US citizens abroad – No, much better to be in denial. I can’t believe how many have no interest in this.
So, very very frustrating …
As I have said before, Canada is the one country that I think can make a difference. The US simply cannot afford the risk of alienating Canada. What I think is happening in “Flaherty Land” is they are just going to wait FATCA out. The reality is that FATCA as originally conceived is NOT going to happen. The best the US can do is a series of country specific deals. If Canada holds out, I think that the US will simply accept the current information sharing agreement. I don’t see what else it can do. I don’t believe that the Government of Canada will enter into a FATCA specific agreement with the US. If the banks comply they well certainly have to justify the legality of their position in Canadian courts.
The best thing that can and should have been done would have been to attack the Obama administration during the campaign (and this could still be done). But again, people don’t seem to want to do that. This argument that the Republicans are the same is ridiculous. We know what the Democrats are like. The only chance was to find a way to make this a campaign issue.
Now, I will tell you that Democrats Abroad does worry about this. We have until November 6. I still believe this can be made front and center. But, people have to take a “yes we can” kind of attitude.
@Badger
The obsession is NOT with “trusts”. The obsession is with “Foreign”.
@Mach73
The purpose of the post is try to explain this issue so that someone who knew nothing about it might be able to understand it. The problem with all of this is that it is bizarre that people think you are lying.
@renouncecitizenship,
I don’t know whether the Republicans would treat Americans Abroad differently, but what I do know is that the Obama Administration treats them with disdain and makes their lives miserable. I for one do not vote, never have voted in an American election. But one thing I do know, is if I voted, it would not be for Obama. We KNOW how he treats American citizens living abroad.
@Tiger
My point exactly.
@All
The primary tool at our disposal is the the vote and the threat of vote. I can tell you that Democrats Abroad are very much aware and very afraid of some of the posts on this blog.
See a reference to some of this in the following:
https://renounceuscitizenship.wordpress.com/2012/09/04/obamas-democrats-dont-want-dialogue-about-obamas-treatment-of-us-citizens-abroad-reddit-anyone/
If you don’t want to read the whole post, consider the closing paragraph:
““An American President always, always, always stands up for the freedom and justice of all people.” – Senator John McCain
It’s clear that Barack Obama has no interest in standing up for the freedom and justice for U.S. citizens abroad.
Clearly …
Either Barack Obama is NOT an American President or U.S. persons abroad are NOT people.
The fact that U.S. citizens are required to file tax returns and FBARs is “proof positive” that they are people.
It therefore follows that: Barack Obama is NOT an American President.
November 6, 2012 would be a good day to remind him of this.”
We can and should send a message to them.
*Renounce
You are exactly spot on about the following:
“As I have said before, Canada is the one country that I think can make a difference. The US simply cannot afford the risk of alienating Canada. What I think is happening in “Flaherty Land” is they are just going to wait FATCA out. The reality is that FATCA as originally conceived is NOT going to happen. The best the US can do is a series of country specific deals. If Canada holds out, I think that the US will simply accept the current information sharing agreement. I don’t see what else it can do. I don’t believe that the Government of Canada will enter into a FATCA specific agreement with the US. If the banks comply they well certainly have to justify the legality of their position in Canadian courts.”
One thing that gives me some reason for optimism is no country other than the UK has yet to actually sign an agreement although I admit this wait is very disconcerting for some. I actually saw some interesting comments submitted to the Australian government last night. Will try to post later.
@renounce, re;” Canada is the one country that I think can make a difference. The US
simply cannot afford the risk of alienating Canada. What I think is
happening in “Flaherty Land” is they are just going to wait FATCA out.
The reality is that FATCA as originally conceived is NOT going to
happen. The best the US can do is a series of country specific deals. If
Canada holds out, I think that the US will simply accept the current
information sharing agreement. I don’t see what else it can do. I don’t
believe that the Government of Canada will enter into a FATCA specific
agreement with the US. If the banks comply they well certainly have to
justify the legality of their position in Canadian courts.”
