cross-posted from citizenshipsolutions.ca
Part B – The Combined FATCA/CRS Letter
This letter is particularly worrisome for Canadian residents (whether Canadian citizens or not) who were either born in the United States or are (otherwise) U.S. citizens or U.S. permanent residents (AKA Green Card Holders). Could this mean that they would be required to apply for a U.S. Social Security number?
What follows is a sample letter…
Dear Valued Customer:
We appreciate our relationship with you and we are committed to informing you about matters that affect you. We are writing today to inform you that changes have been made to the Canadian Income Tax Act (Part XVIII and Part XXIX), requiring TD to provide information about customers who have a tax residence in other countries to the Canada Revenue Agency (CRA). The CRA may then share information with other countries through existing provisions and safeguards under the Tax Convention.
To comply with this legislation, we have reviewed our records (eg. address) in order to identify customers who may be residents of other countries for tax purposes.”
Part C – “Tax Residency 101”: It’s about where you should be paying your taxes
In a #FATCA and #CRS world – the most interesting thing about a person is where has @taxresidency ESPECIALLY when he has > one. @Expatriationlaw interview with CPA @1040Abroad: ‘Episode 1 of: "A Tax Residency Primer"- Tax, Residency and #TaxResidency" https://t.co/6swfQmJO7i
— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) August 8, 2018
Some Question and Answer …
Q. I don’t want to listen to the above interview. What is meant by “tax residence” or “tax residency”?
A. At the risk of oversimplification, your “tax residence” AKA country of “tax residency” is usually (with the exception of the United States which also imposes taxation based on citizenship) the country where you live or have another type of connection. It’s the country that has the right to impose taxation on your “worldwide income” BECAUSE you live in or have a sufficient other connection to the country. For example, if you live in Canada, sleep in Canada, work in Canada, raise your family in Canada, have a Canadian drivers license in Canada, etc. – you are a ““tax resident” of Canada“. For most people, “tax residency” is a “common sense” concept. It’s like this:
“I am subject to taxation on my “worldwide income”* in Canada because I live in Canada”.
“I am subject to taxation on my “worldwide income”* in ________ because I live in _______”
(*Most countries impose taxation on the “worldwide income” of their “tax residents”. A small number of countries impose “territorial taxation” on their “tax residents”. “Territorial taxation” is where a country imposes tax on ONLY the income sourced in the country of residence.)
Q. Does this mean that ONLY my country of “tax residence” can impose taxation on me?
A. No. Every country has the primary right to impose taxation on income sourced in that country. Maybe you receive income which is “sourced” in another country. Maybe you own property in another country. In these cases you might be subject to tax in the countries where you own the property or receive the income. In general, if you are not a “tax resident”, you would be taxed in another country ONLY on the income sourced in that other country. On the other hand, your country of “tax residence” would impose taxation on ALL of your income wherever its source.
Q. Is it possible that I could actually meet the conditions to be a “tax resident” of more than one country?
A. Absolutely yes! Different countries have different rules for determining tax residency. There is no reason why a person could not meet the definition of “tax resident” in more than one country. In fact, it is very possible that one could be a “tax resident” of more than country. (This is the reason for the existence of “tax treaty tie breaker” provisions.)
Q. If I meet the conditions to be a “tax resident” of more than one country, will I really be treated as a “tax resident” of more than one country?
A. Yes. Although it is possible to meet the definition of “tax resident” for more than one country, most countries have tax treaties that (1) identify those “instances” where an individual is a “tax resident” of more than country and (2) use the tax treaty to deem the individual to be a “tax resident” of only one country. It wouldn’t be fair for an individual to be treated as a “tax resident” of more than one country, would it? (U.S. citizens living outside the United States are always tax residents of the United States even if they are also “tax residents” of another country.)
Q. What do you mean by “unless you are a U.S. citizen”? As a “U.S. citizen” am I a “tax resident of more than one country?
