If You're a Snowback Returning from the U.S.

Asset allocation, risk, diversification and rebalancing. Pros/cons of hiring a financial advisor. Seeking advice on your portfolio?
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If You're a Snowback Returning from the U.S.

Post by Norbert Schlenker » 16 Feb 2005 15:32

A few tips to help you avoid some scars

The basics

1. Keep a bank account in the US, no matter what. Banks deal with non-residents on a regular basis. It's no problem for them whether you live in Canada or Botswana. You want an account that isn't going to cost a lot in fees. Shop around before you leave the country.

2. Keep a U.S. credit card. You'll find it useful the next time you shop online in the US or travel either to the US or any other country that uses US$. Again, shop around before you leave the country. You don't want anything that has high interest or fees.

3. Before you move back, go to this page and read every linked document.

4. Vehicles are remarkably difficult. If you want to bring a vehicle back to Canada, you will jump through hoops. If there's a loan on the vehicle, you probably don't have the title, the lender does. Believe it or not, it is U.S. federal law that motor vehicles cannot be exported without prior presentation (I believe the rule is 72 hours prior) of the title at the border post you will exit. On the Canadian side, you need to check with the Registrar of Imported Vehicles to get the car into the country. Customs may charge GST and/or PST at the border. One happy note: They take plastic.

5. Have a comprehensive inventory of household goods. Be prepared to pay GST and/or PST on any imported item exceeding $10k in value. Liquor, tobacco, and firearms are not good things to have on the list.

6. When you cross the border, don't do it with more than either US$10,000 or C$10,000 in cash or bearer instruments, including certified checks or bank drafts. Even traveller's checks and stock and bond certificates are not a good idea. Chances are you won't get caught if you try, but if you are, it can be confiscated. If you're moving that sort of dough, set up a US$ bank account in Canada and write a check on the account you left in the US. The Canadian bank will hold the funds temporarily; if that's a problem, get the U.S. bank to wire the money to the Canadian bank.

7. Do not, except under duress, change large sums of US$ to C$ before you get back to Canada. You will be taken to the cleaners in the U.S. You still have to be careful once you're back.

8. Fix your will and get a new power of attorney once you're back in Canada. If you ever drafted a will while in the U.S. and were advised to use trusts to avoid probate fees or estate taxes, that will still work but you should know that you are setting yourself up for a long tax nightmare in Canada. Consult a professional.

Retirement accounts

9. Canada doesn't recognize Roth IRAs or educational IRAs. They will be nothing but a headache to you once you're back. If you're not 59 1/2, there is little you can do. Be prepared to declare the income every year.

10. If you have a loan from your 401(k), pay it back now. After you are separated from your employer, even if they will let you keep the 401(k), loans must be paid back.

11. If you are happy with the investment choices in the 401(k), it's tempting to leave the money there. Depending on employer, 401(k) plans can have access to institutional class funds that are not available to retail investors and that have much lower costs. That's not always true, so you have to make up your own mind.

12. If you decide to move the money from the 401(k) to an IRA, do it before you leave the country. Make sure it's a direct transfer. You never want the money paid to you because 20% will be withheld and sent to the IRS. If you have sufficient cash to make up for that deduction, you can put the full amount into an IRA and get it all back on next year's tax return. It's still a hassle and you lose the use of the money. Note that, if you give the employer the name and account number of an existing IRA, they usually issue a cheque in the joint name of the financial institution and you without withholding 20% - that's okay.

13. You have to have an IRA with someone who will deal with Canadian residents. I use TD Waterhouse. There was a flurry of threats by mail when the OSC started giving U.S. brokers a hassle in the fall of 2000 but that has subsided. TDWHUSA lets me trade over the Net and sends me statements in Canada. It works.

If you are very risk averse and would keep your IRA strictly in bank products, like CDs, then just open an IRA at a bank. Unlike brokers, there is no doubt that they will deal with non-residents. Note that this doesn't hold true if you buy funds inside a bank, as that is almost always handled by a separate broker-dealer subsidiary.

14. If you need money out of your IRA or 401(k) before you are 59 1/2 years old, beware the 10% penalty tax. If you are willing to draw small amounts, per the IRS' schedule, it can be done without attracting the penalty. More information on this than you ever want to know is available at this site.