And Flaherty has a very very good reason to be interested in the US treatment of all these Canadian registered savings as ‘foreign trusts’. That reason is that the creation and promotion of TFSAs was authored by Flaherty – and they are marketed and promoted to Canadians by the Federal government. See: http://news.gc.ca/web/article-eng.do?nid=649239 “
Save More in 2012 With the Tax-Free Savings Account
Ottawa, December 30, 2011
2011-148
“The Honourable Jim Flaherty, Minister of Finance, and the Honourable
Gail Shea, Minister of National Revenue, today highlighted that, as of
January 1, 2012, Canadians will have a new $5,000 of room to invest in
their Tax-Free Savings Account (TFSA).”
“TFSAs will continue to enable Canadians to more easily meet their
savings goals by allowing them to earn investment income absolutely
tax-free,” said Minister Flaherty. “Savings contribute to economic
growth by increasing the funds available for economic investment, which
leads to a higher capacity to produce goods and services and improves
the standard of living of Canadians.”
“Approximately 8.2 million TFSA accounts have been opened to date,
and we expect that number to grow,” said Minister Shea. “We are thrilled
to see Canadians taking advantage of this savings vehicle.”
http://www.cra-arc.gc.ca/nwsrm/rlss/2011/m08/nr110819b-eng.html CRA news release …”Our Government is pleased that Canadians are increasingly taking
advantage of the Tax-Free Savings Account (TFSA) since its launch in
2009. Indeed, approximately 6.7 million Canadians have already opened a
TFSA.”….
By now, Minister Flaherty knows all about the conflict between his promotion of the TFSA, and the US penalties for the >1 million with a deemed US taxable status in Canada. Obviously those of us who know the toxic status of the TFSA will not invest in one, or will get rid of one if we are so cursed as to have obtained one. Flaherty knows full well that the Canada US tax treaty does not recognize the TFSA from the punitive US treatment, and so he has known about this conflict for some time.
The same is true for the PRPP, but more so, since some of the discussions with provinces have centered around making them mandatory in participating workplaces. And, the PRPPs have come along in the time of heightened IRS punishment of those of us in Canada and elswhere – and Flaherty and our Prime Minister know that therefore, PRPPs will not help, and will definitely hinder duals and those with US taxable status in Canada.
There is a definite conflict of interest in Flaherty and the feds promoting the just created PRPPs – the pooled registered pension plans – since they know how many of us would be penalized for using them. They are supposed to look out for ALL Canadians, and duals and those with greencards, and permanent residents need the Canadian government to warn them away from participating in PRPPS (and TFSAs and RESPs, and RDSPs), but they haven’t done that. Making Flaherty and the Feds complicit when the unsuspecting here in Canada, trust in their own Canadian government’s exhortations to save in federal government created and blessed savings plans that then leave them very vulnerable to persecution and pursuit by the IRS for monstrous reporting penalties, and high accounting fees in order to comply with US demands.
There are musings about making participation in them automatic in workplaces that offer them, and mandatory in certain provinces. Which would create an additional hazard for >1 million duals/UScitizen-permanent residents/US deemed taxable persons (greencard holders, snowbirds, etc) in Canada, because merely being ‘enrolled’ would invoke the 3520 hazard – even if one never contributed and opted out as soon a possible.
We need our government to help us by publicly continuing to warn and advise those Canadian citizens – whether by birth or naturalization, and permanent residents, of the pitfalls these Canadian registered plans pose for us. They should be our advocates. They are the ones who make and negotiate the Canada/US tax treaty, and know what is in it, and the implications for those inside Canada.
@bubblebustin: I think that is something that John Weston needs to note, because it is an action that would save the vulnerable from making the mistake of falling into the IRS traps regarding ‘foreign trusts’ until renouncing or relinquishing is possible. Another thing that would help is for the Federal government to expedite Canadian citizenships – which now have a waiting time of 21 months – up from 19 months last spring. Those seeking to renounce US status have the 5 years of waiting as permanent residents, but now also almost 2 years for the processing and granting of citizenship.
*@Renounce, great posts! As a US citizen living in the UK, I also worry that holding an ISA, even a US-compliant one, could be deemed a foreign trust in a similar vein to the TFSA in Canada. I explicitly requested to my financial planner to invest in a portfolio that would be simple to manage in terms of tax compliance, as i didn’t want to have to be worried about these 3520/3520A foreign trust forms. Such a NIGHTMARE!!
