Taxes for Canadian with derivative US citizenship and a Canadian wife who wants to live in Phoenix.david ingram expert US CANADA

 
QUESTION:
Facts:
1.I am a dual citizen 76 years of age, received my citizenship as a derivative about 10 years ago. I have never been a permanent resident of the USA
2. My wife is a Canadian citizen only

3. We own a second home in the Phoenix area

4. WE want to move to the USA permanently and have a second home in Canada

5. I am the CEO of  a publicly listed company in the USA

6. I have not flied US income tax since I officially became a citizen

Can you clarify my resposibilities/obligations re USA taxes and the risks of crossing the border
Thank you.

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david ingram replies:

When you received your US citizenship, there was also a letter enclosed telling you that you were taxable in the US and had been since birth.  The letter goes on to say that you should file six back returns plus the current year and returns for the future.

At the very least, in my opinion, you should now file your returns from 2001 on.

In parking meter terms, if you happen to have a RRIF, there are two forms which have to report the RRIF which is considered a foreign trust to the IRS AND the Department of the Treasury.

The TDF 90 has a minimum fine of $10,000 and a maximum fine of $500,000 PLUS five years in jail for failure to file and it applies to all of your Canadian accounts.  i,.e. each account has to be reported if the total of all of your Canadian (or French or Indonesian) accounts exceeds $10,000.

Failure to file the 8891 can result in a fine of 35% of the amount in the RRSP./RRIF PLUS 5% per year for every year you failed to report it from 1989 when that law was passed.

Age is no eliminator.  At this moment, I have never seen a fine for the 8891 form's not being filed.

However, I had a 105 year old lady receive a $10,000 fine for the TDF-90 and a 68 year old lady receive a $60,000 fine plus 6 months in jail (she only served a check in and out 1 day however).

AND, in Vancouver, over 1,000 clients of one consultant, Jerome Schneider, were fined for failure to file the TDF 90 forms with his assistance and connivance.  He also received a $100,000 fine and six months in jail which he did serve every day of.

The problem you will have with making Phoenix your permanent home is that you will lose BC MEDICAL and have to export/import your wife.  It would likely be easier to divorce this one and find an American wife.  You will have to buy US medical Insurance and I would bet that the cost for you would be in the $15,000+ a year range with big co-pays.

It is likely an impractical wish. You can spend 180 days in the US and 186 days in BC and keep your BC medical but if you reverse it, your BC (and just about all other provincial and territorial plans

Get your returns done sooner rather than later.

I do not know where you live although i assume BC or Alberta.

If you do not want to have us prepare them (our business is preparing US / Canadian returns for individuals like yourself) ,

You will also have a problem with your investments as there are very few securities people in Canada who can deal with your account if you are in Phoenix,.  For instance, it is illegal for an RBC or TD Waterhouse or Canaccord representative to even talk to you about moving something in your account if you are physically in Phoenix or anywhere  else in the US. 

This 2-day old email will assist you as well.

Hello,
I saw your car the other day and thought you might be the person to talk to.
I am a Canadian living here in West Vancouver. My wife is a US citizen. We have recently bought a house in the US Virgin Islands (US territory) and are thinking of purchasing a home on the US mainland. We have put our house up for sale here and I would like to move from Canada. My accountant at KPMG has told me I will face significant departure taxes if I leave Canada. I would like to minimize and or avoid paying these taxes. Can you be of help?
Cheers,

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david ingram replies:

I love it when someone calls from the car advertising.  When I had my office in Park royal, no one ever seemed to come in from the $7,500 sign out front but when I put signs on my beat up $3,000 Jeep Grand Wagoneer, someone would come in almost every day from the car. Now i have 5 Jeep Grand Wagoneers and 7 old Cadillacs with signs.  Just brought n 87 Cadillac Hearse in from the US,  It is down at BROCO for a new windshield and is then going to have a sign saying - "DON'T LET TAXES BE THE DEATH OF YOU" on it.

Back to your leaving the country question.  That is what I do.  My associates and I specialize on Canadians in the US and Americans in Canada.  Because Americans in Canada (like your wife) have to file US returns every year no matter where their money comes from, we have many more Americans than Canadians as clients for this purpose.  At any one time, we will have clients in 60 to 80 countries and 49 states.  For instance, in the next month, I am doing seminars on retiring to Mexico in Vancouver Calgary and Toronto.

