Cost of US citizenship?

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tquid
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Cost of US citizenship?

Post by tquid »

I'm sure this is probably overly vague but just to get started on it, what is the yearly cost of US citizenship for a dual citizen who lives & works in Canada? I'm already advised I should not take advantage of a TFSA. I'm working on "coming in from the cold" and complying with IRS reporting. I have an income just under $90k a year and had an LLC for a year and a half or so that made less than $200k. My net worth is about $200k mostly in a LIRA and RRSPs. I consider renouncing out of a) peevishness (yes, I know, not a good reason) and b) removing the mental overhead of dealing with all that extra filing every year.

Is there math to be done on this? Is there a break-even point for income and investments?
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Re: Cost of US citizenship?

Post by twa2w »

Not sure about actual cost but certainly some restrictions.

While you have to declare your worldwide income to the IRS, you will get credit for Cdn taxes paid so you likely will not have extra tax to pay to the USA. The extra cost will come from tax preparation costs,perhaps reduced investment opportunities, and the extra Cdn tax on not being able to hold investments tax free in a TFSA.

You will have issues if you have a TFSA and own any PFICs ( mutual funds, etfs and the like). You may have extra paperwork to complete for the IRS to maintain tax free status of your RSP.

There may also be estate issues down the road depending on the eventual size of your estate.

And of course the rules are continually changing as is the amount of effort put forth on enforcement :D

You may want to check out the Serbinski forums. https://forums.serbinski.com/
brucecohen
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Re: Cost of US citizenship?

Post by brucecohen »

If you want to play it safe with the IRS being a US citizen living in Canada means:

No TFSA
No RESP
No RDSP
No Canadian-domiciled unitized investments (ETFs, mutual funds, most REITs) outside of your RRSP/RRIF*
Cost + extreme aggravation of filling annual US tax return(s). Your LLC means you'll likely need professional help
Aggravation of filing annual FBAR covering bank and brokerage accounts
Cross-border difference in tax treatment of sale of principal residence

*IRS has never explicitly stated that PFIC rules don't apply to RRSPs/RRIFs but that is the general assumption among tax pros.

A few potential pitfalls:
US does not recognize Canada's dividend tax credit
US and Canada calculate ACB differently. US fully taxes proceeds of sale of security held less than 1 year

$90k/year of salary would be tax-free under US earned income exclusion but $90k of dividends would not, I think.

Renouncing US citizenship is costly. US$2,300 fee to State Dept plus <$100 in miscellaneous expenses. But LLC ownership might create need for professional advice; I don't know. The State Dept fee has increased sharply in recent years and I reckon it's a ripe target for hikes in coming years.

Don't renounce if you might ever want/need to move back to the US. Technically, you should be treated no differently than any Canadian. In reality, a relative who's retired from the US consular service tells me there are many rednecks in US Immigration and they'll keep losing your paperwork.
'
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Re: Cost of US citizenship?

Post by brucecohen »

If you want to play it safe with the IRS being a US citizen living in Canada means:

No TFSA
No RESP
No RDSP
No Canadian-domiciled unitized investments (ETFs, mutual funds, most REITs) outside of your RRSP/RRIF*
Cost + extreme aggravation of filling annual US tax return(s). Your LLC means you'll likely need professional help
Aggravation of filing annual FBAR covering bank and brokerage accounts
Cross-border difference in tax treatment of sale of principal residence

*IRS has never explicitly stated that PFIC rules don't apply to RRSPs/RRIFs but that is the general assumption among tax pros.

A few potential pitfalls:
US does not recognize Canada's dividend tax credit
US and Canada calculate ACB differently. US fully taxes proceeds of sale of security held less than 1 year
US does not recognize LCGE for CCPC owners and farmers

$90k/year of salary would be tax-free under US earned income exclusion but $90k of dividends would not, I think.

Renouncing US citizenship is costly. US$2,300 fee to State Dept plus <$100 in miscellaneous expenses. But LLC ownership might create need for professional advice -- especially if it's valuable enough for you to be deemed a "covered expatriate." The State Dept fee has increased sharply in recent years and I reckon it's a ripe target for hikes in coming years. You definitely do not want to be deemed a covered expatriate.

Don't renounce if you might ever want/need to move back to the US. Technically, you should be treated no differently than any Canadian. In reality, a relative who's retired from the US consular service tells me there are many rednecks in US Immigration and they'll keep losing your paperwork.

