QUESTION:
My parents were Americans, but I was born in Canada and have always lived here. About 15 years ago I decided to find out if I had US citizenship and provided the required proof. I have not received or sought any benefits from my US citizenship, although I have a now-outdated passport (never used). I have always traveled as a Canadian citizen using my Canadian passport.
After reading your newsletter I realize that I should have been filing US income tax returns, even though my annual income has been less than $60,000 CAN. What do you recommend?
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david ingram replies:
When you received your first passport, there was likely a paper reminding you to make sure your tax returns were done. Unfortunately, that paper 15 years ago did not say make sure your 'US' tax returns were filed. Everyone looked at it and knew their Canadian returns were done and carried on.
To fix it now, you should be filing your 2001 to 2007 returns. Believe it or not, as a US citizen working for SASK TEL and having a $20,000 RRSP (just an assumption - I do not know), you could be liable for official penalties of
1. $10,000 to $500,000 plus up tp five years in jail for failing to report the existence of the RRSP (and any other Canadian financial accounts) to the Departemnt of the Treasury in Detroit on US Form T D F 90-22.1
2. 35% of the money in the RRSP plus 5% for every year you did not report the RRSP (let's see 5% x'x 15 years is 75% plus 35% for a total of 110% already) for not filling in form 8891 and the reporting system before.
Tax on your gross earnings back to 1967 or when you started working. Some returns could be too late to claim foreign tax credits, etc and you could end up with actual tax owing.
If you file voluntarily, and made less than $70 to 82,000 a year, there is little liklihood of tax.
However, (as happened to one fellow in Wilkie, Saskatchewan) if you had sold a working family farm and claimed $500,000 capital gains free under Canadian tax rules, you wouold be taxable in the US because the US does not recognize the Caandian $500,000 tax free.
This old series should help you.
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QUESTION:
My husband just found out his mother is american and just applied for his citizenship at 45 years of age. He is now dual citizen of canada by adoption and birth in Canada and citizen of US
by his birth mother. He thought this was something to be proud of and saw many advantages...now after reading your page I'm not sure that he should've discovered his inheritance of
Americanship! When we sell our home in canada which we have definitely made a profit on (Alberta location) will he have to pay tax on that profit??? What about his income he has made for
the last 30 years as a Canadian not knowing he was American? Will he owe backtaxes on that money or just on any monies he now makes??? Also can you answer any other questions
outside of taxation such as draft laws???
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david ingram replies:
If he uses his dual nationality to work for a company that needs his services on both sides of the border, it is a dramatic economic advantage to have dual citizenship. This can be as grandiose as being the president of a major airline to something as mundane as being a cross border truck driver but it is a definite economic advantage with the right job.
If there is no job reason it is a pain in the neck.
He now has a bigger reason to file his US 6tax returns than his Canadian returns.
He should be filing 2000 to 2006 back US returns now and include forms TDF 90-22.1 and 8891 to record his bank accounts and internal earnings of his RRSP accounts.
The US penalties for not doing so can be anywhere from a minimum of $10,000 to a MAXIMUM of $500,000 plus up to five years in jail for the TDF forms and 35% of the money in the RRSP plus 5% for every year he does not report the internal earnings of theRRSP accounts plus 5% for every year not reported since 1989.
Done properly, it is unlikely he will owe anything but it could happen. These older answers will hlep you. And you are the only question out of about 60 that is being answered today (Sunday) I took the day off,.
We, of course are pleased to help out if necessary - pricing can be found way down there.
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?
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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,
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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.
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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 -
(604) 980-0321 Fax (604) 980-0325
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)
email to taxman at centa.com
www.centa.com www.david-ingram.com
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."
Be ALERT, the world needs more "lerts"
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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CEN-TA Cross Border Services - Tax, Visas, Immigration
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