Back to your question

I am sure that I do more of these than anyone else in Canada but I do not know if I can help you any more than the help you are already getting from KPMG.  The Vancouver and Halifax KPMG offices are some of the few places that I recommend for US / Canada Income tax help as you will see at the end.

If you are leaving the country, there may be significant departure taxes calculated on forms T1161, T1243 and T1244.  However, you are not obligated to pay those taxes if you post security for them.  The HSBC and other banks regularly provide letters of credit to the CRA for this purpose.
 
This LOC allows you to defer paying the tax to the CRA until you actually sell the article. 

NO LOC IS REQUIRED for Real Estate, Company pension plans or RRSP accounts.

Usually, a LOC is only required if you are leaving behind an active stock trading account.

Now the problem is that there are very few people in Canada equipped to handle your cash stock trading account if you are living in the United States or its territories because of  US securities Law which make it illegal for a Canadian Broker to even talk to you on the phone about your account if you are physically in the United States unless his Company and HE or SHE themselves have registered as well in the USA AND the STATE you are in.
Even Fred Snyder, the man I recommend most can only talk to those in Ontario and BC because of his licensing.

For someone like yourself, I usually recommend Darryl Thompson at Blackmont Securities in Toronto or Dan Walkow at Seabank Capital in White Rock. You are here so you should call Dan.   If you go to www.Seabankcapital.com you will see what I mean because it starts off with a US / Canadian flag.

Dan does regular lectures in LA, San Diego, Palm Springs and Phoenix for the different Canadian Clubs there.

You can get hold of him at

Telephone: 604-541-9952 | Toll Free: 1-866-541-9952 | Fax: 604-542-5642

D.G. (Dan) Walkow, CFA, CMT, Managing Director & Portfolio Manager: dan@seabankcapital.com
Ajbinder (AJ) Sull, BBA, MBA, CFA, Portfolio Manager:
aj@seabankcapital.com
Paul Bains, BBA, MBA, CFP, Associate Portfolio Manager: paul@seabankcapital.com              

Seabank Capital Management Inc.
Suite 301, 1959-152nd Street
White Rock, British Columbia,
 Canada V4A 9E3


With regard to who to deal with, the people I recommend for this kind of information (other than myself of course) are:

Gary Gauvin is absolutely qualified to deal with you.  He is an old business partner of mine from Ottawa.  He now practices outside of Dallas Texas as a one or 1 1/2 person office.  If you deal with Gary, you will deal with Gary.  He is a US enrolled agent.  You can find his website easily.  Type - income Tax Expert -  into google.  Gary will come up as number one or two.  Why, because he is.  If I am looking for a first or second opinion, I call Gary. Disadvantage - Gary is a one and a half  person office.  Advantage - You will always get to talk to Gary.

Gary likes corporations.  I  and my four associates do not like them. I like dealing with individuals who deal cross-border withOUT corporations.

OR   KPMG in Vancouver. The last time  I checked they had 22 people in their US/Canada department.  call (604) 691-3025.  Advantage - Lots of Backup.  Disadvantage - It will be hard to get the same person to deal with you three times in a row.

OR   Steve Peters with KPMG in Halifax (902) 492-6011

OR    Kevin Nightingale in Toronto (416) 733-9595

OR    Mark Serbinski in Toronto  (416)733-0300
 
OR     Len Vandenberg with BDO Dunwoody in Kelowna, BC.  (250) 763-7600

OR     Steve Katz in Vancouver at (604) 732-1515

OR    Brad Howland in Victoria at (250) 598-6258

Whoever you choose, you would likely do well to consult with me for one or two hours a year.  If I have a suggestion, it will be worth it.  If I can't come up with anything, you will know that what you are doing is likely the best track.  I will compare it to my dentist, Ed Clarke.  When I went in the fall of 2005, I ended  up with $16,000 to $18,000 of dental bills, a root canal, a bunch of pain, and a lot of nice new caps, etc. 

When I went for an inspection on Jan 29, 2008,   he could not find anything wrong except that I was not flossing.  Which one did i appreciate more?

Well both - the first time was expensive but dealt with years of neglect.  The second said I am on the right track.

Good luck.

Looking at the California Non-resident Adjustment Form CA(NR) will give you another  idea of how this leaving the country stuff works for taxation after you have left and still have assets back in Canada.

http://www.ftb.ca.gov/forms/07_forms/07_540nrca.pdf

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What Do I/WE charge?