15. You don't need to file anything with CRA every year to defer the tax on income inside a 401(k) or regular IRA. (Canadians often don't know this unpleasant little fact: they do have to file something every year with the IRS to defer the tax on income inside an RRSP they left behind.) Once the money comes out, 25% will be withheld by the IRS if it's a lump sum and 15% if it's a regular payment in retirement. Any withdrawal is fully taxable in Canada. The IRS withholding is fully creditable against the Canadian tax liability.

Government benefits

16. To collect U.S. social security, you normally must have worked 40 quarters and paid FICA. Canada and the U.S. have something called a totalization agreement which modifies this rule. If you worked at least 6 quarters in the U.S., you are eligible for a reduced Social Security pension at retirement age. Contact the Social Security Administration for an estimate of what you would get paid. If you collect Social Security, 15% of it is tax free in Canada under the current treaty.

17. If you were laid off and came back to Canada, you are eligible for unemployment insurance from the state in which you were employed. You must contact an HRDC office close to where you move and provide them with basic information within a very short time of arriving. HRDC will fill out an application on your behalf and forward it to the relevant office in the U.S.

Taxes

18. If you own a house in the U.S., sell it while you're still a tax resident. You do not want to have up to 30% of the sale proceeds withheld and remitted to the IRS because you're a furriner. Take advantage of the $250k capital gain exemption ($500k if married) on sale.

19. You may have made investments in the US that are tax exempt or tax deferred under US law. Examples would be municipal bonds and US government savings bonds. Canadian tax law does not recognize such exemptions and deferrals. Sell those assets before you leave the US.

20. Capital gains taxes don't work quite the same way under the two countries' tax systems. A generally good rule of thumb for any taxable investment is to sell it if it's in a loss position while you are still in the US, and to keep it until after you are in Canada if you have a gain.

21. Legally, you are supposed to file a departure tax return, also called a sailing permit, on Form 1040-C before you leave. With it, you estimate your taxes for the year of departure and pay up. You file a 1040NR the next April. I didn't get a sailing permit, I don't know anyone who has, but you may want to dot all i's and cross all t's.

22. Once you're safely back in Canada, get yourself clear of the IRS. If you spent more than 8 of the past 15 years in the U.S., you are subject to expatriate taxes as if you were still there for a period of 10 years after leaving. Those taxes include income and estate taxes. If you meet certain income and asset tests and you have emigrated to the country where you or your wife (or either set of parents) came from, you can get out of the liability. But you need to file the right forms.

23. For years to come, you may be consulting the Tax Guide for Aliens (500k PDF). Get a hard copy before you leave or be prepared to download it afterwards.

24. You'll likely be needing a half decent copy of the U.S.-Canada Tax Treaty too.

Other useful references

25. Buy a copy of The Border Guide by Robert Keats. It's US$18 well spent, whichever way you're crossing the border.

26. Keep an eye on the cross-border tax discussion board at Serbinski.com. It's full of good stuff.

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Post by treetops » 18 Feb 2005 18:59

Nice summary, Norbert. One addition (and you do know about it): for those who insist of repatriating their IRA, CRA has ruled (I have an actual letter supplied by CRA) that all the contiributions and resulting gains (yours, the employers) are deemed to be yours within this foreign retirement arrangement, and can be brought into an RRSP after 59 1/2 without penalty.

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Post by Arby » 20 Feb 2005 20:30

Any words of wisdom for those going in the other direction - i.e. Snowbacks moving to the US? I'm planning to spend winters in the US, and may eventually move there permanently.

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Re: If You're a Snowback Returning from the U.S.

Post by Norbert Schlenker » 21 Feb 2005 19:06

Arby wrote:Any words of wisdom for those going in the other direction - i.e. Snowbacks moving to the US? I'm planning to spend winters in the US, and may eventually move there permanently.
Here's a quick rendition. It's amazing how similar the tips are.

The basics

1. Keep a bank account in Canada, no matter what. Banks deal with non-residents on a regular basis. It's no problem for them whether you live in the US or Botswana. You want an account that isn't going to cost a lot in fees. Shop around before you leave the country. Once you're in the US, change the address on the account.

2. Keep a Canadian credit card. You'll find it useful the next time you shop or travel back to Canada. Again, shop around before you leave the country. You don't want anything that has high interest or fees.