If you don't renounce now but might want to later, make sure you keep a record of your last U.S. address. For some reason they ask for that on several of the renunciation forms.
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big easy
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Re: Cost of US citizenship?

Post by big easy »

IIRC the US version of the principle residence exemption only covers the first $250,000 in gains. So if you sell your principle residence and you have a big capital gain, you may face capital gains tax in the US whereas there would be none in Canada.

Also, I think there are theoretically big fines for not filing the FBAR et al.

Apparently all this applies to a US person - someone born in the US even if they only spent a day there, a US citizen, a US greencard holder. Perversely, the so called dreamers will be considered US persons, even if they are denied citizenship.
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Re: Cost of US citizenship?

Post by SoninlawofGus »

big easy wrote: 28 Jan 2018 22:41 Apparently all this applies to a US person - someone born in the US even if they only spent a day there, a US citizen, a US greencard holder. Perversely, the so called dreamers will be considered US persons, even if they are denied citizenship.
And children born abroad to a US citizen parent -- the accidental Americans.
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Re: Cost of US citizenship?

Post by BC_Doc »

Isaacbrocksociety.ca is a good resource on this issue.
formerpatriot
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Re: Cost of US citizenship?

Post by formerpatriot »

Speaking from personal experience:

My oldest son (now in his late 20s) was born in the USA and was 4 years old when we moved to Canada.
He renounced his US citizenship last July.

My wife (who was born in the USA and who moved to Canada in the 1990s) just renounced her US citizenship yesterday.

In both cases the main reason (in fact the only reason) was the high cost of being an American living in Canada.

My son: He is starting out in life. He wanted to open a brokerage account, a TFSA, an RESP for his son, etc. As of last year, he had never filed with the IRS and he had never filed an FBAR. Last year I helped him file 6 years of IRS tax returns and 6 years of FBARs. Last July he renounced his US citizenship. The next day he was opening a brokerage account. For him the decision was easy. He and his wife have no desire to ever move to the USA. The only negative side of renouncing was the scandalous fee of 2350 USD (which comes out to about 3000 CAD). No regrets.

My wife: When we moved to Canada in the 1990s, she stopped filing with the IRS. About 6 years ago we became nervous about her non filing situation. I helped her file a bunch of past tax returns and past FBARs. She has been filing since then. Her situation is simple. But it will become complicated if I die or when she retires or when she inherits. So chose to renounce. No regrets.
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Re: Cost of US citizenship?

Post by kcowan »

formerpatriot wrote: 18 Oct 2018 17:00But it will become complicated if I die or when she retires or when she inherits. So chose to renounce. No regrets.
Yes our friends are a mixed marriage: He Canadian and she American but she never filed after they moved to Vancouver in 1977 and now they are looking at a taxable sale of principal residence so she renounced in April.
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Re: Cost of US citizenship?

Post by kumquat »

OOC, are there potential border crossing problems?
I don't intend to offend anyone, that part is just a bonus.

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Re: Cost of US citizenship?

Post by brucecohen »

kumquat wrote: 18 Oct 2018 20:04 OOC, are there potential border crossing problems?
I renounced in June 2017 and have since made 4 or 5 trips to the US. No border problem at all.

FWIW, I just learned that foreigners in the US are supposed to carry citizenship ID all the time. US Border Patrol can and does do ID checks within 100 miles of the border. There was an uproar a few months ago when they set up a RIDE-type checkpoint on a busy highway in New England and asked for driver/passenger IDs. Regional commander promised to never do that again.
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Re: Cost of US citizenship?

Post by formerpatriot »

Before she renounced her US citizenship, my wife had been a dual (Canada-USA) citizen for about 10 years. During those 10 years, she traveled to the USA about a dozen times, always using her Canadian passport (even though, as a US citizen, she should have been using her US passport). Despite her US birthplace being indicated on her Canadian passport, no US border agent ever asked a question about it. The same is true of my son who often travels to the US with his Canadian passport with a US birthplace written in it. No question asked. To be safe, now that they both have renounced their US citizenship, they will carry a copy of their CLN (Certificate of Loss of Nationality) inside their Canadian passport when they go to the US.
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Re: Cost of US citizenship?