It could be that the IRS is more lenient towards ISA’s for some reason because my accountant is aware of these foreign trust forms and doesn’t seem to think I’ve got to worry about it; Irt could be that it’s a grey area and isn’t currently enforced, at least in the UK. I’m at a loss as to what to do; I’ve paid them thousands to form a relationship and trusted them to keep me safe from all this nonsense…
In some ways, I almost feel that it’s better not to openly discuss this because if we’re ever questioned about it, it’s harder to feign ignorance and thus could be deemed willful noncompliance. In other words, I feel that one has a safer position if one can honestly claim that they hadn’t known and thus reasonable cause. Such a minefield!!(
@renounce, re “I can tell you that Democrats are very much aware and very afraid of some of the posts on this blog.”
I find that intriguing- how can we tell? They haven’t bothered to do anything to counter what we state, not even some flimsy empty rhetoric – which wouldn’t cost them anything even if it was a lie. Only the Democrats like Carolyn Maloney and the cos-sponsor/s of her bill. Or a few of those receptive to the ACA – though some of those go on to actually vote against our interests when they finally do take an action.
@badger
I touched on all of this in my Pre-2102 Budget Submission to Canada’s Finance Committee.
It’s interesting that the Obama campaign seems to have lost its fixation on Romney’s offshore accounts. We are after all part of Obama’s dirty little secret that’s got the world in a tizzy.
*Perhaps in a way, if the worst-case scenario unfolds, there will be enough push-back for real change and improvements to finally take place, even though it would take several years. I’m thinking back to the 70s when the FEIE was abolished and of the outcry it caused…it was thus reinstated about three years later. Perhaps we’ll suffer in the near to medium future but wind up ultimately better off.
Renounce: ‘Now, I will tell you that Democrats Abroad does worry about this. We
have until November 6. I still believe this can be made front and
center. But, people have to take a “yes we can” kind of attitude.’
I don’t see it happening. I wrote to the candidates for congress where I am registered to vote (former state of residence), and got blow-off responses. Actually, one candidate said good things, but he lost in the primary. And obviously the presidential campaign offers nothing of substance, in fact not even any pretty white lies.
So I don’t see myself voting this time around. I did get my electronic ballot in e-mail the other day, so I could if I wanted to, but as I have stated before, I refuse to vote for anyone who does not promise to do something to help honest middle- and working-class Americans abroad, and stop treating us like tax cheats.
One would think this would be a natural Democratic Party platform, but for some reason it is not. But it is my number one issue now, and I refuse to sit in the back of someone else’s bus. Unless the Democratic Party gets its act together on this, this lifelong Democrat will be sitting this election out. I have had it.
Simple enough?
I got my ballot too, (though ironically, I didn’t have to register for it this time around). It makes me sick to look at it. Neither candidate cares about the 6 million US deemed ‘taxpayers’ born, living and working outside the US. Neither has replied to the ACA request for their response on the plight of those ‘abroad’ as far as I know. We have only taxation – with an added layer of complexity and liability and no representation. Too bad the ‘Tea Party’ moniker is already taken, or we could have started one ourselves, to represent the interests of those subjected to unjust US extraterritorial citizenship-based taxation and draconian penalties – without services or any other benefit.
Thanks for your post, renounce.
I earlier today posted on your site something like this:
My specific concern is for my adult son with a developmental disability and below is one example of the absurdity as it applies to what the US considers ”foreign trusts” (although they are not foreign to us; they are accounts in the country we in which we live, work, pay our taxes, etc.).
For anyone with a family member who has a disability and has become the Holder of a Canadian Registered Disability Savings Plan (RDSP) with their family member as the Beneficiary*, criminal and financial penalties can apply for non-filing of IRS Forms 3520 and 3520A for “foreign trusts”. Besides the RDSP, these must be filed for other Canadian registered accounts deemed foreign trusts and not addressed in the US / Canada Tax Treaty; e.g. the RESP and TFSA. A Canadian / US Person Holder or Beneficiary of an RDSP is a second-class Canadian compared to those Canadians who may have any other second citizenship. So are holders of RESPs and TFSAs, which Canadians are encouraged by our federal government to take advantage of.