SUGGESTED PRICE GUIDELINES - Aug 5, 2008
 
david ingram's US / Canada Services
US / Canada / Mexico tax, Immigration and working Visa Specialists
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My Home office is at:
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Calls welcomed from 10 AM to 9 PM 7 days a week  Vancouver (LA) time -  (please do not fax or phone outside of those hours as this is a home office) expert  US Canada Canadian American  Mexican Income Tax  service help.
pert  US Canada Canadian American  Mexican Income Tax  service and help.
David Ingram gives expert income tax service & immigration help to non-resident Americans & Canadians from New York to California to Mexico  family, estate, income trust trusts Cross border, dual citizen - out of country investments are all handled with competence & authority.
 
Phone consultations are $450 for 15 minutes to 50 minutes (professional hour). Please note that GST is added if product remains in Canada or is to be returned to Canada or a phone consultation is in Canada. ($472.50 with GST for in person or if you are on the telephone in Canada) expert  US Canada Canadian American  Mexican Income Tax  service and help.
This is not intended to be definitive but in general I am quoting $900 to $3,000 for a dual country tax return.

$900 would be one T4 slip one W2 slip one or two interest slips and you lived in one country only (but were filing both countries) - no self employment or rentals or capital gains - you did not move into or out of the country in this year.
 
$1,200 would be the same with one rental
 
$1,300 would be the same with one business no rental
 
$1,300 would be the minimum with a move in or out of the country. These are complicated because of the back and forth foreign tax credits. - The IRS says a foreign tax credit takes 1 hour and 53 minutes.
 
$1,600 would be the minimum with a rental or two in the country you do not live in or a rental and a business and foreign tax credits  no move in or out

$1,700 would be for two people with income from two countries

$3,000 would be all of the above and you moved in and out of the country.
 
This is just a guideline for US / Canadian returns
 
We will still prepare Canadian only (lives in Canada, no US connection period) with two or three slips and no capital gains, etc. for $200.00 up. However, if you have a stack of 1099, or T3 or T4A or T5 or K1 reporting forms, expect to pay an average of $10.00 each with up to $50.00 for a K1 or T5013 or T5008 or T101 --- Income trusts with amounts in box 42 are an even larger problem and will be more expensive. - i.e. 20 information slips will be at least $350.00
 
With a Rental for $400, two or three rentals for $550 to $700 (i.e. $150 per rental) First year Rental - plus $250.
 
A Business for $400 - Rental and business likely $550 to $700
 
And an American only (lives in the US with no Canadian income or filing period) with about the same things in the same range with a little bit more if there is a state return.
 
Moving in or out of the country or part year earnings in the US will ALWAYS be $900 and up.
 
TDF 90-22.1 forms are $50 for the first and $25.00 each after that when part of a tax return.
 
8891 forms are generally $50.00 to $100.00 each.
 
18 RRSPs would be $900.00 - (maybe amalgamate a couple)
 
Capital gains *sales)  are likely $50.00 for the first and $20.00 each after that.

Catch - up returns for the US where we use the Canadian return as a guide for seven years at a time will be from $150 to $600.00 per year depending upon numbers of bank accounts, RRSP's, existence of rental houses, self employment, etc. Note that these returns tend to be informational rather than taxable.  In fact, if there are children involved, we usually get refunds of $1,000 per child per year for 3 years.  We have done several catch-ups where the client has received as much as $6,000 back for an $1,800 bill and one recently with 6 children is resulting in over $12,000 refund. 

Email and Faxed information is convenient for the sender but very time consuming and hard to keep track of when they come in multiple files.  As of May 1, 2008, we will charge or be charging a surcharge for information that comes in more than two files.  It can take us a valuable hour or more  to try and put together the file when someone sends 10 emails or 15 attachments, etc. We had one return with over 50 faxes and emails for instance. 

This is a guideline not etched in stone.  If you do your own TDF-90 forms, it is to your advantage. However, if we put them in the first year, the computer carries them forward beautifully.

--
IRS Circular 230 Disclosure:  To ensure compliance with requirements imposed by the IRS, please be advised that any U.S. tax advice contained in this communication (including any attachments) is not intended or written to be used or relied upon, and cannot be used or relied upon, for the purpose of (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.--

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