Dual Citizen Early Retirement Question - Forms 8891 and TDF 90-22.1 - international non-resident cross border income tax help es

David,
 
I am a dual citizen (US & Canada) having worked 13 years in Canada and 14 years in the US where I currently reside.  I am considering early retirement at age 56.  I have considerable retirement assets in Canada (RRSP) and in the US (Roth IRA's, 401K). Total will be about $2M, plus other assets such as house and securities.
 
Since I will be 56 years old, I am not eligible for Social Security medical benefits and private US medical insurance will run about $9,000 per year. I was considering returning to Canada and re-establish residence there and then start to draw down from my RRSP retirement funds, perhaps pulling $60,000 or so per year to supplement my available cash. 
 
I would then plan to return to the US at age 65 when I would have medical coverage there and would be able to draw from both US and Canadian Social Security retirement plans as well as my US IRA's and 401K, plus whatever is left in my RRSP.
 
I have worked out some tax scenarios and when taking into account the cost of the US  medical plan, (and the pleasure of returning to Canada to escape from the political lunacy down here)  and I think my plan has merit and takes advantage of my dual citizen status.
 
My question to you is that I suspect there may be some gotchas I have not considered and wonder if you can shoot some holes in my plans.
 
Best regards,
 
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david ingram replies:

There is always a gotcha and you have not said where you plan to live in Canada.

However, If you were to return and establish your residence in Ontario for May, June, July, August and September and  a few extra days, you could qualify for full Ontario Medical benefits and spend half the year in the US. You would buy trip insurance to pad it out. Every territory and province but Ontario requires you to be 'in the province' itself (not just Canada) for more than 183 days.  Ontario only requires  more than 153 days.  It is therfore possible to be in Canada for 5 months plus a couple of days and in the US for the other 210.  Since you are in the US more than 183 days, your world income is only taxable in the US and the Canadian income is taxable in Canada I fyou r US home was tax free Florida, Texas, Nevada, Alaska, Washington, etc., you would have the best of three worlds.

I am going to leave it there. 

You should likely book a consultation.  If I can't tell you something else, it is still worth it because you know you have figured it out,.  If I give yiu something, it is also worth the cost.  I compare it to going to the dentist.  Are yiu happier if he or she says 'no cavities' or there are 17 cavities to fill.

In the meantime, I hope you are getting your IRS 8891 forms completed for your RRSP accounts to avoid the 35% plus 5% per year penalties and the Treasury  TDF-90 forms filled out to avoid the $10,000 to $500,000 penalties for failure to report your foreign accounts to the Department of the Treasury.  AND, remember, if you are living in California, the internal earnings of your Canadian RRSPs is taxable every year on your 540 Tax return.


This older question will help.

georgearora@centa.com: Please see bottom of message if you wish to unsubscribe.
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PASS THIS ON TO ANYONE YOU KNOW WHO IS A US CITIZEN -  IT COULD SAVE THEM A BUNDLE.
 

QUESTION:

I was born to a US father and a Canadian mother in Canada in 1973.  I had only Canadian citizenship until 2001 when I applied for and got US citizenship.  I got a US social insurance number in 2005 and have never worked, lived, or filed a tax return in the United States. Since 2001 I have received an inheritance less than 100K CDN.  In the long-term (or unexpected-immediate) future I will receive another much larger inheritance.  I originally obtained US citizenship for the potential of working there.  I have not done so yet, but would still like to keep the option open but first need to quantify what it could cost me.  Also, I am a highly trained (3 years into my PhD now) engineer and would qualify for a US work visa under NAFTA when I'm done.  Hopefully this background is sufficient for my questions:

1. If the inheritance monies received up until now, since 2001, are less than 100K, do I owe US tax on the inheritance?  My max income in those years was < 70K CDN?
2. If I renounce my US citizenship, how long afterwards will the US claim that I "owe" them tax on any future inheritances?
3. If I renounce my US citizenship, will it be harder for me (and the sponsoring US company) to obtain a work-visa in the future?

 
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david ingram replies:

The good news is that if you come forward with a voluntary disclosue to the USA, there is rearely any tax and can be a refund if there are children involved.

However,

1.    You have been a US citizen since birth.  When you received the actual paperwork, the usual method is to go back six years.  You already owe the US many tens of thouosands of dollars on your earned income for failure to file your past due returns.  In addition, if you have a Canadian RRSP and other accouonts over $10,000 US total, you are subject to US trreasury fines of a minimum of $10,000 to max of $500,000 pr account per year for failure to file form TDF 90-22.1 for each account and 35% of the principal in the RRSP plus 5% per year for each year unreported. The reason that you owe tax to teh US is that you have to file the returns to claim foreign tax credits and/or the earned income exemption.  I once had a 105 year old lady fined $10,000 for failure to file her TDF 90 to report her account in the royal Bank of Canada in Edgemont Village in North Vancovuer.