3. Consider getting a Canadian credit card denominated in US$. When you first get to the US, you will have no credit rating. Credit cards will be hard to get. A Canadian card in US$ may save your bacon.

4. Vehicles are remarkably difficult. You not only need to comply with US federal safety regulations; states may have their own more onerous requirements. Think hard about moving your car with you.

5. Have a comprehensive inventory of household goods.

6. When you cross the border, don't do it with more than either US$10,000 or C$10,000 in cash or bearer instruments, including certified checks or bank drafts. Even traveller's checks and stock and bond certificates are not a good idea. Chances are you won't get caught if you try, but if you are, it can be confiscated. If you're moving that sort of dough, set up a US$ bank account in Canada. Insist that the bank provide checks with a Fed routing number in the top right corner (format is xxx-yyy/zzz) and that the checks clearly show that they clear through New York. Once you're down in the US, you can write a check on that account and deposit it to a US bank. The US bank will hold the funds temporarily; if that's a problem, get the Canadian bank to wire the money to the US bank.

7. Do not, except under duress, change large sums of C$ to US$ in the US. You will be taken to the cleaners. Change the money before you go.

8. Get a new will and power of attorney once in the US. Do not do anything fancy, especially if you think you might ever come back to Canada. Undoing fancy often requires more fancy and is sometimes just impossible. If there is anything complex about your situation, consult a professional.

9. Numeric dates are mm/dd/yy. Cheques are checks. You will be shocked by the variety of financial institutions. Mail gets delivered on Saturday! Guns are available almost anywhere, few to no questions asked.

Retirement accounts

10. Before you leave, check with the institution holding your RRSP about whether they will deal with you in the state you will be in. Some states are easy, some are difficult, some are impossible. If you will live in an impossible state, be sure your RRSP is invested exactly as you want. You won't be able to change it afterwards.

11. If your RRSP is invested in securities and any of those securities are in gain positions, consider selling those winners before you leave. This can create problems, such as unnecessary transaction costs or going offside the foreign content rules, so be careful. If you really like the investments, nothing stops you from buying them right back again in the RRSP. You do this to raise your cost base for US tax purposes, which could save you some taxes down the road.

12. The US doesn't recognize RESPs. They will be nothing but a headache to you once you're there. Be prepared to declare the income every year.

13. If you have a loan from your RRSP for home purchase or education, you should be alright. The repayments should not cause a problem with the IRS.

14. In some provinces, being non-resident unlocks a locked-in retirement account. You may be able to get access to the funds much faster than under the regular rules.

15. You have to file something every year with the IRS to defer the tax on income inside an RRSP or RRIF or LIRA. The tax treaty protects you but only if you follow the rules. Make a declaration every year with your 1040.

Government benefits

16. In most cases, you are entitled to collect OAS from Canada at age 65. If you lived in Canada for less than 40 years between the ages of 18 and 65, your benefit will be reduced. 85% is taxable in the US.

17. If you have paid into CPP, you are entitled to collect those payments in the US as well. (Also: If you are going to the US only temporarily, you may be eligible for an exemption from Social Security premiums on earned income.)

Taxes

18. If you think taxes will be far lower in the US than in Canada, you have been reading too much propaganda. The tax systems are different so some people get a bargain on one side of the border and some on the other. As well as the income tax differences, consider sales taxes, Social Security premiums, and property taxes if you will own a house.

19. When you leave Canada, you are deemed to have sold everything on your departure. If you own taxable investments - real estate other than your home and securities are the most common - you must pay capital gains tax as if you had sold them at market. For US tax purposes, you can now elect to have the US cost base be the market value on entry.

20. Your taxable investments in Canada will be hard to manage. Securities commissions in the US don't want Canadian brokers dealing with Canadian residents. Expect to have to move taxable securities portfolios to a US broker. Canadian mutual funds will have to be sold.

21. Being a tax resident in both countries will lead to grief. Cut your ties to Canada. Don't leave a house behind that isn't leased out for a lengthy period. Don't leave a spouse behind. Get a state driver's license where you live. Mail your provincial health care card back to the Ministry of Health. The April after you leave, file a Canadian tax return with your departure date clearly indicated.

22. For years to come, you may be consulting the Tax Guide for Aliens (500k PDF). Get a hard copy before you leave or be prepared to download it afterwards.

