This post appeared on the RenounceUScitizenship blog.
Cdn snowbirds who stay too long in US will become #Americansabroad subject to #IRS #FBAR #FATCA and more! https://t.co/rcvpFJqXAD
— U.S. Citizen Abroad (@USCitizenAbroad) November 22, 2013
The article referenced in the above tweet, written by Guelph freelance writer Kira Vermond, is a decent well researched article. It would be good to get an article from her on the citizenship-based taxation, FATCA and the renunciation of U.S. citizenship.
First, the bad news from the American IRS:
The primary problem?
“The tax laws are not lined up with the immigration laws,” says Abby Kassar, vice-president of high-net-worth planning services at RBC Wealth Management in Toronto.
In other words, just because from an immigration standpoint, you’re allowed to stay in the United States for up to eight months, it doesn’t necessarily mean the taxman will turn a blind eye. Just the opposite, Mr. Berg says. In fact, he goes so far as to call the snowbird visa “a trap” and even a “tax bomb” for the unwary because it can automatically turn a Canadian into a U.S. resident, subject to tax on worldwide income.
Second, the bad news from the Canada Revenue Agency:
And don’t forget Canadian departure taxes, which are also based on residency. If you are no longer considered a resident in Canada, you’re deemed to have sold all of your assets and you must pay taxes on your capital gains. In effect, the Canada Revenue Agency treats you as though you’ve died.
“So you get a snowbird visa, you’re fat and happy living down in the U.S. for 240 days – and then you get a knock on the door from the CRA that says, ‘Hey, where’s our money?’ ” Mr. Berg says. “That’s a super nasty surprise.”
You know the saying: if something seems too good to be true, it probably is. I would think there would be very few Canadians interested in take up the US’s generous offer if they are fully educated of Canada’s departure tax trap. Maybe Canada’s in on the scheme.
I predict as many Canadian snowbirds will be in denial of their risks as ‘US Persons’ in Canada of all the other ramifications of FATCA. (Doesn’t apply to me!)
Changing Canadian provincial health care rules to accommodate the US changes in time allowed to stay in the US???? I guess even that could happen. Amazing!
There are probably a thousand sun destination outside the United States and available to Canadians which do not have unreasonable tax expectations on those wishing to stay as tourists. I hope Canadian wake up and realize that the US is no longer friendly to snowbirds.
Calgary homebuyers flock to Palm Springs Buoyant oil and gas industry helping fuel sales
CAVEAT EMPTOR!
Indeed, Marie.
I just sent these:
and
By far the most important issue for Canadian Snowbirds in the past 10 years is the implementation of Phase IV of the “Entry/Exit Initiative” , which goes into effect 07/01/2014.
At that time both Candada and the US will know how many days you’ve been present in either country.
This is a game changer.
http://www.cbsa-asfc.gc.ca/btb-pdf/ebsiip-asfipi-eng.html
Roy
That is interesting. But Phase IV on 07/01/13? It is already happening? According to the link, Phase II only started on June 30, 2013 and there is no mention of III or IV. Maybe you meant 2014?
Oops, yes, Phase IV is 07/01/2014 (not 2013)
Here is a better link to the phases of the program: http://www.cbsa.gc.ca/btb-pdf/es-se-eng.html
The following is how the different phases are described on the link above:
(Phase I) By September 30, 2012: the implementation of a proof of concept to exchange the biographical data of third-country nationals, permanent residents of Canada and lawful permanent residents of the United States, at two to four 2 automated common land border ports of entry;
(Phase II) By June 30, 2013, the implementation of the Entry/Exit Initiative exchanging the data of third-country nationals, permanent residents of Canada and lawful permanent residents of the United States, at all automated common land border ports of entry;
(Phase III) By June 30, 2014, the expansion of the Entry/Exit Initiative to include the exchange of data on all travellers at all automated common land border ports of entry; and
(Phase IV) With respect to air travel, by June 30, 2014, Canada will develop a system, under the Entry/Exit Initiative, to establish exit, similar to that in the United States, under which airlines will be required to submit their passenger manifest information on outbound international flights.
Does Phase IV mean that when I take a flight from, say, Toronto to Jamaica, the US will be aware of it?
@tdott
Worse yet for US citizens, from Toronto to Cuba?
Could FATCA collide with new EU draft banking law?
See link – http://www.europarl.europa.eu/news/en/news-room/content/20131118IPR25552/html/Right-to-basic-bank-account-for-all-backed-by-Economic-Affairs-Committee-MEPs
It means for dual EU/US citizens that banks won’t be able to refuse basic bank accounts if passed. If this is true, the right of access in the EU has been settled. Now the issue of banking data remains for dual nationals. Perhaps there’s hope of a legal carve for legal resident EU/US dual citizens within the EU.
…and that we will be somehow be on a no-fly list if we don’t jump through all the hoops as we would be travelling over the USA on direct flights from Toronto to Jamaica? or Calgary to Panama or Costa Rica? or “fill in the blank”. This would really hit those living in Canada.
@ calgary411
Well there you go. Now when anyone asks me, “Do you have Air Miles?” I can answer, “No, there’s no point. I’m not flying anywhere because of the FATCA no-fly list.”