There is no tax on an inheritance you received in the past or in the future but the fact that it was put in a bank for even a day makes you liable for the TDF 90-22.1 fines. There may be and would be tax on any interim earnings on the inheritance. 

2.    The US  can tax you for another ten years after renouncing your US citizenship.

3.   If you renounce your US citizenship to avoid filing US income taxes, you are banned from the US for life as signed into law by Pres Clinton on Sept 30, 1996..

This older question will likely assist and, of course, if you decide to bring those returns up to date, you know where we are. 

  

QUESTION:

I have a client who is a US citizen but resides in Canada.  She received a $20,000 dividend from a CCPC (Canadian controlled Private Corporatiion) in 2006.  What are the US tax issues?

______________________________________________________________
david ingram replies:

The actual amount (not the grossed up amount) is taxable on her US 1040 and is resported on schedule B.  Pay attention to the two bottom questions because she will 'have to' fill in US form T D F 90-22.1 for the account she holds these shares in and any other accounts as well even if there is only a dollar in the account.

If she owns 10% or more of the CCPC (Canadian Controlled Private Corporation), she will also need to deal with form 5471.

Penalties are up to $50,000 a year for not filling in form 5471 and $500,000 plus five years in jail for not filling in the TDF 90-22.1.

Any tax paid to Canada on the dividend can be claimed as a foreign tax credit on US form 1116.


This older answer will likley help.

A question I am hoping you will be able to help us with.
 
My son's fiancee who has been living common law with him for over a year and living in Canada is trying to file her US taxes.  She is in the process of applying for her residence status here, which should come through any time now.  They have "filed" common law status with the Canadian authorities as of March of the past year and the paperwork was filed in May for her Canadian residency.  She has no US income so how does she file her return for 2006 with the US?
 
If you can help us, it certainly would be appreciated.
 
Thank you,
___________________________________________________
david ingram replies:

Well, she could send it all to us and we would do it for her and likely charge $800.00 plus GST.

OR,

If she just has one or two T4 slips from Canada, she can goto
www.centa.com and read the 'US/Canada Taxation' section in the second box down on the right hand side.  She should also read the October 1995 Newsletter which explains the responsibilities of a US citizen living in Canada.  She can find that newsletter in the top left hand box on the same page.

I have reproduced part of it here

 

The U.S. taxes on citizenship first and residency or physical presence second. If you have another tax home, and are just an extensive visitor in the States, you can escape U.S. tax on your income from other countries. However, if you renounce your other tax home or become a "green card" holder or are in the U.S. for more than 183 days in one year or under the substantial prescence test,  you are subject to U.S. income tax on your world income.

The U.S. taxes its citizens and green card holders wherever they are and no matter what they are doing. The U.S. taxes its citizens in Canada and they will tax them in the North Sea. The U.S. will add on the benefit of housing allowances, car allowances, servants, and education allowances for people who have not been in the U.S. for twenty years but who are still U.S. citizens.  If you want the benefit of U.S. Citizenship, you pays your taxes.) In 2006, the first $82,400 U.S. of income earned from personal  services (as opposed to capital) is exempt if you have been out of the country for a full calendar year in one test or for 330 out of 365 days in another test using a fiscal year (form 2555).

However, being "exempt" does NOT mean that you do not have to file a tax return. You must still file your U.S. 1040, report the Canadian Earnings in U.S. dollars and claim the "up to $82,400 U.S." by filing a form 2555 with the 1040. If you have investment, [INCLUDING AMOUNTS EARNED WITHIN YOUR CANADIAN RRSP], rental, royalty, or any income other than from services, you must also report the income in U.S. dollars.  Since you will have paid tax to Canada first, you will file a Form 1116 with the 1040 to claim your foreign tax credit. A separate Form 1116 must be filed for each kind of income, i.e. rental, pension, dividends, etc.

The RRSP earnings may be exempted under ARTICLE XXIX.5 of the U.S. / CANADA Income Tax Treaty 1980 - file form 8891.

Social security (FICA) taxes usually do not have to be paid to the U.S. under Article XXIX.4 of the U.S./CANADA Income Tax treaty or Article V of the CANADA / U.S. Social Security Agreement.  (I sure hope all this is impressing you).

Therefore, a U.S. citizen living in Canada who had a rental house, a job, an RRSP, some dividends and some capital gains from the sale of stock would file his or her Canadian return first and then file a U.S. return with these forms:

* 1040 - is the basic return for a citizen or resident of the U.S. or landed immigrant of the U.S. (commonly called a "green card" holder).