23. You'll likely be needing a half decent copy of the U.S.-Canada Tax Treaty too.

Other useful references

24. Buy a copy of The Border Guide by Robert Keats. It's US$18 well spent, whichever way you're crossing the border.

25. Keep an eye on the cross-border tax discussion board at Serbinski.com. It's full of good stuff.

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Post by Friendly Dragon » 21 Feb 2005 19:19

Reading through all this, it makes me wish that the Americans had lost their revolution in 1776 - then we would all be one country and not have to deal with this cross-border guantlet.

Alternatively, the Americans could have successfully invaded us in 1812.

But seriously, I don't want to be an American (and I suppose they don't want to be under the Crown again), however I look forward to a time when we can integrate a bit more with their economy, in much the same way that the Europeans have done. Sure would like to trade in the NYSE as easily as the TSX, and pay US discount brokerage rates.

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Post by ig17 » 25 Feb 2005 00:04


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Post by novice » 27 Feb 2005 13:24

I recently purchased a copy of the Keat's book that Norbert mentioned upstream. I agree that it is a terrific resource for anyone who has to deal with a wide variety of cross-border financial planning issues. I suspect that financial planners with any expertise in this area are a rare breed, and Keats may be as good as it gets in this category. Thanks for the tip Norbert.

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Post by jonforest » 25 Mar 2005 17:17

As some of you know, I was given leave by my regular employer in order to take-up a one-year post with a non-profit here in the US. As such, I have a 403b into which my US employer is (over the year) depositing about $15k.

What are my options here? Do I try to bring it back to Canada or should I leave it down here?

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Post by Norbert Schlenker » 26 Mar 2005 13:10

jonforest wrote:What are my options here? Do I try to bring it back to Canada or should I leave it down here?
Read 11, 12, and 13 in the thread starter. There's nothing much different with a 403(b).
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Post by jonforest » 26 Mar 2005 18:21

Norbert Schlenker wrote:
jonforest wrote:What are my options here? Do I try to bring it back to Canada or should I leave it down here?
Read 11, 12, and 13 in the thread starter. There's nothing much different with a 403(b).
Thanks, Norbert. I guess I should have assumed as much. I have a few minor questions. Here they are #11-13:
11. If you are happy with the investment choices in the 401(k), it's tempting to leave the money there. <snip>

12. If you decide to move the money from the 401(k) to an IRA, do it before you leave the country. <snip>

13. You have to have an IRA with someone who will deal with Canadian residents. I use TD Waterhouse. <snip>
On point #11, the 403b is with TIAA-CREF, which I think has a pretty good reputation. The number of choices they have is pretty basic (a couple stock funds, a couple bond funds, a real-estate fund, and so forth).

On point #12, why would I decide (or not) to move the money to an IRA? (TIAA-CREF also does IRA, so it should be pretty simple to do.) Is it about portability? (I.e., is the 403b account that I have only associated with this employer; transfer to an IRA then is regular after terminating any employment?)

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Post by Norbert Schlenker » 28 Mar 2005 11:34

The issue with IRAs for US non-residents is that the custodian financial institutions don't want to deal with the legal and regulatory hassles. A 401(k)/403(b) doesn't have the same issues. A foreign address appears to pose no problem, perhaps because they are barred by law from forcing the transfer of any account over $5,000 in value.

I have only slight knowledge of TIAA-CREF but what I have heard is positive. If you are satisfied with the choices available to you in the plan, there is no need to run the small additional risk of transfer to an IRA followed by custodial jitters. I assume this account will be only a small portion of your overall portfolio so that neither limited choice nor fees is that big a deal.

You should always move funds out of a 401(k)/403(b) if the investment choices are poor. Small employers in particular are prone to offering poor choices with high fees because the provider offers to administer the plan for "free". Free for the employer is not free for the employee. In such cases, it is better for an employee to shift the funds to an IRA, where choices may be broader, fees may be lower, or both. Even if the plan is a good one and you would like to stay in, an employer can force out a small balance account and you will be forced into transfer.

(TIAA-CREF isn't small and offers decent and inexpensive choices, so this advice does not apply in your situation. OTOH, if you have some burning desire to invest this money in something not offered by the 403(b), then you must move.)

