UPDATE Robert Wood has posted this today here. This is an excellent opportunity for us to bring this to public attention. Please go over and comment!
“The Business of Life” http://t.co/Dcl7rlqzyj
— U.S. Expat Canada (@USExpatCanada) September 10, 2014
Some Brockers who have been around a long time have likely seen this before. However, given the recent events such as greater focus on “Accidental Americans” (Ginny & Gwen as plaintiffs on the ADCS-ADSC lawsuit), and the attempt to get the IRS to relax the rules against the same, (ADCS-ADSC retention of Mr. Jim Butera, Partner, Washington D.C office of Jones Walker LLP, to explore legal options) this letter is especially compelling.
This message is written by a Canadian businessman to his son at the time of his high school graduation. It is a perfect example of what all parents with dual US/CDN children should be aware of and discussing with their kids before they begin to acquire money and assets. It was originally posted here and is re-posted with permission.
The Isaac Brock Society recently featured a discussion about how and when to advise young people about the potential problems of U.S. citizenship and whether they should consider renouncing U.S. citizenship. As parents, teachers, mentors and friends we should pass on to our young people the benefits of our (in varying degrees) knowledge, wisdom and experience. We do this because we want to equip them with the skills they need to make the best life decisions that they can.
The books: “Letters of A Businessman to His Son” and “Letters of A Businessman to His Daughter“, by G. Kingsley Ward, are wonderful examples of this principle. They are chock full of practical advice and thoughts on – the only business that really matters – “The Business of Life”.
I have been inspired by Mr. Ward. Here is the letter (with many factual modifications to protect the young person in question) that I wrote on the occasion of that young person’s High School graduation.
“Letter of a Canadian Businessman to his Dual U.S./Canada Citizen son on the Occasion of his High School Graduation”
Word cannot express how proud I was as I watched you walk on the stage and receive your graduation diploma. Tears came to my eyes then and tears come to my eyes now as I write you this letter. Seems like just yesterday, that I walked with you to your first day of school. I know you were frightened that day. But, I will now confess you to you, that I was even more frightened. I knew that you were at the beginning of a long journey to prepare yourself for a life. These years have been a great adventure for you and for me. We have had our ups. We have had our downs. But, today, your graduation, commemorates part of your success (your dad wants to think that part of it is “our” success). Today marks the end of one chapter of your life and the beginning of a new chapter.
This new chapter of your life will begin this fall when you start the Commerce program at Queen’s. Congratulations on that 95% average that made you one of the best students in Canada. Queen’s commerce is open to only the best students in Canada. And you have certainly proven yourself to be in that group. A commerce degree from Queen’s will give you:
– excellent mentoring in morality and ethics
– excellent career opportunities
– excellent opportunities for graduate school
– excellent networking opportunities
– excellent opportunities to develop long term personal relationships
So, the world is truly your oyster, or to take a line from an old movie:
“Seize the day!!”
Or as Spock from the Original Star Trek (sorry, but I still think the original is the best) series would say:
“Go forth and prosper”
Last night, was a night of celebration. It was also a night of projecting into the future. I couldn’t help but to notice everybody talking about careers. What would people do? Where would they go? A career will contribute to your life. But, it is not your life. A career does NOT a life make. I can honestly say, particularly at this moment, when I take so much pride in your achievements, and feel so much love for you, and thank you for being a fine son, that:
It will be your family, friends, and other personal relationships that will be most important to you.
And yes, your career will contribute to those things. But, you are more than your career. Never confuse having a career with having a life!
On that note, I would like you to consider two things that could have a profound impact on your future. These are: (1) “good citizenship” and (2) “your citizenship”.
On the question of “good citizenship”, I remind you that:
“To whom much has been given, much is to be expected.”
You have been given much (and earned much). People like you, have the obligation to contribute to the “well being” of our society. This can be done in many ways. But, remember not everybody has had the opportunities that you have had, and will have. There are many who have not had the benefits of your good fortune. Many of those who have had your good fortune, have not taken advantage of that good fortune. Through a combination of “nature” and “nurture” you find yourself in a strong position. That is your reality. Some are in a very weak position.
As a former U.S. president said:
“A country that cannot care for it’s weakest citizens, cannot protect its most powerful citizens”.
