Dual citizen living in Canada buying home in US - Mortgage Interest as a deduction in Canada - failure to file T1135 TDF90-22.1

Come out to next Thursday's  Canadian Mortgage Interest as a deduction seminar on February 11, 2010.  4 to 9 PM at the Langley events Centre at  78th  Avenue and 200th Street (just south of Walnut Grove off Highway one.) The Speakers are myself on how to make a Canadian Mortgage tax deductible, Ozzie Jurock on Real Estate Trends, Own Dolan on Canadian Estates, Martin Murenbeeld, economist and Fred Snyder on written Financial Plans.  Phone Fred's office at (604) 731-8900 to register free of charge.  Bring your financial advisor, bank manager or mortgage broker with you.  We are asking for a non-perishable donation to the Langley Food Bank for each attendee.


XXXXXXX wrote:

Below is the result of your feedback form.  It was submitted by
XXXXXXXXX on Saturday, January 30, 2010 at 20:38:34

My_question_is: Both

question: I am an American citizen who moved to Canada in 2003 when I married a Canadian citizen.  I received my Canadian citizenship in 2009.  I have not been employed since moving to Canada and only have unearned income.  I am thinking about buying a house in the US for my daughter to live in.  What are my tax implications if I own a home in the US but make my residence in Canada.


david ingram replies;

>From your question, I am betting that you have not been filing your US tax returns.  As a US citizen in Canada, you are required to file a US income tax return every year that you remain a US citizen.  If you were to decide to give up your US citizenship to avoid this requirement, you  would be faced with a possible departure tax AND, you would not be allowed back in to the USA for anything but your own funeral.

If your unearned income is from money on deposit or investments in the USA, I hope that you realize that the same income must be reported in Canada.  If it is over $100,000 in the US, you must file Canadian  form T1135 ON TIME or be subject to a $25.00 a day fine up to a maximum of $2,500 for 100 days -- But then, if they (the CRA)  catches you for  2005, you would owe about $3,500 with interest and penalties for that year.

And Canada is just a *censored* cat in these matters. 

If you have the accounts in Canada and have not been filing a US return and you have Canadian (or French or Australian or South African)  accounts, you MUST file Schedule B and answer question 7 on that form.  There is a minimum penalty of $10,000  for not filing Schedule B and answering yes or no to question 7.  (to be fair, at the time of this writing, I have never seen this particular $10,000 fine imposed but 24 months ago, I had never seen Canada impose the five year old $2,500 fine either).

If your answer to question 7 is yes meaning that you have more than $10,000 invested in one or more (combined) accounts., then you must file form TD F 90-22.1.  Failure to file this form with the Department of Treasury in Detroit is a MINIMUM of $10,000 with a max of $500,000 plus up to five years in jail.  THIS ONE I have seen imposed many times including a 105 year old widow ($10,000), a 68 year old widow ($60,000) and a 60 year old man ($100,000 plus  SIX REAL MONTHS IN JAIL).  I also know of another 1,000 or so I have not met and you may be aware of the hundreds of people being fined for having their accounts in the Union Bank of Switzerland.
The following from the IRS site will give you a bit of an idea.  Notice the jail sentences. Jerome Schneider of Vancouver got 6 months and a $100,000  fine for his dealings which had nothing to do with UBS.

The IRS continues to uncover abusive tax-avoidance schemes involving offshore activity. Find information here pertaining to Union Bank of Switzerland (UBS).

Aug. 19, 2009 Announcement and Documents

IRS to Receive Unprecedented Amount of Information in UBS Agreement (News Release 2009-75)

Excerpts from IRS Commissioner Doug Shulman's Press Remarks

U.S.-Swiss Government Agreement | Declarations |  Bank Agreement

UBS Clients

Feb. 4, 2010 — Jack Barouh of Golden Beach, Fla., pleaded guilty to filing a false tax return. Barouh admitted to filing a false tax return for 2007 in which he failed to report a foreign bank account.

Oct. 5, 2009 — Roberto Cittadini of Bellevue, Wash., pleaded guilty to filing a false tax return and admitted to concealing nearly $2 million in Swiss bank accounts. Cittadini, a retired sales manager for Boeing, failed to file a Report Foreign Bank and Financial Accounts for 2001 through 2003. Cittadini was sentenced on Jan. 8, 2010, to six months home detention and one year supervised release and was ordered to pay a $10,000 fee and $17,985 in restitution.

Sept. 25, 2009 — Juergen Homann of Saddle River, N. J., pleaded guilty to failure to file a Report of Foreign Bank or Financial Accounts and accepted responsibility for concealing more than $5 million in Swiss bank accounts. Homann was sentenced on Jan. 6, 2010, to five years probation and was ordered to pay a $60,000 fine.

Aug. 14, 2009 — John McCarthy of Malibu, Calif., pleaded guilty to failing to inform the government of a Swiss bank account as part of a scheme to move at least $1 million from the United States into Swiss bank accounts with the goal of avoiding the payment of federal income taxes.

July 28, 2009 — Jeffrey P. Chernick of Stanfordville, N.Y., pleaded guilty to charges of filing a false tax return. Chernick, who owns a corporation which represents toy manufacturers in China and Hong Kong, accepted responsibility for concealing more than $8 million in Swiss bank accounts. Chernick was sentenced on Oct. 30, 2009, to three months in prison and one year of supervised release with six months served in home detention.