For snowbacks leaving the US and trying to make this decision, you should realize that you are going to get one shot. Once you have provided a Canadian address to the custodian, whether it's the original 401(k)/403(b) employer or the holder of an IRA, you are almost certainly stuck for good. Nobody new will open an account for you with a Canadian address, especially post-911. Choose wisely before you leave.
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Post by Bylo Selhi » 09 Apr 2005 09:43

Here's another way to get a handout from Unlcle Sam ;) Free money on tap for green card holders and U.S. citizens
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Post by Norbert Schlenker » 20 Jul 2005 01:44

For jonforest ...
Norbert Schlenker wrote:I have only slight knowledge of TIAA-CREF but what I have heard is positive.
And then some days you hear not so positive news ...
TIAA-CREF is among the lowest-cost mutual-fund providers in the business. Evidently the firm thinks some prices are too low.

The New York-based pension giant is proposing fee hikes for some of its funds that, if shareholders approve, would almost quadruple annual costs in certain cases. ...
IBD
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Post by Norbert Schlenker » 01 Dec 2005 22:22

Nothing can protect people who want to buy the Brooklyn Bridge.

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Post by worthy » 01 Dec 2005 23:03

another way to get a handout
Suddenly filing US returns after, say nearly 40 years absence, might not be such a good idea.
"Every decent man is ashamed of the government he lives under." H.L.Mencken

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Post by worthy » 01 Dec 2005 23:33

The rule of not carrying more than $10K across borders isn't the only money rule to follow.

In the US, sums of cash can and are regularly confiscated from individuals on the basis that carrying such sums is, ipso facto proof of a crime. Even if there are no charges, and no convictions. Between Oct. 1996 and March 1999 more than $208 million of cash seized by state officials was turned over to the Feds.

Just get stopped for speeding. Searching your vehicle turns up your ten grand hidden under the spare tire. The drug dog sniffs drugs on your money. Not a hard trick since virtually all cash carries drug traces. Goodby cash.

Local civil forfeitures of property are also a plague, despite a federal law that was supposed to rein them in.

Enjoy your stay in "the goodest country in the world", as Dubya might say.
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Roth IRA Withdrawals for a Canadian Resident

Post by Norbert Schlenker » 07 Nov 2007 17:01

Trouble coming if the following proposal becomes US law. The motivation for the bill is to fix AMT, which keeps biting more and more USians. Most tax bills require revenue neutrality under budget rules, so the AMT fix has to be paid for somehow. What better target than those attempting to flee the jurisdiction?

http://thomas.loc.gov/cgi-bin/query/F?c ... GHh:e41832:

Pay careful attention to the proposed revisions to expat taxes, both for renouncing citizens and emigrating long term residents. Deemed disposition of all capital assets, a la Canada, plus a 30% withholding of the contents of all retirement accounts.

Another section of the proposal imposes a permanent highest marginal rate tax on gifts or bequests received by US residents from any such erstwhile traitors.
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Post by SoninlawofGus » 05 Dec 2007 15:30

Norbert Schlenker wrote:
Another section of the proposal imposes a permanent highest marginal rate tax on gifts or bequests received by US residents from any such erstwhile traitors.
Yeah, this a really bizarre bit of legislation. If you're married to a non-American or have non-American kids, you're fine. If your kids are American, there could be a problem down the line. The IRS just doesn't get it. This kind of legislation hurts only those who play by the rules, and it paints with a broad brush over several kinds of people.

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Post by Norbert Schlenker » 05 Dec 2007 16:59

BTW, this legislation passed the House as HR3996 and is in the Senate. (It's actually being debated today.) AFAIK it's the only bill that addresses the AMT and the way it's chewing up the middle class, so its chances of passage are quite high.
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Re: If You're a Snowback Returning from the U.S.

Post by Northbound » 19 Mar 2008 01:50

This is great information, thanks very much for taking the time to write out a detailed guide. I have a couple of questions for you.
Norbert Schlenker wrote: 3. Before you move back, go to this page and read every linked document.
This link is now broken. Do you have an updated one?
Norbert Schlenker wrote: 12. If you decide to move the money from the 401(k) to an IRA, do it before you leave the country. Make sure it's a direct transfer. You never want the money paid to you because 20% will be withheld and sent to the IRS. If you have sufficient cash to make up for that deduction, you can put the full amount into an IRA and get it all back on next year's tax return. It's still a hassle and you lose the use of the money. Note that, if you give the employer the name and account number of an existing IRA, they usually issue a cheque in the joint name of the financial institution and you without withholding 20% - that's okay.