You have a moral obligation to bring your intellect, vision, enthusiasm, effectiveness and generosity to your career, your family (present and future) and your community. You have an obligation to be help our “weakest citizens”. Helping others can be one of the greatest values of your education.
“Good citizenship” includes a consideration of how your behavior impacts your community. “Good citizenship” also includes a consideration of how your behavior impacts on you present and future family.
Now, I would like to reflect with you on “Your Citizenship”.
Yes, you are a Canadian. Yes you have lived almost your whole life in Canada. You can and should take pride in being a citizen in one of the greatest countries in the world. But, you may recall that you were born in the U.S. This great event happened when I was doing my MBA at Stanford. (Actually, you probably don’t recall being born, but it did happen in Palo Alto, California.) What does being born in the U.S. mean? It means that the U.S. considers you to be a U.S. citizen. You lived in the U.S. until you were 4. My career brought our family back to Canada where we have lived ever since. In fact, I suspect that you have no memory of those early years of your life. Therefore, it is possible that you don’t think of yourself as being a U.S. citizen at all. You are legally a “dual citizen” of Canada and the U.S.
Is your dual citizenship a good thing or a bad thing? Given that you have lived your whole life in Canada, is your U.S. citizenship a “benefit” or is it a “burden”?
The time has come to consider whether you want to go forth in life as only a Canadian citizen or as a dual Canada/U.S. citizen. This is a decision that you will want to consider carefully, and when you are ready, you must make that decision. You do NOT need to make this decision today or next week. But, I urge you to make this decision before finishing your degree at Queen’s. I will explain why in this letter.
U.S. citizenship is the source of opportunity, liability and disability.
You are probably wondering what I mean. As the great lawyer, Gerry Spence, once said:
“Let me explain you!”
Opportunity/ Benefits of U.S. citizenship:
You have the right to live in and work in the the U.S. This may be a benefit to you. This is something that most of your classmates at Queen’s will not have. You may want to retain U.S. citizenship, in order to keep that option open. But, as you will learn in your commerce program, options are never free. They come with associated costs. In the case of U.S. citizenship it comes with certain liabilities and certain disabilities. It is important that you understand the liabilities and disabilities of U.S. citizenship. You may or may not, see these “circumstances” as being costs. If you do view them as costs, then you must ask whether the option of retaining U.S. citizenship is worth those costs of the liabilities and disabilities.
Liabilities of U.S. citizenship – Burdens of U.S. citizenship:
You have the obligations to:
– register for the military service (“the draft”);
– pay taxes to the U.S. and pay those taxes under the same rules that apply to U.S. residents;
– file U.S. tax returns every year regardless of where you live;
– file numerous “information returns” which may include the private and financial information of others.
– pay estate and gift taxes
Now, you may ask “so what?” Let me try to explain to you why this might matter in your life. But, once again, these are just some thoughts. I leave it to you to decide whether these are considerations that are significant to you.
Registration for the Draft:
Other than the obligation, this is not likely to mean much. Your chances of being called for military service are slim.
Filing Tax Returns Every Year:
You will have to file U.S. tax returns regardless of where you life in the world. The U.S. is the only country in the world to tax its citizens regardless of where they live. This can be very financially (thousands of dollars every year) and emotionally (lots of worry and time) expensive. Although, you will get some relief from double taxation, the theory is that U.S. citizens are taxed twice – both in their country of residence and in the U.S. Furthermore, it is getting more and more difficult to find professional help that is competent in this area.
Being Taxed According To The Same Rules That U.S. residents are taxed:
It’s one thing to be subject to U.S. tax. But, it’s quite another to be “taxed” in exactly the same way that U.S. residents are taxed. Let me explain. The rules for calculating taxable income are different in the U.S. than they are in Canada. The U.S. taxes different things in different ways. There are numerous instances in which the U.S. taxes income, that has not even been earned or received. Furthermore, a number of ways of saving for retirement, that are sanctioned and encouraged in Canada, are punished under the laws of the United States. This can make normal financial planning very difficult, very expensive and in some ways, almost impossible. In this respect, U.S. citizenship (especially for those who do not live in the U.S.) is a clear disability. But, more on the “disability” issue later.