*Additionally, those with family members who have a developmental disability or other mental incapacity should be advised that the US Consulates in Canada/US Department of State deny the right of a Parent, a Guardian or a Trustee for a developmentally or otherwise mentally incapacitated person, even with a Court Order, to renounce US citizenship on their family member’s behalf when they deem renunciation of US citizenship in the best interest of that person. This binds that ‘US Person’ disabled family member or someone on that person’s behalf (including after the death of the Parent, Guardian, Trustee looking after his best interests, and perhaps additional trust company fees), year after year, to pay expensive US tax law and accounting fees to comply with the US IRS, for $0.00 tax owed to the US. It is clear to me that my developmentally delayed son has significantly better health and well being benefits in Canada than he would in the US — and Canada is where his family is. To deny the right to Parents, Guardians or Trustees for renunciation of our family members’ US citizenship (except for ‘compelling reason’, which my son is not deemed to have) is immoral and
makes no sense to me.
@renounce mentions that “home ownership can be very taxing”. When I followed the link, I realized that what is described is not the whole picture. US Persons abroad are penalized in many ways. Not only is the capital gain on the sales price of the house taxed based on the value of the dollar when the house is bought and the value of the dollar when the house is sold, but the FX gain on the mortgage value also appears to be taxed. FX losses are not deductible. So it appears that unless you pay off your mortgage, you will could also face a tax on the payoff of the mortgage if your local currency is not valued the same as it was when you bought the house.
I also wonder if you pay taxes on the sale of your house in your country of residence if all of them can be applied to the US taxes on the entire gain or if only taxes paid on amounts above the 250k deduction can be credited.
US taxonline has a pretty good presentation about financial pitfalls for US persons abroad. See page 4 for the info on selling a house if one resides outside of the USA.
http://www.ustaxonline.com/Brochures/seminar2012/USTAX-PP-LifeAmerican-F.pdf
@Foo
If you don’t vote, then you contribute to Obama being re-elected. If you contribute to Obama being re-elected, then it it likely that the problems are going to get worse and worse.
As I put in a previous post, if Obama is re-elected, the most popular bumper sticker in America and outside will be:
“Don’t blame me, I voted!”
@Lisa notes that:
@renounce mentions that “home ownership can be very taxing”. When I followed the link, I realized that what is described is not the whole picture. US Persons abroad are penalized in many ways. Not only is the capital gain on the sales price of the house taxed based on the value of the dollar when the house is bought and the value of the dollar when the house is sold, but the FX gain on the mortgage value also appears to be taxed. FX losses are not deductible. So it appears that unless you pay off your mortgage, you will could also face a tax on the payoff of the mortgage if your local currency is not valued the same as it was when you bought the house.”
Very interesting comment. We all know that US tax liability is computed in US dollars. We also know that exchange rates can play in rule in creating profits and losses. It would be interesting for people to comment on their experiences with how changes in exchange rates have created “phantom gains” for them. I think this could be very helpful evidence in working on how to get this whole thing reversed. So, if anybody is reading this, please comment on your experiences.
In addition, the issue of exchange rates and a falling US dollar is extremely important on this issue of expatriation? Why?
As the US dollar falls, almost everybody will become a “covered expatriate”. That two million dollars will seem like nothing.
Obviously this is one more reason why you need to get on with the job, painful as it is, of expatriation and freeing yourself from this nightmare!
@renounce:
“@Foo
If you don’t vote, then you contribute to Obama being re-elected. If
you contribute to Obama being re-elected, then it it likely that the
problems are going to get worse and worse.”
Alternatively,
I may be contributing to Romney getting elected by not voting. Either
way, I don’t see any difference in outcomes. This crap getting dumped
on our heads is a fully bipartisan effort, which I refuse to legitimize
by voting for. I’ve done the “vote for the lesser of two evils” thing
before, and the result has always been a disappointment. No more.
Give
me a concrete proposal to do something about our problems, and you will
get my vote. Otherwise, you won’t. It is that simple.
And
by “concrete proposal,” I DON’T mean “set up a committee to study the
issue.” That is an evasion. None of the laws that have been passed to
make our lives untenable were passed as the result of public commitee
deliberations. They were crafted by a few people who knew what they
wanted, targeted us, wrote up the offending legislative text, and then
found ways to attach it to other bills while nobody was watching. And
those people (Grassley, Schumer, et al.) are still at it.