13. You have to have an IRA with someone who will deal with Canadian residents. I use TD Waterhouse. There was a flurry of threats by mail when the OSC started giving U.S. brokers a hassle in the fall of 2000 but that has subsided. TDWHUSA lets me trade over the Net and sends me statements in Canada. It works.
Do you have any suggestions on how to pick such a company? I was planning to pick Vanguard, where my employer's 401(k) was until I heard about the very recent policy change. I'm nervous that any company I pick could decide the same thing some time in the next ~30 years. In that thread snowback96 mentions that TD Ameritrade wouldn't let him keep an IRA as a Canadian resident. I guess I'm leaning towards Fidelity, but that's more by process of elimination than anything else.

Once again, thanks for the great advice. I'm really glad I found this website.

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Post by Norbert Schlenker » 19 Mar 2008 02:43

Welcome to the forum, Northbound.

Sorry about the broken link. It looks to me like it's been replaced by http://www.cbsa-asfc.gc.ca/travel-voyag ... r-eng.html

The general Forms & Publications page at CBSA also lists a few other documents that may prove useful to you.

http://www.cbsa-asfc.gc.ca/publications ... 1-eng.html
http://www.cbsa-asfc.gc.ca/publications ... 2-eng.html
http://www.cbsa-asfc.gc.ca/publications ... 8-eng.html
http://www.cbsa-asfc.gc.ca/publications ... 4-eng.html

On the question of an institution to hold an IRA, I don't know what to tell you. The recent Vanguard change is problematic for IRA holders there, but your situation may be different. If you can leave your money in the 401(k), rather than rolling into an IRA, it's possible Vanguard would continue to handle the account. That's worth a phone call (to the Vanguard contact number for your 401(k), not the general number). The worst they can say is no.

I continue to have an IRA at what is now TD Ameritrade, with a Canadian address on file, and I have had no problems. (Now I suppose I'll hear from them next week saying they want to shut it down.)

There's always the forwarded PO box dodge. AFAIK this is still doable, but it does cost you every month and you need lead time to set it up.
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Post by Norbert Schlenker » 28 May 2008 12:47

An update, because this looks like it will shortly be law.

http://online.wsj.com/article/SB1211932 ... _nonsub_pj

After attempting to insert similar language into bill after bill, it appears that Congress has finally managed the feat by shoehorning it into the new GI bill.

The bill will apply taxes to renouncing citizens and to expatriating aliens who meet certain income or asset tests. These taxes include

- deemed disposition of all property and consequent imposition of capital gains taxes on exit
- immediate 30% withholding on deferred compensation
- treatment of retirement accounts as if the funds in the account are withdrawn in a lump sum in the year of renunciation / expatriation (the 10% penalty for distributions before age 59 1/2 does not apply)
- imposition of gift tax at the top rate on any moneys sent by the expatriate to persons still subject to US taxes

These are onerous provisions for Canadians temporarily working in the US and who end up staying for more than 8 years but then return to Canada.
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Post by snowback96 » 28 May 2008 14:45

Congress is amazing. Is being foolish a requirement to run for public office?
- immediate 30% withholding on deferred compensation
I assume this means IRAs & 401k's? Seems to me that you'd be much better off to move back to the USA for a year in order to roll into a Roth IRA. Pay US tax at your marginal rate then move back to Canada. At least that eliminates getting taxed twice. Can you imagine getting taxed at 30% by the US and then another 30-40% by Canada?

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SoninlawofGus
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Post by SoninlawofGus » 28 May 2008 15:21

More on these provisions here and here.

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snowback96
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Post by snowback96 » 28 May 2008 17:34

SoninlawofGus wrote:More on these provisions here and here.
hmmmm.... If I'm reading this correctly, it looks like this law doesn't apply if you have less than $2MM in assets at the time of expatriation and averaged less than $139k in annual income in the prior 5 years. If you don't meet those conditions, the new law seems to be an improvement over the previous rules.

Seems to me that if you're under those thresholds, it might make sense to expatriate (or renouce US citizenship) before becoming a "covered individual".

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