I appreciate this article by Kira Vermond. Although I don’t personally know any Snowbirds I know someone who does and I passed it along. Has anyone approached Ms. Vermond about writing more on the perils of US tax policy and how it affects anyone the USA deems to have US personhood? I also appreciate the contribution made by Roy Berg, even though the news about the increased border crossing surveillance is not good. I actually accepted years ago that I am “trapped” in Canada. Luckily Canada is a huge country (area wise) so there is more than enough to see here. I’ll just have to use the internet to travel virtually to other countries … until that is not permitted any longer too.
More Privacy Issues at the US Border…
Canadian Woman Refused U.S. Entry Because Of Depression http://www.cbc.ca/news/canada/toronto/canadian-woman-refused-u-s-entry-because-of-depression-1.2444960
@Calgary: I’ve said that anyone who is planning to go to the US and thinks they might be flagged not to buy an expensive cruise that leaves from a US port. Now it appears that there is no way of knowing who will be flagged and who won’t. Very significant this is.
Rob Ford is a blooming idiot for admitting to the world that he’s smoked pot, crack or anything else that’s illegal. That alone could make him inadmissible to the US!
“Currently, simply admitting that you’ve tried marijuana could be enough to get turned away at the U.S. border or permanently banned — a decision left up to the discretion of individual border guards.”
http://www.cbc.ca/news/canada/british-columbia/pot-smokers-warned-think-twice-before-crossing-u-s-border-1.2439211
I’ve found what I think is a simple explanation of Canada’s departure tax:
As this is the end of tax in Canada, the Canada Revenue Agency (CRA) expects to settle up with its residents on departure. According to Canadian tax law, Canadian residents who depart and become US residents for tax purposes are deemed to have disposed of assets at fair market value. This event may give rise to a capital gain. A capital gain triggered by departure is commonly referred to as departure tax, so departure tax is not a new tax: it is actually capital gains tax in disguise.
Upon disposition of an asset, if the fair market value is greater than adjusted cost basis there will be a capital gain: 50 per cent of the gain is added to the taxable income for the year and taxed at the seller’s marginal rate. Capital gains tax is triggered at the earlier of sale, death or departure. So paying tax on departure is simply pre-paying a tax that will ultimately be due. The question is, pay now or pay later?
On understanding departure tax, it is clear why it is critical to analyse assets before the client leaves Canada. As with most tax law there are some exceptions to the rule. Some assets do not give rise to tax upon departure at all. For example, all Canadian real estate is exempt from departure tax, as are registered retirement savings plans (RRSPs) and registered retirement income funds. Examples of assets that are subject to departure tax are all stocks and bonds held outside registered accounts, and shares of private corporations.
Does this mean that a wealthy Canadian will owe millions of dollars to the CRA when giving up Canadian tax residency? Typically, the answer is no. With proper planning, the worst-case scenario is simply a deferment of tax. The CRA will allow departing Canadians to defer the tax by posting security equal to the taxes due. Considering that the CRA does not charge interest on the tax, Canadians who depart and choose to defer the tax are no different to those who are still in Canada. In either situation, no tax is due until sale or death.
While a deferment is typically better than paying tax now, numerous strategies can be used when planning a cross-border move to minimise or eliminate the eventual departure/capital gains tax due.
– See more at: http://www.step.org/canadian-departure-tax-obstacle-or-opportunity#sthash.rjUWz8wy.dpuf
If you go to the link, it shows the various tax brackets.
I am visiting in a Florida retirement town now. There are LOTs of Canadians and Brits here who are operating under all kinds of assumptions of their obligations.
Maybe all of that sunshine has caused willful blindness.
@Mark Twain
Maybe as an icebreaker, you could ask some of these seemingly hapless Canadians and Brits how difficult or intrusive they found the IRS form 8840. If they’ve never heard of it, they’ll probably be in trouble.
Now imagine if you are a snowbird who’s just come to the realization that they’ve for countless years been a US person for tax purposes, and that they’ve neglected to file 8840’s or made treaty elections in a timely fashion. I think it would be easy to predict that most tax professionals they talk to will recommend OVDI as their only recourse. That conveyor belt to oblivion is going to get even more crowded soon.
Alberta snowbirds get extra month of health coverage away from home:
Would it be asking too much for the Alberta Government to also tell these people WHY AND HOW “NOT TO BE CONSIDERED BY THE US IRS A ‘US PERSON'” — you know the same kind of FATCA WARNING STICKER that should appear on all Canadian registered investments for US Persons?
HI , I was just reading about phase 111 implementation on exit/entry for can/Us purposed,
So on , or around July 1, 2014 they will be exchanging exit/entry data,, does anyone know if they will be exchanging on that date, any entry /exit complled before that date, and if so, for how long before??? in other words,, will they also know as of July 1, 2014 when i crossed into the us and reentered to canada say in january 2014? or January 2013 even??? Thanks,
@bren Renu,
As I understand it, prior to the implementation date, each country separately recorded the entrances from the other country. A Canadian crossing the border into the US would have that recorded by the US but returning into Canada, it would be recorded by Canada. Now those two databases will merge and both countries will have the full picture. Prior to that, one country could request that information from the other for reason (and presumably if needed that could still be requested), but with implementation of Phase IV of the “Entry/Exit Initiative” in effect 07/01/2014, it will all be automatic.