Hi David, 

 I am distressed by reading your comments regarding my possible future obligations to the IRS as a dual citizen. 

I was born in BC to US parents, grew up in the States from age 4 to 33 and have been living back in BC for the past 19 years.  I have a small IRA (12,000 USD) in the US, which I opened 20 years ago and have not added to since.  I have no other US assets, nor have I earned income there for 20 years. I have intermittently filed US income tax returns over the years - never owed them anything due to foreign tax credit.  I have not filed for the past two years because I changed accountants, I moved within BC and the new guy doesn't file US returns.  I have however, completed W8 forms with various investment firms. I don't have a US passport nor do I receive any benefits from the US. I never intend to reside in the US or seek employment there.  

I have not voted since I left. However, my networth is beginning to grow as is my income (earned and investment) and I do not want Uncle Sam to view me as an opportunity to pay for the many unfunded liabilities they have promised the aging babyboomers (I am one of those boomers)   

I am wondering whether I should relinquish my US citizenship and whether I can consult with you or would you recommend someone else to discuss my situation in detail? What fees might I expect?  I am in the Vancouver area. I want to know what potential ramifications there might be from a legal and tax perspective of relinquishing.  I imagine I would first collapse my IRA - pay the tax and then attend the US Consulate, complete a questionnaire, and take an oath, etc. but I wonder about any potentially negative implications?  Do I need to file the last 2 years taxes and next year's if I collapse my IRA?  

I obtained US citizenship for my 10 and 12 year old daughters who were born in Canada by registering them for the US citizens born abroad program - so now they have dual citizenship. What do I do for them as I don't want them to be obliged to have to declare their world income to the IRS into perpetuity?

Would you please provide us a quote for back filing my US tax returns for the last 2 years, I have a copy of my CAD returns and don't owe $ to the IRS?

I am a xxxxxxxxxxxxxxx employed by xxxxxxxxxx,  

I own 3 rental properties in the Lower Mainland and had some stock investments (jointly with my wife) - all of our income has been earned in Canada and I have no ties to the US (except the IRA mentioned above). We are also wondering what it might cost to have you be our accountant to file our CAD and US taxes for 2007 and discuss relinquishing the US citizenship?   Regards,

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david ingram replies:  

Do NOT expect replies as fast as this in the future. It was sent to an address that I do NOT answer questions from as well. I have over 700 unanswered email questions that arrived before yours. 

 However, this arrived as i was cleaning up my files so here goes.  

Giving up your US citizenship to avoid income tax filing results in your being banned from the US in perpetuity. 

It is usually not a good idea an dfewer than 50 people a year actually go through the process because of the ramifications.   In addition, you trigger a 'departure' tax when you do and the rules are that you are supposed to keep on filin US returns for 10 more years.  

What you are talking about is filing two returns.  More work, and more cost but rarely more tax. people in 43 states and the Province of Quebec file two physical returns and it does not kill them.  

You should likely come and see me for a $400.00 hour.   In general, for a current year, we charge $800 to $2,800 for a US / Canadian return.  If you have three rentals and capital gains, you are likely in the $1,500 range. 

 Doing the two old ones at this time of year wouold likely be under $1,000 unless you have multi stock trasdes, etc.   and you must do them. 

Not filing form TDF 90-22.1 is now a stated minimum $10,000 penalty.  Not filing form 8891 for your RRSP is a fine of 35% of the prinicipal plus 5% for every year not reported.  

And, cheer up.  In another 9 years, you qualify for US social Security.

Hello David, I am trying to find someone who can advise me on getting out of an oppressive $60,000 debt to CRA. It resulted from an audit and ½ of it is interest and penalties. Is there not some way to negotiate down to a lower amount to be paid on a lump sum basis?

 

I spoke to a lawyer or interne at DiGuardio & Assoc and they basically wanted money to review my records so they could then ‘possibly’ work a deal with CRA. It sounded like they were collection agents for CRA frankly.

 

Any ideas?

 

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david ingram replies belatedly -

If you have not solved this, see Murray Morisson at (604) 930-9013  -  He is a bankruptcy lawyer who looked after my own tax bankrupcy.  You can find a link to his site on the front page of my site at www.centa.com.  He does not pay to be there.  I put him there because he is good, fair and competent if you are in BC..

He is a small office without the massive advertising overhead of those other guys and can do anything that they can do.

I can tell you that if you have the assets, it is unlikely that anything will be reduced much.

My own story follows as submitted to the Western Investor in February 2004 and published in March 2004.  After this article, I would bet that close to 2,000 individuals phoned or contacted me about their own tax bills.  I encouraged most to make a proposal or just plain go bankrupt depending upon their story. Three and a half years later, i still get the occasional phone call from some one who put it aside, kept on fighting and is now willing to pull the plug.

david ingram �

Dear David,

I am a Canadian citizen. I was a factual resident in Finland for 10 years and have returned to Canada - 2007. The house that I own in Canada has been rented the entire time when owning it, from 1990 until now. I have never lived in this house.