June 25, 2009 — UBS client Steven Michael Rubinstein of Boca Raton, Fla., pleaded guilty to filing a false tax return for tax year 2004. On April 1, 2009, Rubinstein was charged with filing a false tax return that intentionally failed to disclose the existence of a Swiss bank account maintained by UBS of which he was the beneficial owner and failed to report any income earned on that account. Rubinstein was sentenced on Oct. 28, 2009, to three years probation, of which 12 months will be served in home detention.
April 14, 2009 — Robert Moran of Lighthouse Point, Fla., pleaded guilty to a criminal information charging him with filing a false income tax return. Moran accepted responsibility for concealing more than $3 million in assets in a secret bank account at UBS in Switzerland. Moran was sentenced on Nov. 6, 2009, to two months in prison and one year of supervised release with five months in home confinement.

Legal Actions to Date

Aug. 21, 2009 — Former UBS banker Bradley Birkenfeld was sentenced to 40 months in prison. Birkenfeld worked as a private banker for UBS AG and assisted an American billionaire real estate developer evade paying $7.2 million in taxes.

Aug. 20, 2009 — Hansruedi Schumacher and Matthias Rickenbach were indicted for conspiring to assist wealthy American clients conceal their assets by establishing sham offshore entities. Schumacher was an executive manager at Neue Zuercher Bank (NZB), a private Swiss bank. Rickenbach was a Swiss attorney who advised U.S. clients.

Aug. 19, 2009 —  The Justice Department and the IRS today announced that an agreement has been reached with the Swiss government regarding the John Doe summons filed against UBS on June 30, 2008. 

Feb. 18, 2009 — UBS AG, Switzerland’s largest bank, entered into a deferred prosecution agreement on charges of conspiring to defraud the United States by impeding the Internal Revenue Service (IRS).
Nov. 12, 2008 — Raoul Weil, a senior executive of a large Swiss bank, was charged with conspiring with other executives, managers, private bankers and clients of the banking firm to defraud the United States.
June 30, 2008 — The Justice Department filed papers seeking an order from a federal court in Miami, Fla., authorizing the Internal Revenue Service (IRS) to use a John Doe summons to request information from Zurich, Switzerland-based UBS AG about U.S. taxpayers who may be using Swiss bank accounts to evade federal income taxes.
May 13, 2008 — Banker Mario Staggl was indicted for conspiring with banker Bradley Birkenfeld to assist an American billionaire real estate developer evade paying $7.2 million in taxes by assisting in concealing $200 million of assets in Switzerland and Liechtenstein.

Dec. 12, 2007 — Igor Olenicoff, president and owner of Olen Properties Corporation, pleaded guilty to filing a false tax return for tax year 2002 related to foreign bank accounts he failed to disclose to the IRS. According to Olenicoff’s plea agreement, during the years 1992 through 2004, Olenicoff owned, controlled and had signatory authority over financial accounts outside of the United States.

Back to your question.  Assuming that you will not be living in this house, it will be subject to Capital Gains tax in both countries.  The US will tax you first and Canada second.  The good news is that Canada only taxes half of the profit at rates up to 44%.  Nobody knows what the rate will be in the US as both the Federal and State governments look for more sources of revenue.  At the moment you would pay 15% tax to the federal government and then another 0 to 5% to the state government depending on the State with California and New York generally being the highest and Washington, Alaska, Texas and Florida, etc, being the lowest at 0%.

You might want to consider having your daughter buy the place and loan her the money to do so. You can give her $13,000 a year.  Paying for it with her own mortgage might be a better credit builder as well.  In that case, she could earn up to $250,000 tax free after living in it for 2 years and if married she and her husband can earn $500,000 tax free.  If she has a husband, you can give them 413,000 each.

If you decide to buy it anyway in your own name, then pay cash if you can and borrow money on the house to buy back your investments.  In that way, you will make the loan amount tax deductible for Canadian purposes - go to www.centa.com and read the Nov 2001 newsletter in the top left hand corner.  As a US citizen living in Canada, you should also read the October 1995 newsletter and the Oct 1993 newsletter.

Hope this helps.

If your question was not answered fully or you wish to go further, I am available for individual consultations by phone or email or in person for $450 per professional hour. 

Please also note that we prepare Canadian, US, Australian, UK and New Zealand returns on a mail in, email, fax, snail mail or couriered basis. At any time, our clients are in 40 countries or more.  They have every occupation from nuclear Submarine captains to FedEx pilots to Major Bank officers to Politicians, Diplomats and border patrol officers.  My favourite, however, is a penguin catcher in Antarctica among others there..

If you 'really' only have a single question requiring a 'couple' of minutes, you can try phoning me for free as part of the following.

- For a quick free question

Most Wednesday evenings, from 6 to 9 PM Vancouver (Pacific - LA, Seattle) time, I interview others and answer short US Canada, Great Britain, Spain, Indonesia,  Mexico, etc.  tax and immigration questions.  GOTO www.david-ingram.com - the North American phone number is (866) 980-0499 - the local number in the lower mainland is (604) 980-0321.

The Feb 10th Show (live at 6 PM or anytime in Archives) will feature Jeff Fawcett on Insurance and I will be answering your US Canada tax and immigration questions.


You might try calling Fred Snyder's own radio program for an answer. 

Fred Snyder's  "IT'S YOUR MONEY" radio show. on CISL,  650 AM on the dial in Vancouver from 9 to 11:00 AM every Sunday  (604) 280-0650 or (877) 280-0650 - You can listen live from anywhere in the world at www.am650radio.com from anywhere in the world. click on the button in the top left hand corner.
You might try calling Fred Snyder's weekly radio programs for an answer. 
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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 or www.garygauvin.com.  If you forward this message, this disclaimer must be included."

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