My name is XXXXXXXXX. I was born in America to a Canadian father and an English mother. I grew up with the American passport and recently claimed my British and Canadian passports. I have never lived or worked in Canada or the UK. After university, I moved to Japan, then China and now I'm in Saudi Arabia. I have no intention of returning to the USA, Canada or the UK to live or work. I have never paid taxes to the UK or Canada. Last year, my father (naturalized American) passed away. This year, our last relative (my great-uncle and Canadian citizen) passed away.
His house has been sold and the profits will be split three way. 1/3 will go to his friend and Canadian citizen living in Canada and that person is the executrix. 1/3 will go to me and 1/3 will go to my sister living and working in America. I have gone through the steps to secure my Canadian citizenship and passport but my sister has not. As far as I understand, if she doesn't do this before she turns 26, she will lose the right to citizenship even though our father made both of us citizens before we were 2 years old.
The executrix will be meeting soon with my great-uncle's lawyer and accountant soon. They need to know my details and my sister's details for the money transfer. I have never paid tax in the US, although I have filed, because I have always worked outside the US and earned foreign earned income under the $90,000 limit which is under the foreign-earned income exclusion law. I'm not 100% sure how my taxes will look in the upcoming year in the US because right now we're in the process of getting the family home, which my father bequeathed to me and my sister, into our names. This is proving exceedingly difficult, however, because I want to buy my sister's half of the house and eventual turn it into a rental property. Because I have never paid taxes in the US, nobody will give me a mortgage even though I can almost pay for the house in full with my father's inheritance. Some sort of strange loophole will probably occur wherein me, my sister and my mother sign something so that all this can happen and the house can be solely in my name. At that point, I'm not sure what my taxes will look like, and if this will affect my next question.
Should I tell the accountant and lawyer in Canada dealing with my great-uncle's estate that I'm a Canadian citizen?
I imagine that they're assuming that me and my sister are just normal American citizens, one a resident and another a non-resident. I'm pensive about telling them this because if they know they might be legally obliged to give me the money one route or another. As far as I have researched, there's no inheritance tax in Canada (the amount will be around $45,000CAD). As I live abroad, all that money could go into my account in Hong Kong or America where I have accounts. I don't know if America will ever question then where that money came from. I'll just want to put that money into paying off the house once I can get some design of mortgage. If I tell them I'm a Canadian, they'll figure out that my sister is too, who has not secured her paperwork. Could we elect under which flag we'd like to have this processed?
Thank you very much for any insight you might provide. I'm very appreciative.
all the best
david ingram replies:
YOU ARE A VERY LUCKY PERSON.
When you turn 65 or you get disabled or ill (one out of seven chance) and need major medical help which at the moment you can not get in the USA and will not qualify for at retirement because you have not worked for 7 years in the US, you will be able to waltz into Canada or the UK and get your public health.
You will note that i said 7 years when the general thought is that you need 10 years to get Social Security Medicare. The answer is that you need 10 years to qualify at the lowest price. at nine years you pay a little more, at 8 years you pay even more and at 7 years it will cost you $300+ a month instead of $100+ per month at current rates.
In the meantime, you are correct. If your earned income is in the $90,000.00 range and you have no interest or other investment income, you will pay no US tax.
However, you mention your Saudi Arabian or Swiss or Hong Kong Account. Please be advised that when you prepare a US return, you MUST - HAVE TO fill in schedule B and answer questions 7 and 8 at the bottom even if you NO interest or dividends. The minimum fine imposable is $10,000 if you do not fill in Schedule B if you have any foreign bank, trust company, life insurance, debit card, credit union, savings and loans, stock brokerage, or other financial accounts.
If the total of all of your accounts is less than $10,000, you do not need to fill in the TDF 90-22.1 forms mentioned at question 7, but if your total is over $10,000, (even for a minute) every account you have must be reported.
AND, if you are the signing officer for a company bank account or a cub scout or girl guide or religious organization account, they must be reported as well.
If you have not being doing so, you must bring this up to date because with the inheritances, you are now going to be in the radar.
When you get the money from Canada for instance, if it is deposited to a Canadian bank, you are automatically over the $10,000. If you deposit it to a Hong Kong or Swiss Bank, you are automatically over the $10,000 limit.
If you put the money directly into a US account, it by itself will not cause you to go over the $10,000.
However, I bet that at this moment, you already have more than $10,000 in foreign accounts and I bet that you have not been filling out your TDF 90-22.1 forms.
It does not matter if you are a Canadian or American under the circumstances you describe. there is no estate tax in Canada and although there is in the US, it does not effect you unless you were inheriting over $100,000 US. If you were getting over $100,000 US, you would need to fill in form 3520 which is the same form that is asked fro in question 8 on schedule B of the 1040.
If you do buy the house from your sister, a mortgage should not be that difficult if you are going to have a house with 50 or 60% equity.
David Price at the Bank of America can likely help you at 206-349-6580. he can not help if you are buying the house to rent out but if it is to be a family house for your mother to continue to live in, he can help. If you do decide to rent out two or three years form now, that would be okay.
He is also a Canadian
Realize something else.Canada does NOT tax on citizenship. we tax on residence or lack of it. If you are not a Canadian resident, it does not mater if you are a Canadian, Ethiopian, Brazilian, or American in terms of what happens with the inheritance.
I hope this helps a bit and I remind you that if you need help with your expat USA tax returns, that is what we do by letter, fax, email or courier as well as in person if someone happens to be in Vancouver.
CEN-TA Cross Border Services - Tax, Visas, Immigration