I spoke to a CCRA employee about capital gains tax when selling a house when living in Canada or living in Finland. She happened to mention that there might have been an amendment in the Canadian 2007 Federal Budget. She read somewhere that when the capital gain is less than $350,000 CAD, there would be no tax. This would even pertain to me when never living in the house.

I contacted the Department of Finance 3 times to find out the true answer. No answer yet. I’ve checked their website also. I’m not anxious about moving into this house and get stuck in it for 2 years. Culture shock has taken place and it will also remain. This is a fact. Some day in the near future, I wish to return to Finland and live there.

Furthermore, I am seriously considering getting a Finnish citizenship. Deadline is May 2008. Very much easier and cheaper to do this in Canada than in Finland. But, I don’t know if both countries can tax me, when having a dual citizenship during retirement.

What should/can I do before retiring? Sell the house in Canada or when living in Finland, or …? I don’t even know anything about the amendment idea. If there was an amendment, I would simply continue to rent the house and not have to live in it. The house of course would be a so-called ‘mattress’ to fall back on when moving back to Finland and then have to return to Canada for some unknown reason.

This scenario no doubt looks like a ‘cobweb’. What are your thoughts about this?

Br,
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david ingram replies:

There is no such thing as a $350,000 capital gains exemption on a house and never has been.

If you have never lived in the house and sell it, it is subject to capital gains tax in Canada.  If you were to move into it, IT WOULD BE A DEEMED DISPOSAL AND is is subject to capital gains tax the day you move in although if you never claimed CCA (capital cost allowance or depreciation) when you move in you can defer the capital gains tax until actual sale by filing an election uder section 45(3) OF THE INCOME TAX ACT.

.I am going to ignore the rest of the question.  If these things are a problem, you need to do a consultation with me or someone like me.  There ae too many specific "what ifs" that will not or never apply to my general audience to deal with in this free forum.

I hope that you have been filing your rental returns under Section 216(4) while out of the country.  That would involve forms 1159 and T776.

This older question might help a bit.

Hi David:

 

I would like to buy a property in California.  Is this state more favourable in terms of property taxes and other taxes for a Canadian investor?

 

Your input is very much appreciated.

 

Many thanks

 

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david ingram replies:

In my opinion, this is the worse state for a Canadian to buy in terms of the paperwork and tax payalbe.

Califronia's 540NR and CA(NR) form tax return requires you to report all your Canadian income as well when calculating California tax.

In addition, California is one of the few states with an Alternative Minimum tax.

The best states for paperwork and income tax are Washington, Nevada, Texas, Florida and Alaska.

Last year Nevada was the likley the best in terms of increase in value.

California real estate lost money for the most part.

However, California will likely do better in the future and has more to recover to.

If you are mnaking a profit on your investment, paperwork is just that, paperwork and is like making beds, something that has to be done.

Buy where you feel comfortable.  I and a few others like me can handle the paperwork

I am a Canadian citizen and legal US resident. I've lived in Florida for 25 years and now, at 65, I'm considering taking distributions from a spousal RRSP with Royal Bank.

 

Unfortunately, income tax information I've received from different sources is terribly conflicting and, at worst, indicates that my nest egg will be gobbled up by governments. Is this something you can steer me straight on?

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david ingram replies:

If you roll the RRSP into an RRIF (Registered retirement investment Fund), The payer will have to deduct 15% non resident withholding tax under the terms of Article XVIII of the US . Canada Income Tax Convention (Treaty).

You will then report it again on form 8891 of your 1040 and there may or may not be US tax to pay.  If your income is high enough that youare in a federal 28% tax rate, there 'will' be tax to pay on the RRIF. 


You will claim the 15% tax paid to Canada on US form 1116.
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Now, you have been supposed to report the existence of that account to the Department of the Treasury in Detroit on form TDF 90-22.1 since 1989 when that law was passed and shown in bulletin 89-45.  Failure to report can be a penalty of a minimum of $10,000 to a maximum of $500,000 PLUS up to 5 years in jail for each year you did not report it.  See the bottom question on schedule B of your 1040 where your foreign trust requires the preparing and filing of a 3520.

Thankfully, you do NOT have to do a 3520.  the 8891 takes it place and is much easier.

The penalty for not also reporting the RRSP and its internal earnings to the IRS (it was the Dept of Treasury above)  is 35% of the principal plus 5% for each year it was not reported since 1989 when the reporting rules started.  The form 8891 is an exemption for paying the tax on those internal earnings.