Filing Information Returns:
In addition to the basic tax returns, the U.S. requires that a number of additional information forms must filed. These forms include lots of personal financial information about you and about your future family. Basically, any bank or financial account that you have signing authority over (including joint accounts) are required to be reported to the IRS. This could make a future wife or future business partners (who are not U.S. citizens) very uncomfortable and subject her to great unfairness. To put it another way:
There is NO financial privacy in the United States and U.S. citizens have no financial privacy whatsoever!!
I might say that the U.S. is very serious about receiving all information about your assets. The fines for non-compliance can be life altering. During 2011, many U.S. citizens living outside the United States suffered mightily after learning about these requirements. These information returns (forms) are not a small job. They can take hours and hours to complete at great expense. Furthermore, they cannot be completed with the assistance of a qualified accountant or lawyer.
Disabilities of U.S. citizenship: Let’s consider these from the perspective of career, financial planning, family and community.
Let’s start with family:
Your mother and you children have been the greatest source of happiness, purpose and security in my life. I am sure that you will want a family of your own. It probably won’t be long before you meet a fine woman, with whom you wish to embark on that great adventure of life. Even by the standards of your generation, you are likely to embark on that adventure in the form of marriage. Since you do not live in the U.S. the chances are high that your future wife will not be a U.S. citizen.
Now, the U.S. requires its citizens to require various information returns with the IRS. If you have a joint bank account with her (which is common) you will be required to report much of her financial information to the IRS. I assure you that she will not be happy about this. Furthermore, should you predecease your wife, she will NOT be able to automatically receive all of the family estate in the same way that she could if she were a U.S. citizen. Is this fair to her?
Now, I am not completely sure of this, but the fact that you were born in the U.S., and are a U.S. citizen, might make your children U.S. citizens. Is this an opportunity for them or is it a problem? Only you can decide. But remember, that unless they were to live in the U.S., (assuming they are U.S. citizens), they will be subject to all the legal opportunities, liabilities and disabilities, that I am describing.
Future Business Relationships:
You are going to make some great connections at Queen’s. Your next four years will set the stage for long term business opportunities. These include partnerships and opportunities to own shares in Canadian companies. As a U.S. citizen you will be required to disclose information about these partnerships and corporations to the IRS. . For this reason, (quite understandably) many non-U.S. citizens are unwilling to enter business relationships with U.S. citizens.
Future Employment Opportunities:
Companies outside the U.S. are becoming increasingly reluctant to employ U.S. citizens. The reasons include the high costs associated with U.S. taxation and the danger that the U.S. employee, will be required by U.S. law to disclose financial data of a non-U.S. company to the IRS. Once again, this will include the obligation to report the private financial information of non-U.S. citizens to the IRS.
Possible inability to access normal financial accounts if you live outside the U.S.:
Yes, this is becoming problem. U.S. laws impose high financial and legal costs on non-U.S. banks who have U.S. citizen customers. For example, there are countries in Europe that will no longer allow U.S. citizens to have bank accounts or receive mortgage financing. It is unclear what the Canadian situation will be.
Enough on the possible problems. I remind you that U.S. citizenship does carry some opportunities. You must consider whether U.S. provides you with opportunities that outweigh those problems.
To Renounce U.S. Citizenship or to Retain U.S. Citizenship – This is the decision that you must make:
Let’s explore what each option means.
Remain A U.S. Citizen – and assume the liabilities and disabilities
Now I hate to repeat myself but:
You are subject to all of the requirements I outlined. You will be disabled from saving and investing for retirement in the same way that other Canadians can.
Examples of some “disabilities” include:
– you will not be able to invest in many non-U.S. investments;
– you will not be able to use a business corporation to hold investments;
– you will not be able to invest in a principal residence tax-free the way that others can
– you will be subject to the U.S. estate and gift taxes (making certain aspects of your life difficult)
– your (I assume) non-U.S. wife will be at a great financial disadvantage should she become a widow (is this fair to her)?
Renouncing Your U.S. Citizenship – freeing yourself and future families of the liabilities and disabilities of U.S. citizenship:
Should you decide to renounce your U.S .citizenship, you should realize the following:
U.S. citizens who have a net worth of two million dollars or more must pay the U.S. government an “Exit Tax”, should they renounce. This can be very very expensive. For those subject to the “Exit Tax” the financial penalty can so great that they feel trapped and unhappily remain a U.S citizen. At this stage in your life, you might think that a net worth of two million dollars is a lot of money. The truth is that is is not. Furthermore, (given the realities of inflation), you will are likely to achieve that level of net worth quite quickly. Our Toronto home, where you sleep every night, is probably worth two million dollars.