In a #FATCA and #CRS world: There's "residence", "#taxresidence" and "@taxresidency American style (where you reside in the USA even if you don't) – @1040Abroad and @Expatriationlaw: ‘Episode 2: "A Tax Residency Primer"- Tax, Residency and #TaxResidency": https://t.co/n2xjvHDhqy
— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) August 8, 2018
A. Well, if you are a “U.S. citizen” (or Green Card holder) you are ALWAYS a “tax resident” of the United States. It doesn’t matter whether you actually live there or not. As long as you are a U.S. citizen, you are subject to the full force of the Internal Revenue Code. This includes a variety of “Taxes, Forms and Penalties”. It includes a number of very specific reporting requirements including (but not limited to): FBAR, Form 8938, Form 3520 and Form 5471. For this reason, it is very difficult for a U.S. citizen to move from the United States, become a “tax resident” of that other country and engage in effective financial and retirement planning. See for example:
The biggest cost of being a “dual Canada/U.S. tax filer” is the “lost opportunity” available to pure Canadians
“How To Live Outside The United States In An FBAR And FATCA World”
Q. I understand that as a “U.S. citizen” I am always a “tax resident” of the United States. But, if I move to Canada, does that mean that I am a “tax resident” of Canada too?
A. Absolutely YES!!! You are an American. “To whom much is given, much is expected.” U.S. citizens living in Canada (who meet the definitions of Canadian “tax residency”) are ALSO “tax residents” of Canada (or any other country where they may live). In other words, U.S. citizens living abroad are generally “tax residents” of at least two countries! How cool is that?
We live in New Zealand. My wife renounced US Citizenship about 5 years ago. She still receives the odd bank letter or request that asks for “Country of Birth”, presumably because it is one of the key identification indicators under CRS. She finds this irksome because, even having renounced, she still does not want to identify as having been born in the US and potentially having to deal with providing CLN information, or risk the possibility of her data being sent to the US regardless.
There doesn’t seem to be any law with adverse consequences if an individual does not answer this question truthfully. She generally answers “New Zealand”, “Canada” or “UK” to this invasive question even though she is an honest person and does not like the idea of providing false information on a bank request.
What do others with US Birthplace do in this situation?
I send a copy of my CLN.
You could always write “Antarctica.” Or more plausibly, “At sea.”
A CRA FAQ states (or did at one time at least):
I hope the CRA still feels that way. Interestingly, Eric once calculated that half a million GC holders since 2005 who left the USA did not officially cancel their cards. Before 2005 there would have been many, many more since most would not have been aware of form I-407 and that the USA has a unique tax enslavement system.
1) Is there any equivalent guidance / view for any country outside North America?
2) Thank you very much for this impressive and valuable set of postings.
I reliquished last year and sincerely sympathise with your wife’s feelings. I, too, find it bothersome that my US birthplace will continually trigger tax residency indicia and force me to provide my CLN information. I also wish I could completely avoid ever identifying as having been born in the US, however, it doesn’t appear feasible in today’s AEOI world. I suppose I simply have to live with the risk that my data gets sent to the US, irregardless of my true tax residency or by way of some stupid FI’s CYA policy. If I ever find out that one of my banks sends anything to the US incorrectly, they better be prepared to have the s**t sued out of them! It is heinous to think I paid thousands to free myself of the dragnet only to potentially be tossed carelessly back into the path of the net again. So, yes, I totally understand your wife’s relunctance to share her “indicia” and have to deal with the repercussions.
Thanks for your response. One of the worst things about this FATCA/CRS nonsense is that there is no easy way to know if a mistake was made and data sent. We take the opposite position in that providing a false Country of Birth is morally justified due to the reason for the request. FIs are required to collect it and I guess they are supposed to validate it but do they care if it is correct? I doubt it. They also wouldn’t care if they sent your data to the IRS when they shouldn’t have.
Every time I see that question on a FI form it makes my blood boil.