* Schedule A - to claim itemized deductions if needed

* Schedule B - to report the dividend income

* Schedule D - to report the capital gains

* Schedule E - to report the rental income

* 4562 - to report depreciation on the rental house

* 1116 - (maybe two foreign tax credit forms) - one for any income from services over $82,400 - one for the rental, capital gains, and dividend income and another for the wages.

* 1116(AMT) - two more forms to calculate the foreign tax credit for Alternative Minimum Tax purposes (AMT)

* 2555 - to exempt up to $82,400 (2006) U.S. of earnings from services - Note that htis ran from $70,000 to $80,000 before.

* 6251 - Alternative Minimum tax form

* 1161 AMT - AMT foreign tax credit

* FICA (Social Security) exemption - to exempt income from U.S. FICA

* 8891 - RRSP election forms to exempt income earned within the RRSP from current U.S. income tax until withdrawal

* TDF 90-22.1 form(s) - to report foreign bank accounts including Canadian RRSP accounts which are considered "foreign trusts" - failure to file this form can result in up  to a $500,000 fine PLUS up to five years in jail

He or she might also have to file either of the following two specialty forms when he or she owns shares in corporations.

* 5471 form - If you are a U.S. citizen and 10% or more owner of a Canadian corporation. Failure to file this form can create fines of $10,000 every 30 days up to $50,000

* 5472 form - If you are a Canadian who owns a U.S. corporation - failure to file this one has fines of up to $30,000 every 30 days.

We, of course are happy to help with these filing requirements.
---------------------------------------------------------------------------------------------------------------
David Ingram's US / Canada Services
US / Canada / Mexico tax, Immigration and working Visa Specialists
US / Canada Real Estate Specialists
My Home office is at:
4466 Prospect Road
North Vancouver,  BC, CANADA, V7N 3L7
Cell (604) 657-8451 -
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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)
 
 
Disclaimer:  This question has been answered without detailed information or consultation and is to be regarded only as general comment.   Nothing in this message is or should be construed as advice in any particular circumstances. No contract exists between the reader and the author and any and all non-contractual duties are expressly denied. All readers should obtain formal advice from a competent and appropriately qualified legal practitioner or tax specialist for expert help, assistance, preparation, or consultation  in connection with personal or business affairs such as at www.centa.com. If you forward this message, this disclaimer must be included."
 
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David Ingram gives expert income tax & 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 $400 for 15 minutes to 50 minutes (professional hour). Please note that GST is added if product remains in Canada or a phone consultation is in Canada.
 
This is not intended to be definitive but in general I am quoting $800 to $2,800 for a dual country tax return.
 
$800 would be one T4 slip one W2 slip one or two interest slips and you lived in one country only - no self employment or rentals or capital gains - you did not move into or out of the country in this year.
 
$1,000 would be the same with one rental
 
$1,200 would be the same with one business no rental
 
$1,200 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.
 
$1,500 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

$1,600 would be for two people with income from two countries

$2,800 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 $150.00 up.
 
With a Rental for $350
 
A Business for $350 - Rental and business likely $450
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 $800 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.
 
Just a guideline not etched in stone. 
 
This from "ask an income trusts tax and immigration expert" from www.centa.com or www.jurock.com or www.featureweb.com. David Ingram deals on a daily basis with expatriate tax returns with multi jurisdictional cross and trans border expatriate problems  for the United States, Canada, Mexico, Great Britain, United Kingdom, Kuwait, Dubai, Saudi Arabia, Thailand, Indonesia, Japan, China, New Zealand, France, Germany, Spain, Italy, Russia, Georgia, Brazil, Peru, Ecuador, Bolivia, Scotland, Ireland, Hawaii, Florida, Montana, Morocco, Israel, Iraq, Iran, India, Pakistan, Afghanistan, Mali, Bangkok, Greenland, Iceland, Cuba, Bahamas, Bermuda, Barbados, St Vincent, Grenada,, Virgin Islands, US, UK, GB, and any of the 43 states with state tax returns, etc. Rockwall, Dallas, San Antonio Houston, Denmark, Finland, Sweden Norway Bulgaria Croatia Income Tax and Immigration Tips, Income Tax  Immigration Wizard Antarctica Rwanda Guru  Consultant Specialist Section 216(4) 216(1) NR6 NR-6 NR 6 Non-Resident Real Estate tax specialist expert preparer expatriate anti money laundering money seasoning FINTRAC E677 E667 105 106 TDF-90 Reporting $10,000 cross border transactions Grand Cayman Aruba Zimbabwe South Africa Namibia help USA US Income Tax Convention

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