Therefore, if you decide to renounce your U.S. citizenship, you should do it now rather than later!
This decision does not have to be made today or tomorrow, but should be made by the time you graduate from Queen’s!
I began this letter inviting you to think about “Good citizenship” and “Your citizenship”. “Good citizenship” includes a consideration of how your behavior affects your family, friends and community. Is it possible that “Your citizenship” might affect your obligations of “Good citizenship” (particularly in relation to family)?
You are headed towards a great future with loads of opportunity. Your U.S. citizenship is an “accident of birth”. I encourage you to deal with this issue NO LATER than than the end of your four years at Queen’s.
I am proud of you, love you and wish the best for you!
Seize the day!
Ann #1. ~thumbs up~.
Let’s stick it to them. The US needs to learn that the US border stops at the 49th parallel. As far as Alaska is concerned, just so long as they stay on THEIR side of the border; fine well and good.
i took out canadian citizenship in 1980.
i have no need nor intention of ever crossing the border again.
i refuse to give the americans any more information about who i am or where i may live
uncle sam can come find me if he really wants me
@Anne#1, it sounds like you have considered the situation and made a decision that is appropriate based on your facts and circumstances.
It sounds like you are also not going to apply for a CLN, which remains an optional item outside the USA. Though if you wish to travel or transit the USA on a Passport with a US place of birth then you may be refused entry without a CLN.
Having said that in the post FATCA world, to help you and your employer you need to prepare a robust file documenting your relinquishment with documents from that date. You will also need copies of 8 US Code as it existed on that.
You might also want to have a Statutory Decleration or Sworn Affadavit prepared prepared that states how you voluntarily and intentionally relinquished, that it was performed under what section of US Law and sign said document before a lawyer/notary.
You may want to give your employer for your human resources file, all of your information and a sworn affadavit that you are not a US Citizen.
You may even want to write your MP of all this explaining the hoops you have jumped through just to have further documents.
Anne #1 There is, so far, NO evidence form this statement. ” Though if you wish to travel or transit the USA on a Passport with a US place of birth then you may be refused entry without a CLN.”
I just thought of something. Let’s say you were born in Toronto to parents who were born in Halifax and Saint John. That PROVES you’re not a U.S. person, right? WRONG! How do they know you didn’t get a resident alien card? What if your mother became a naturalized U.S. citizen? What if she was born to a U.S. citizen parent and was a U.S. citizen at birth, and lived in USA enough years to infect you with the disease? It is impossible for a business to be sure that you are not a U.S. person, and the penalties they can incur are outrageous. Checking your birth certificate is not enough and even if it was, businesses would rather hire somebody with a clean birth certificate than somebody who might be a U.S. person.
@Tom, I share your concerns. It wouldn’t surprise me if banks and other financial institutions start insisting on copies of the filed 8854, 5 years US tax return transcripts, and six years FBARs in addition to a CLN. They may also demand proof that parents weren’t US citizens. But I’d like to think it won’t get as ridiculous as that, especially in higher tax countries such as Canada or in the EU….
At least one good thing about all this is that if things do get that draconian, more people will pushback and hopefully defeat this whole thing.
It wouldn’t surprise me if the banks required you to have your CLN notarized at a US consulate, either. Why should any bank employee be expected to authenticate another country’s documents?
“Are you or have you ever been a U.S. citizen?”
In the world of FATCA and FBAR, U.S. citizenship is a a brutal accusation.
Once accused, it is up to YOU to disprove. If you can’t disprove it, you die.
Kind of like the “Witch Hunts”, but that is also a part of American history.
It’s the American way …
Since there is never any acknowledgement that the IRS has received the returns (unless there is a problem), I don’t see how providing any of those items could possibly constitute proof.
Proving a negative is never easy — absence of evidence is not evidence of absence. In a recent blog post, Peter Spiro wondered if the US should issue ‘anti-passports’ to certify non-US citizenship. His conclusion: “That an anti-passport is even plausible as a thought experiment shows how bad FATCA really is.”
