Author Archives: calgary411

The two nasty surprises for the NII are as follows:

1. No foreign tax credit for the NII.. this means the 3.8% tax will result in double taxation

2. As drafted, the NII rules will subject RRSP (and other CDN retirement plans) to the new tax:

a. Currently as income is earned in the RRSP; and

b. Upon distribution from the account.

Published on April 4, 2013 in Moodys Tax Advisors Blog:

New US tax law may negatively affect Canadian retirement plans

On April 2, 2013, Roy Berg and James Gifford were in Washington DC to present the Canadian perspective on the proposed regulations under IRC 1411, the provision that implements the 3.8% tax on net investment income that was enacted as part of the US health care overhaul in 2010. The IRS had requested public comments on the proposed regulations issued on December 5, 2012. Moodys submitted a comment articulating a number of our concerns.

…

Two areas of greatest concern are the treatment of Canadian RRSPs and pensions and whether foreign tax credits may be used to offset the NII. Unless the proposed regulations are modified a new 3.8% tax will likely apply to US citizens resident in Canada or Canadians who are resident in the US on the following types of income:

Income generated in Canadian retirement plans (including RRSPs, DPSPs, LIRAs, TFSAs, etc.), even though this income is not taxable under the Canada-US Treaty;
Even if #1 does not apply, distributions from Canadian retirement plans will likely be subject to the tax;
Payments made to retirees under the Canada Pension Plan (“CPP”); and
Recipients of government pensions.

Further, unless there are changes to the proposed regulations, Canadian snow birds that rely on the Treaty to “tie-break” back to Canada may have their net investment income subject to this tax.

Don’t Gamble with Gift Tax Returns

Gifting has been discussed at Isaac Brock from time to time, especially related to the Exit Tax.  For any of you that have gifted, the above Forbes article may be your reminder that the process is to be reported on Form 709.

But now the lawyers have one more reason to be busy: You must report 2012 gifts on Form 709 even if you don’t owe tax. Among other things, that’s so the IRS will know how much of the $5.12 million ($5.25 million for 2013) tax-free amount you have used so far.

Do-it-yourself types can download the form as a fillable PDF plus the instructions that go with it from the IRS web site

…

For the 2011 tax year, there were 219,544 gift tax returns filed, according to IRS statistics which download here as a PDF. However, very few of them — about 3,000 – involved gifts of $1 million or more. Most related instead to using what’s called the annual exclusion. This is the amount that you are allowed to give, in cash, property or gifts, to as many people as you want each year without dipping into your lifetime exemption amount. Last year the annual exclusion was $13,000. The annual exclusion for 2013 is $14,000. (See “IRS Raises Yearly Limit For Tax-Free Gifts.”)

There are various reasons why you might need to report these relatively small (in the scheme of things) gifts. To come within the annual exclusion, a gift must be a present interest, meaning that the recipient can use the gift immediately. That’s certainly true with cash, but can be a different story with gifts to trusts, in which beneficiaries don’t have any rights until later. Any time you make a gift that isn’t a present interest, it must be reported, no matter how small the amount.

Renouncing Your U.S. Citizenship: Is Divorcing Uncle Sam Right For You?

By Alexander Marino JD, LLM (US Tax)

The billionaire co-founder of Facebook, the only American member of Monty Python, a Civil Rights Leader with a PhD from Harvard, the founder of Carnival Cruise Lines and owner of the Miami Heat NBA franchise, and arguably the best chess mind to ever live have more in common than you might think. So what do Eduardo Saverin, Terry Gilliam, W.E.B. Du Bois, Ted Arison, Bobby Fischer and thousands of U.S. citizens living in Canada have in common? The answer is all five have renounced their U.S. citizenship.

Click here to view the entire blog.

from badger’s “Comments” to a “New Post”…

Maybe this is already noted on IBS, but here’s another famous renunciant. Judging by this article, he’d be a covered expatriate. Is his name on the Federal register list?
http://www.rferl.org/content/afghanistan-mahmud-karzai-enters-politics/24882541.html

‘Wednesday, February 20, 2013
Afghanistan
Karzai’s Brother Renounces U.S. Citizenship To Enter Afghan Politics’

from the article above:
…”Karzai, 57, is a wealthy entrepreneur whose business interests include banking, mining, and real estate.