RELIEF

Although i know of over 1,000 people who have paid $10,000 fines for not filing form TDF 90-22.1, I (at this time) do not know personally of a single individual who has been fined under the 8891 / 3520 rules.  I also have NEVER seen a person fined for filing the TDF 90-22.1 forms late and voluntarily.

In my opinion, you should file the TDF 90-22.1 forms retroactively for six years.to the Department of the Treasury.

You should file retroactive 8891 forms with a 1040X to the IRS for the same years.  Note that you are the BENEFICIARY so follow the Beneficiary rules.  The 8891 form is actually only 3 years old.  Before that, you just wrote out the information on a free form page but it is a convenient form to use retroactively.

Hope this helps and we would be glad to assist if needed. �

I am a writer. In which country could I get my book published, in order to avoid income tax?


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david ingram replies:

If you live in Canada or the USA,  there is no country that would work.

If you want to leave CANADA  BEFORE you get your book published, then living in Panama, the Grand Cayman Islands, Ireland, the Bahamas (Arthur Hailey (Wheels, Hotel, etc. and Donald Fleming, Canada's ex Finance minister live there tax free), the Turcs and Caicos, and another thirty or forty countries would not tax your income.

However, if your book was published in Canada and your were being paid royalties, the publisher would have to deduct 25% tax and send it to the CRA BEFORE you got your many.  i.e., you would only get 75 cents out of every dollar.  The US would also deduct royalties at source.

And, of course, if you are an American Citizen, you are taxable on your world income no matter where you live and no matter where the money is paid from.  Of course there are foreign tax credits AND SOMETIMES EARNED INCOME EXEMPTIONS OF ABOUT $80,000 APPLY ($82,400 FOR 2006 AS AN EXAMPLE - see form 2555 at www.irs.gov) �

I would like to clarify if I am still required to pay a Canadian tax for my income outside of Canada.   I am a Canadian citizen and do not live in Canada except to visit every year. All of my income is also derived outside of Canada. I do not have a car or own a house in Canada.   At present I am also a citizen of the country which I reside now.   Thanks for the help.   ------------------------------------------------------
david ingram replies:

Depends where you are.

If you are a citizen of Dubai or the Bahamas or Grand Caymnan Islands and are coming back for 3 months a year, Canada may take a run at you.

If you are a true resident of Mexico or Spain or any other Tax Treaty country, you will be tax exempt on your world income under Article IV of the tax Treaty of your home country provided you are truly 'there' more than 183 days a year..

If you have investments in Canada, Canada would still tax you on any income from them by withholding 25% if you are in a non-treaty country and 10 or 15% if you are in a treaty country. �

QUESTION:

Regarding the subject line, I am aware that CPP can be withdrawn at reduced tax rates by a non-resident in a non-treaty country (ie. Panama).
1) Can the same reduced tax rate apply to RRSP/RIF withdrawals as well?
2) Would they also be based on Cdn applicable income tax rates?
thank you.

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david ingram replies:

You may make the same election for RRSPs under Section 217 of the Canada Income Tax Act.  For list of all items, read page 5 at

http://www.cra-arc.gc.ca/E/pub/tg/t4145/t4145-06e.pdf

Note that if you are receiving OAS (Old Age Security) out of the country, you have to (likely) file from T1136 whether you file under section 217 or not. 

All the facts for section 217 can be found in this link   http://www.cra-arc.gc.ca/E/pub/tg/t4145/t4145-06e.pdf

Section 217 is designed to ensure that you will not pay more tax livi9ng outside the country than you would if you lived in Canada.  Section 217 will never be better if your total income exceeds aboutr $43,000 Canadian but 'can' be better at incomes under $40,000 because you get the benefit of a personal deduction amount.

Hello

I hold a double citizenship (Canadian and Russian) and plan to accept employment in Russia (with a local company) and relocate to Moscow temporarily (for a year or so). My Russian income tax will be deducted and paid automatically by my employer. How do I go about claiming employment income and paying my income taxes in Canada? Should I establish a non-resident status for income tax purposes for the period of intended foreign employment?

Thanks


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david ingram replies:

If you are going for more than a year and give up your home, apartment, residence, etc in Canada, you will only be taxed in Russia on your Russian Earnings.

If you have left mutual funds or bank accounts in Canada, make sure to tell the payer that you are now a non-resident and the institution will deduct 10% non-resident tax on INTEREST under  ARTICLE XI of the treaty and 15% tax on any dividends under Article X.

The interst and dividends would then be reported again on the Russian return and you would claim a foreign tax credit for any tax paid to Canada.

IF, the CRA demanded a return, you would either be a non-resident, or a Factual resident where you have to report your world income to CANADA as well.  In the case of a FACTUAL resident, you will report the Russian Income on line 104 and deduct it on line 256 under Article IV of the Treaty.

If you file as a departing resident, make sure that you check out and fill in forms T1161, T1243 and T1244.