Of course, you can bet that if ever the US issues, or is forced to issue, ‘anti-passports’, they will come with a hefty ‘processing fee’ that fully captures the intensive process of raking through an individual’s entire personal and family history to make certain that there is no remaining shred whatsoever of a connection to the US. And likely take a year or more to obtain.
Failure to reciprocate means an IGA is void, at least the “agreement” part is, if not the enabling legislation. And to reciprocate requires another Act of Congress, which never approved the IGA’s.
For those who don’t know it, Obama’s party has control of the U.S. Senate but not the U.S. House. Now, an Act of Congress would have to get through both houses, which is way more difficult given that a House committee chair (always of the majority party in the House) can refuse to schedule a hearing to get a bill passed. Republicans control the legislative process, not just compose a majority of the members.
Now, a treaty, OTOH, requires approval of the President and 2/3 of the Senate but no involvement from the House. Obama’s party, the Democrats, have a majority but not the 2/3 needed for a treaty.
In any case, the rights of Canadian citizens in Canada should not depend on USA politics. If Congress passes a law declaring everybody born on 29 February on a leap year is a USA citizen, that does not entitle Congress to take any of the money such persons earned.
@Tricia, copies of transcripts for earlier years can be ordered from the IRS website. I know that they received my final tax return because I received a partial refund; however, I agree that I’ll never know for sure if the IRS has actually recorded that I also filed 8854 to safely exit their system because they never officially acknowledge receipt of it.
We’ll know for sure we living in an Orwellian world when we are forced to obtain ‘anti-US passports’ to prove our cleanliness, ugh.
Thanks for pointing that out, I didn’t know. I know my final 1040’s were ok as I paid a bit of tax and received confirmation that it was clear. Ditto for 3520’s. Of course nothing for FUBAR and I feel pretty certain my name appeared on the Name and Shame List due to filing the 8854. But then there’s always SOL!!!!!
Yes, @Tricia, I understand that it will be at least three if not six years before all my SOLs finally close. It’s generally three years but they can be extended indefinitely if certain information forms haven’t been filled out, such as 3520 for foreign trusts or 8621 for foreign mutual funds.
It’s so Byzantine that they could use any excuse to keep someone in bondage which is why I don’t believe that any of us can ever enjoy complete certainty.
According to the criteria laid out by many FFIs, one can inadvertently become a “US person” from one day to the next, so not even an anti-passport would help. The obvious solution to all this is, of course, that everyone files a complete disclosure of all assets and as well as tax declarations to the IRS on worldwide income and they decide if one is to be classified a “US person”. After all, as politicians around the world never tire of saying: the USA have the right to tax “US persons” as they see fit. And who could possibly be better suited to interpret the criteria for being a “US person” than the IRS?
The US could license individuals as “non-USPersons” for 5 or 10 year durations.
@Notamused, I’ve toyed with the idea of continuing to file 1040-NR returns, even with zeros, to emphasize that I’m no longer a ‘US Person’ who needs to file 1040s. It would be dead simple.
@Notamused, what concerns me is how the US could extend its definition of ‘US Person’ to include many former citizens who believed they were in the all-clear.
Be careful not to be caught in the trap of “filing a frivolous return.” which violates Internal Revenue Code. Check with a lawyer.
For the record, under the US immigration laws, a US citizen living abroad can only pass their US citizenship to their own children, IF that person (eg the dual citizen son of this blog post) lived in the USA for at least 5 years after the age of 14. Since this boy has lived in Canada since the age of 4, his future children are not and will not be eligible to become US citizens. Just thought you might want to know.
as per comment above, see;
“Birth Abroad to One Citizen and One Alien Parent in Wedlock
A child born abroad to one U.S. citizen parent and one alien parent acquires U.S. citizenship at birth under Section 301(g) of the INA provided the U.S. citizen parent was physically present in the United States or one of its outlying possessions for the time period required by the law applicable at the time of the child’s birth. (For birth on or after November 14, 1986, a period of five years physical presence, two after the age of fourteen, is required. For birth between December 24, 1952 and November 13, 1986, a period of ten years, five after the age of fourteen, is required for physical presence in the United States or one of its outlying possessions to transmit U.S. citizenship to the child.) The U.S. citizen parent must be the genetic or the gestational parent and the legal parent of the child under local law at the time and place of the child’s birth to transmit U.S. citizenship”
For more details and scenarios, consult link above.