He lived in the United States for many years and reportedly has owned restaurants in San Francisco, Boston, and Baltimore.

Media reports say Karzai controls a 7 percent stake in Kabul Bank, Afghanistan’s largest private bank.

Last year, an independent audit found that Kabul Bank was involved in a fraud that sent nearly $900 million outside Afghanistan. Karzai denied any wrongdoing…”

http://www.rferl.org/content/afghanistan-mahmud-karzai-enters-politics/24882541.html

And I’m wondering if he was FBAR and FATCA compliant?

Another untouchable too big (or politically important to the US) to prosecute? I wonder.

Are Karzai and his family (many US citizens who moved back to Afghanistan) all IRS tax and FBAR and FATCA compliant on their ‘foreign accounts’? Is the IRS fully cognizant of all of their Afghan ‘foreign accounts’ ? Would the IRS pursue Karzai and his clan the same as they are pursuing ordinary Canadians with TFSAs, Swiss, Swedes, and others?

Continue reading →

Need help getting out of a financial fix? Email andrewallentuck@mts.net for a free Family Finance analysis…

Linked below is the January 25th advice he gives this family.

Financial Post says Dual Canadian-US Citizens Can Conquer Tax Challenges

Off the top, I don’t see any line item for accountng / US tax compliance expenses, nor does Mr. Allentuck consider their family RESP with a $115,000 balance — but the US citizen Canadian resident wife may not have her name on that account.  Are their children “Accidental Americans”?

US Department of the Treasury News Release

Treasury and IRS Issue Final Regulations to Combat Offshore Tax Evasion
1/17/2013

A summary and a thank you…

A summary of what appears to be a breaking of the log jam we’ve seen for at least one of the US Consulates in Canada — Vancouver.

A thank you to one who took the time to listen — the Consul General of Canada, Sylvia D. Johnson.

Conversations took place. We’re seeing change. Communication works.

pacifica777 and calgary411 have had several discussions with Ms. Johnson — through email and a couple of lengthy phone calls, taking time from what we can only imagine to be her very busy schedule.

Continue reading →

Alberta to recruit American war vets to work in oilsands

The question is — with working in Canada for long periods of time, what are tax return and reporting responsibilities for these workers — both for Canada CRA and US IRS?

CALGARY— Alberta is seeking to recruit an army of oilsands workers — literally.

The province is on the march to attract thousands of demobilized U.S. military personnel to help develop what’s been touted as Canada’s economic engine for coming decades, the oilsands.

The project’s success would also act as a goodwill gesture for Canada’s controversial oilsands, said Alberta Energy Minister Ken Hughes.

“We’re trying to understand how we could produce employment opportunities for American service people returning from overseas,” Hughes said Friday. “I’ve detected some interest in the States.”

The mission has attracted the attention of U.S. Ambassador to Canada David Jacobson and the encouragement of the U.S.’s former consul general in Calgary, Laura Lochman, said Hughes.

Hughes said there are a half-million unemployed or underemployed younger military veterans in the U.S. — a force that could be tapped to satisfy a chronically-hungry energy industry in Alberta.

. . .

Professor Allison Christians of McGill University has published in the July 9, 2012 issue of International Tax Notes an excellent article on FBAR and FATCA filing. Professor Christians has not only put a spotlight on the overreach of the United States through its required reporting of FBAR and FATCA by Americans overseas, but has also proposed a constructive legal solution to end this reporting requirement. All Americans abroad will be interested in reading this article.

Could a Same-Country Exception Help Focus FATCA and FBAR?

Allison Christians seems to have used quite a bit of actual common sense in coming to her conclusions / suggestions.  Perhaps a way for a Win:Win?  At any rate, a good read and, although reprinted from TAX NOTES INTERNATIONAL, JULY 9, 2012, p. 157, Volume 67, Number 2, July 9, 2012*,  I haven’t come across this before.  I may have missed it here at Isaac Brock.

*Tax Analysts 2012. All rights reserved. Tax Analysts does not claim copyright in any public domain or third party content.

