Dear Canadians… Thought you would be interested in seeing this article at Forbes.
Is Stephen Dunn a Canadian, or are your voices being heard across the border?
The United States taxes its citizens and resident aliens on their worldwide income. U.S. law prevents double taxation by allowing a credit for foreign tax on income which is also subject to U.S. income tax. The U.S.-Canada Income Tax Treaty of 1980 provides process by which Canada Revenue will collect…
Read more here.. http://www.forbes.com/sites/stephendunn/2012/03/18/oh-canada-our-home-and-adoped-land/
I’d have more confidence if he could spell ‘expatriate’.
I just read the article and after reading it had to ask myself if f8938 is just a way for the U.S. to get around the unenforceable nature TD 90-22.1 under the Canada/U.S. Tax Treaty? Form 8938 pretty well ask for the same information as is already contained in TD 90.22.1 with the only different questions relating to the time of the opening or closing of the account.
I think that the CRA would be justified in refusing to collect any penalties that are levied as a violation of F8938 just as is the practise with TD 90.22.1. F8938 is just an attempt to put enough of wrinkle on the FBAR forms as to make them enforceable under the Treaty.
That’s the way I see it too. What other explanation for the duplication?
@ JustMe.”Is Stephen Dunn a Canadian, or are your voices being heard across the border?” An American tax lawyer in Michigan, member of Michigan and Missouri bars.
So what does it mean — “An American citizen living and working in Canada typically has Canadian income tax withheld from his wages and remitted to the Canada Revenue Agency (“Canada Revenue”). He files an annual Canadian income tax return to determine the refund due or balance owing. But he does not file U.S. income tax returns. He may have been advised not to file U.S. income tax returns.”
Did I not have to consult with a cross-border tax firm in 2008 and file those back US tax returns that I had not filed since being in Canada (1969) — and did not think I had to file in the first place since in my mind I was a Canadian? The step that started this absurd stressful journey and so much $$ gone — for how many of us.
I just found that out, thanks. He says… “I am not Canadian. But I live across trhe Detroit River from Canada, have clients there, and have been there many times. It is a wonderful country. My wife and I want to take the rail trip through the Canadian Rockies.”
He also says, “I do not understand why Canada entered into the U.S.-Canada Income Tax Treaty of 1980. It seems to benefit primarily the U.S.”
I think that last statement sums up the question any country should have when entering into an agreement with the US.“Why do you do it if the primary benefit is to the US?”
It is mostly a one way street, when it comes to these treaties and who the benefits accrue to. That is why my favorite “farmer John” down here in NZ is opposed to entering a “Free Trade” agreement with the US either. He sees it just that way.
It is like the FATCA 5 nation EU agreement for reciprocity. It is unilateralism in the guise of a treaty of an agreement. I would imagine (suspect) there was some strong arming that went on when the Tax Treaty of 1980 was entered into, and Canada got the lesser of the deal. However, that is all speculation on my part, as I do not know enough about it to really venture an opinion, but that hasn’t stopped me before, so why now? LOL
@justme- You are correct. The U.S. doesn’t enter into any Tax Treaty or any trade agreement as a contract between equals. Also when it is convenient the U.S. always reserves to tiself thhe unstated right to abandon any agreement. I admire any country, like Brazil and Singapore, that is smart enough to not sign a so called Tax Treaty agreement with the U.S. because such agreements are entered into by the U.S. as a way of intruding its own tax system into that of a sovereign country. Witness the way in which Canada must go in supplication to the U.S. in order to get RESP’s, RDSP’s and TFSA’s incorporated as legitmate treaty financial instruments.
If the U.S. were interested in simplicity and justice all that it would have to do would be to adopt territorial taxation or go back to its old practise of not enforcing FBAR’s and annual tax filing obligations on its expats.
Maintaining U.S. citizenship is just too costly because it exposes you unnecessarily to U.S. legislative capriciousness and makes you an unwilling participant in the foreign exchange market.
Signing a tax treaty with the U.S is a bit like signing an agreement with ‘the bully on the street’ that you will give him almost anything he wants, if he will promise not to bully you.
BTW, Forbes Tax Girl is taking on the Non Citizen Spouse issue in her post today…
Taxes from A to Z: N Is For Noncitizen Spouse
BY KELLY PHILLIPS ERB
I would not rely on this article. He seems to be confusing “what people actually do” with what their legal obligations are. (Or at the very least separate the issues.) FBARs are required to be filed whether the CRA will enforce them or not.
Also, I doubt that the fact that “son of FATCA” is authorized under the IRC means that it is enforceable by the CRA. It seems to me that the issue is “what it actually is” and NOT what statute authorizes it.
But, thanks for posting it. Given the authors’ proximity to Canada he may have a wealth of practical knowledge about what actually happens.
Great article from Tax Girl – thanks for pointing it out.
Still doesn’t answer the question as to how a U.S. citizen living outside the U.S. who is married to a non-resident “alien spouse” should file.
It is laughable that the answer to this question is so unclear. A couple of weeks/days ago, there was a long discussion on this blog about how to do this. The problem is that people have to analyze this at all. You would think, if the U.S. wants to use citizenship-based taxation, that it could provide clear instructions, for the only citizens where citizenship-based taxation has any practical consequences (those who live abroad).
The obvious solution is to not marry – get it wrong and there must be some kind of penalty – would guess $10000.
The key thing he forgets to mention is that it is quite clear that CRA will not enforce a US tax debt on a Canadian citizen and the US will not enforce a Canadian tax debt on a US citizen. Again that was quite clear in the recent response I posted from CRA on FBAR.
On my IRS returns I filed as “Married filing separately” and for my spouse’s name I wrote “NRA” for Non-resident alien as recommended by Bev at another forum. All of my returns have been processed and nothing was said about how I filed.
“The obvious solution is to not marry – get it wrong and there must be some kind of penalty – would guess $10,000.”
I have a friend who’s daughter thinks she is in love with this American. I couldn’t help but warn her not to marry him, or if she does, consider the tax consequences if they get their financial lives too mingled. Of course, Love is blind, and I am sure that advice was totally ignored! 🙂 and….Love has captured another tax payer for the IRS! It is certainly a love tax, and probably requires a form, and of course that penalty. Don’t forget the penalty. We make up for all time low effective tax rates by collecting on the penalties. Think the IRS has learned from the Banking industry using those overdraft fees to make billions!
@calgary411 I indeed have been told on several occasions by my local tax authorities here in Europe not to declare any income or capital earned here to the US.
The quote above at the start of the thread by JustMe “U.S. law prevents double taxation by allowing a credit for foreign tax on income which is also subject to U.S. income tax” is irritating, as the foreign tax credit does not prevent double taxation where the foreign income tax is less. As I have said many times this does not take into account the current exchange rate situation, other taxes such as VAT, excise and higher administrative fees in some countries, mandatory social contributions such as health and accident insurance that may not be considered as income taxes, let alone the differences in the cost of living.
Given the structure of the Canadian tax systems, double taxation may probably be avoided by most Canadian residents, but this is not true across the world.
Imagine also people working in countries where there is little or no local income tax collected but very few services. Unfair for those who would still have to pay US income tax while still having to finance the other services. Again, as was pointed out by Petros in http://isaacbrocksociety.com/2012/03/17/a-story-from-ovdi-hell-or-how-to-exact-tribute-from-a-country-without-firing-a-shot/ this tends to rob the country of residence of money that might otherwise be spent in its local economy.
Someone also mentioned currency controls (Venezuela, and there may be other contemporary examples) and I know that the UK, Nigeria, Angola and other countries have had such controls in the past.