UPDATE: I have received the following reply from my MP, Michelle Rempel’s constituency office:
On behalf of Michelle Rempel, MP, Calgary Centre-North, I would like to acknowledge receipt of your email and thank you for taking the time to share your concerns with her on this important issue. Please be assured that your comments have been carefully reviewed and recorded for the Member’s information. In addition, I will advise the Minister’s Office of our response and we look forward to his official response.
William, I appreciate your quick acknowledgement this time of my latest email … I hope that you are referring to a response to me from Michelle Rempel that you will relay to the Minister of Finance. I will very much appreciate it if this discrimination of RDSP Holders and Beneficiaries who are also US persons is given priority treatment – it is an urgent matter with the tax season upon us and the IRS breathing down the necks of US persons in Canada.
That there is not an exemption for the RDSP is the most abhorrent, and there is still the matter of non-exemption for TFSAs, RESPs and that payments we receive in retirement from our RRIFs and work pensions will be taxable to the US – it should be only to Canada / we did not earn our money in the US. I feel there are so many affected that do not yet know about the consequences of ignoring “their responsibilities to the USA,” not for taxes owed but for the endless forms to file or resultant penalties for not doing so or for making a mistake in interpretation of IRS instructions. The only reply to questions to the IRS is to consult a US tax accountant or a US tax lawyer with our questions. The emotional and financial cost of staying in compliance with the US is exorbitant for the ordinary Canadian US person.I have an appointment with the Calgary US Consulate on January 25th. The attached is a statement I will give to them in my quest for relinquishment (again) or renouncement of my US citizenship. How to renounce that of my son who was born in Canada and raised as a Canadian, never having been registered with the US or having lived in the US, is another matter. I am told that even with a court order, Guardianship/Trusteeship, I cannot renounce on his behalf; even if he does not have the perceptual capacity to understand the consequences of any decision he would make on his citizenship. It would all be very upsetting and confusing for him, something totally pointless and without meaning. I do not want, either, for him to be a SECOND-CLASS Canadian. It is really a catch-22.
I sent this yesterday and wish to copy it to anyone here on the Isaac Brock Society blog. I will update on any response I, hopefully, receive. Other letters to Finance Minister Flaherty, MP Rempel and US Ambassador to Canada Jacobson have gone unanswered. I really think we deserve to be part of the conversation.
Finance Minister James Flaherty
Member of Parliament Michelle Rempel
US Ambassador to Canada David Jacobson
Canadian Ambassador to the USA Gary Doer
Dear Government Representatives,
The Canadian disabled population who happen to be dual Canadian/US citizens, many of them “Accidental Americans” who have lived in Canada all or most of their lives, are being very much discriminated against by the IRS of the USA. Holders and Beneficiaries of Registered Disability Savings Plans, until this is addressed in the Canada / US Tax Treaty*, last revised on September 21, 2007, http://www.fin.gc.ca/treaties-conventions/USA_1-eng.asp are not getting full benefit of these plans, which are in many cases used as pension plans for the better futures of disabled Canadians.
* Protocol Amending the Convention Between Canada and the United States of America With Respect to Taxes on Income and on Capital Done at Washington on 26 September 1980, as Amended by the Protocols Done on 14 June 1983, 28 March 1984, 17 March 1995 and 29 July 1997
This electronic version of the Canada-United States Protocol signed on September 21, 2007, is provided for convenience of reference only and has no official sanction.
Can you, Minister Flaherty, Member of Parliament Rempel, US Ambassador to Canada David Jacobson and Canadian Ambassador to the USA Gary Doer, advise what you are doing to make this issue a priority or advise me if the information below is incorrect?
As far as we know, the IRS will most likely consider RDSP’s a foreign trust requiring the standard reporting requirements (i.e. IRS form 3520/3520A and quite likely IRS form TD F 90-22.1 under the FBAR requirements) for U.S. citizens and residents that are RDSP plan holders. Unlike RRSP’s/RRIF’s held by U.S. citizens that are afforded a tax deferral under Article XVIII(7) of the Treaty, RDSP’s are not yet eligible plans for such tax deferrals for U.S. citizens or residents. As a result, RDSP plan holders and beneficiaries that are U.S. citizens or residents will not benefit from the tax deferral currently enjoyed by Canadian RDSP plan holders.More importantly, the U.S. reporting requirement in itself may make it too difficult for U.S. citizens to be plan holders or beneficiaries of RDSP’s. Adding the RDSP to the agenda for Canada-U.S. Income Tax Convention discussions is critical for RDSP beneficiaries who are American citizens.
It is more than unfortunate, in fact it is immoral, if this is not a priority for the Canadian Government to address with the USA as treatment of the RDSP by the IRS makes this vulnerable population, that happen to be US / Canadian dual citizens, SECOND-CLASS CANADIANS. They should receive, as other disabled Canadians, full benefit of the Registered Disability Savings Plan.
cc: The Isaac Brock Society
wow.. pretty explosive.. even though I’m about 15k kilometres from you guys. It’s very true though.
Well done Carol. This problem wouldn’t exist if the U.S. gave up its backwards policy of taxing non resident citizens as if they were resident Americans. The fact that they can’t see how unfair their policy is just shows how self absorbed the American government is. They need to stop gazing in the mirror at their own reflection and realize that we are not slaves of the states.
America is being parasitical in its relationship with its non resident citizens. They want the power to tax and penalize us but they offer nothing in return. Such behaviour is nothing less than parasitical.
Definitely agree with you. The disabled have a tougher row to hoe than most of us. So double-taxing RDSPs and/or preventing a person from having one because reporting it is too complex and expensive seems particularly abhorrent.
This brought to mind a quote but I didn’t know the source. So, I checked and found that it was said by, interestingly enough, former US Vice President Hubert Humphrey.
“The moral test of Government is how that Government treats those who are in the dawn of life, the children; those who are in the twilight of life, the elderly; and those who are in the shadows of life, the sick, the needy and the handicapped.”
— Hubert Humphrey (1911-1978)
It took ten years to resolve the conflict between the change in Canadian succession taxation (as deemed sale at death with a capital gains charge) and US estate taxation. The only way to resolve this conflict is similarly, by a clause in the next Protocol to the US-Canada Tax Convention.
The saving grace meanwhile is this: a developmentally-challenged person can almost certainly not be charged with a tax crime. If the person has no US assets and more especially if s/he never visits the US then the solution meanwhile is to find a trustee with no US connection and no likelihood of ever visiting the US. That may not be easy, but it’s the kind of practical solution apparently being used by hundreds of thousands, if not millions, of persons within the scope of US tax law (“US persons”) including former green-card holders and others who may not have realized that leaving the US (even if they had no right of return, even if they were deported) may have left them with tax obligations.
The son of a friend, a successful artist, was made to leave the US after ten years there without status. Presumably he is now a “US Person” yet for reasons of mental disability and his legal exclusion from the country I don’t think he’s likely to file US tax returns.