The title of this column asked whether a same country exception could serve to focus FATCA and FBAR. The answer seems to be yes for pragmatic reasons, by allowing the tax administration to turn its ever-diminishing enforcement resources away from what is likely to produce an enormous data dump with few productive leads — getting some of the haystack out of the way in order to render the needle more visible.  The answer also seems to be yes for political and diplomatic reasons. FATCA and FBAR are either a rather nasty piece of arm-twisting, a bit of bad faith in the U.S. diplomatic relations department, or, worse, they are signaling a loss of faith in the pursuit of cooperation through diplomacy — a huge blow to the international tax regime as a whole. Carving out the bona fide residents who are using bank accounts to live their lives as residents and often dual citizens abroad could provide a means of backing away from either of these destructive positions.

Assuring the Care of a Family Member with Special Needs — but how does that work for a US Person in Canada?

James M. Hayes, a lawyer in Binghamton, N.Y., who specializes in estate and other planning for people with special needs and has a developmentally disabled adult son, put it more bluntly.     “I’ve never felt like I was taking advantage of anything,” he said. “It’s my adult son. I’ve never really felt that people who have adult children like my son should have a burden that other people don’t have.”       

 

What about US Persons in Canada?

I must say it’s hard for me to continue to feel this strongly hearing the arguments to the contrary that those like my adult son, or for that matter me and the medical care I’ve received in Canada over the years (although remaining in the work force and paying taxes), are not a burden.

Special Needs Planning in Canada, including the RDSP, is a good resource for planning — in Canada for Canadians.  There are likely similar programs in other countries.

I’ve tried to plan and save for my son (and my peace of mind) and not leave it all to government funding — through contributing to a Canadian Registered Disability Savings Plan (RDSP) and also putting in place a Discretionary Trust through Royal Trust, in conjnction with my daughter (my son’s only other blood relative in Canada) that will take effect upon my death to seamlessly be the source of paying expenses for my son.  Upon my death with my estate consisting of my house, my RRSP/RRIF and minor investment, my son will no longer be eligible for Alberta’s Assured Income for Severely Handicapped (as he will have over the limit of assets, which is the way I think it should be).   It seems that because my son is deemed a US citizen (although never registered with the US, never lived in the US, never had any benefit from the US), my planning is of limited use and robs me of the peace of mind so necessary for me that I’ve done everything within my power to ensure my son will be OK after I’m gone (and government funding perhaps gone).

I continue to question that I and other parents, guardians, trustees are not allowed the right, even with a court order, to renounce US citizenship on our family member’s behalf when we deem that in their best interests.  Perhaps someone can enlighten me of the benefits my son would have from the US after my death and, as I see it,  would have to be transported to that country for his care from the dwindling resources of social security there.  Does that make any sense?  Why would they want to take this on?  Would this make my son very discriminated against in a strange new country, not the one he was born and raised in and looked after and encouraged him to be as independent as possible — Canada?

From the above article for planning for special needs persons within the US (and US Persons Abroad?):

With each passing election season, the conversations about the cost of government-provided health care and Social Security get more urgent.

But debates about the deserving and the undeserving and the proper level of budgets and taxes tend to gloss over the issue of disabled people — many of whom must hope that the programs they rely on are not cut, because they have no way to make up the difference.

There were 5.5 million nonelderly adults with disabilities whose health care was covered by Medicaid in 2009, according to a Henry J. Kaiser Family Foundation estimate using the most recent numbers available. And an estimated 6.9 million nonelderly disabled people receive Social Security payments under the Supplemental Security Income program, according to federal government figures.

For every one of those people, many of whom draw from multiple sources of government aid, there are often several family members helping to sort out the financial details of that relative’s care. They navigate a confounding thicket of tasks and rules. On one side, there is the bureaucracy that government program administrators may erect at any moment. On the other, there are specialized trust accounts and estate planning issues to consider. Even sophisticated investors and ace budgeters find themselves lost when encountering all of this for the first time.

Note:  I am not a “sophisticated investor” or “ace budgeter” but I have tried to have in place an effective plan for my son.

Just thinking aloud again.  Thanks for listening.