The
only way this ship is going to get turned around is if someone in the
government takes a principled stand against these weasels, and fights
them at their own game. Craft some legislation that solves some of our
problems (abolish citizenship-based taxation, or make FATCA and PFIC
rules non-applicable to bona fide overseas residents, e.g.), then find a
way to get it passed either on its own merits, or attached to some
other bill.
Until I see someone willing to stand up to
Grassley, Schumer, and all their enablers (Presidents included), I will
not be voting for anyone, period.
Perhaps Tim, or another reader with a background in taxation, correct me if I am wrong about what we could expect from the IRS in treating the PRPP – it seems to me that the PRPP introduced by our federal government looks to have the potential to be particularly toxic – in both Canada AND the US. The US because of the usual ‘foreign trust’ burden, expensive, time consuming and incomprehensible reporting and usual 3520/3520A confiscatory and draconian penalty regime. And subject to FATCA reporting? PLUS, in Canada, a *bad deal (celebrated and eagerly anticipated by the banks and investment plans) due to the lopsided assumption of risk, possible high plan admin costs, with no certainty of reward – yet no say in how the funds are invested. Some provinces are considering making it mandatory for employees to be enrolled in their workplaces if the employer offers this type of plan, although perhaps they would later be able to opt out. Enrolling would probably trigger for those with US taxable status, the ‘foreign trust’ problem, unless somehow these PRPPs were exempted by the US and IRS. Seems unlikely that the US and IRS will exempt them seeing the history of the treatment of RRSPs – at one time deemed a taxable ‘foreign trust’.
For details, see:
* http://openparliament.ca/debates/2012/6/12/alain-giguere-4/
…….”
It is important to
understand how this system is funded. Employees do not get to decide who
administers their retirement savings; the employer decides. Employees
are not the ones who decide the level of investment risk they will
assume or where their money will go. Once again, it is the employer who
decides.
Ironically, the employer
that decides the level of risk and chooses the administrator is in a
conflict of interest with regard to that administrator. What happens
when the employer does business with the same financial institutions
with which it negotiates its line of credit, its insurance and all the
other financial products a business might need? It is a blatant conflict
of interest.
On top of that, in this
bill the government is saying that employers, the business owners, are
not responsible for their actions under the law. If they choose the
worst administrator or the highest level of risk, this legislation
exonerates them. Legal exoneration is included in Bill C-25.
This is unbelievable. People are either strongly for or strongly
against these corporate welfare bums. The Conservatives strongly support
them, and Bill C-25 is proof of that.”
“The government has
decided that no matter what the returns on the investments—be they
negative or positive—the financial institution will be the first to
benefit. Imagine that. The institution will charge administrative fees
regardless of the returns. Then it will collect its profit margin
because it is a private company. Then, depending on the level of risk,
it will collect bonuses. Inflation is also a factor. If the return is 3%
and inflation is 2%, then the net return is 1%. Unfortunately, people
will not even get that 1% because they are the very last in line after
administrative fees, bonuses and rates of return. Basically, this means
that no matter what the situation, the administrators will be the ones
making money. Whether the market is up or down, they will make money.
Paradoxically, if the deductions are too high, the people investing in the pooled registered pension plans proposed in Bill C-25
will experience consistently negative returns. A person who invests
$600 a year for 30 years can expect to withdraw at least $18,000, right?
Not so. With this wonderful plan, he might have much less than that. He
is not even guaranteed to get back the money he put in. This is not a
pension plan or even a lottery. It is outright theft.
The Conservatives have
decided to put the financial future of retirees in the hands of people
whose primary interest is to earn the maximum amount of money, not to
generate a return or guarantee a pension, but to earn money now, right
away.”………
*@Badger, alas, the law of unintended consequences…what a MESS
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I posted this elsewhere, but not sure that it will get read there, and it involves crossborder financial planning in Canada – and TFSAs, so here it is:
http://business.financialpost.com/2012/10/19/cross-border-issues-complicate-financial-planning/ Family Finance ‘Cross-border issues complicate financial planning‘
Andrew Allentuck | Oct 19, 2012 10:32 AM ET | Last Updated: Oct 19, 2012 5:53 PM ET
First time I’ve ever even seen an article that even hints at the barriers to a normal financial life in Canada if a family contains a ‘US taxable person’.