Post by brucecohen »

A few years ago I heard second-hand from a tax accountant about a US-CDN dual who tried to enter the US on a Canadian passport and was questioned because of his birthplace. IIRC, this happened at the Calgary airport and it turned out that the guy had not been filing US returns. I'll guess that the guy said something which ticked off the border guard* and prompted some questioning.

I clipped a copy of my CLN inside the back of my passport. I don't know if it's of any use, but better to have it and not need it than the other way around. No border guard has ever looked at it.

* Here's a story that I know is true because it involved a friend. A friend of mine was CFO of a family-run company in Toronto. One of the founder's adult sons headed for Buffalo to do some shopping, presented his Canadian passport and got into some kind of negative exchange with the border guard. The guard told him make a U-turn because he was being denied entry. "You can't do that," the kid said. "Why not?," the guard replied. "Because I'm an American citizen," the kid said. "But you're then required by law to present a US passport," the guard said. "Drive over to that building and go into the office." Border guards kept him and his wife for a couple of hours. About six months later his parents and siblings each received an IRS letter demanding back returns. My friend's last act before retiring was hiring a first-class accounting firm to prepare the required filings and new ones each year.
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snowback96
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Re: Cost of US citizenship?

Post by snowback96 »

brucecohen wrote: 18 Oct 2018 22:48 I clipped a copy of my CLN inside the back of my passport. I don't know if it's of any use, but better to have it and not need it than the other way around. No border guard has ever looked at it.
I think that is a best practice. I have never heard of it being needed (yet) at the US border; however, it can be exceptionally useful if flying back to Canada from overseas with a connection in the USA. Some airlines will refuse to fly you to the USA if your Canadian passport shows a US place of birth (and are not carrying a US passport too). They have been trained to know that this means "US citizen" and that the US would require you to enter with a US passport. If you get to the US and are turned away, the airline is responsible to fly you back (at their expense) and could be subject to fines. In a case like this, you'll need to prove to the airline that you not American otherwise you'll be denied boarding.

Also, I think it is worth both bookmarking the website and saving a PDF copy of the relevant Federal Register "Name & Shame" list on your phone. That way you have easy access to corroborating evidence of expatriation straight from the US State Department in case somebody decides to be a dick.
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Re: Cost of US citizenship?

Post by ghariton »

When I returned from New Jersey to Canada I kept my New Jersey driver's license, changing the address to my Ottawa address. I even renewed it using my Ottawa address. I figured it might come in handy if ever I was in parts of the U.S. where they were not familiar with Canadian documents.

Foolishly, on one trip to the U.S., when U.S. authorities asked for ID, I presented my NJ license. That led to two hours of questioning. (It didn't help that I had a US social security number.) They let me in, but told me never to try that again.

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Re: Cost of US citizenship?

Post by SoninlawofGus »

brucecohen wrote: 18 Oct 2018 20:48 I renounced in June 2017 and have since made 4 or 5 trips to the US. No border problem at all.
Congrats on your renunciation! Welcome to our growing club -- still one of the best decisions I've ever made. And it's had virtually no impact on my life. In my case, I do not travel via passport. I cross the border with an Enhanced Drivers License, and I've done that probably 50 times with no problems. If I wanted to fly to/from the U.S., I would do so through a nearby U.S. city. But I don't fly much anyway.

The only change that I've noticed is that the last two of the past three times I've crossed the U.S. border, I was asked where I was born. This info is not disclosed through my driver's license, and I was never asked for it previously . In any case, I was passed right through.

The EDL simplifies things. If a prickly border guard looks at the CLN in your passport, I think your chances of an uncomfortable encounter are higher -- though it's definitely the best strategy if you fly a lot. The CLN has remained safely in my SDB and it won't be coming out. It's one of the most important documents I own. I wouldn't want to try to get that thing replaced.
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Re: Cost of US citizenship?

Post by Shakespeare »

one of the best decisions I've ever made
It is sad that it has come to this. :?
Sic transit gloria mundi. Tuesday is usually worse. - Robert A. Heinlein, Starman Jones
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Re: Cost of US citizenship?

Post by SQRT »

SoninlawofGus wrote: 19 Oct 2018 16:03
brucecohen wrote: 18 Oct 2018 20:48 I renounced in June 2017 and have since made 4 or 5 trips to the US. No border problem at all.
Congrats on your renunciation! Welcome to our growing club -- still one of the best decisions I've ever made. And it's had virtually no impact on my life. In my case, I do not travel via passport. I cross the border with an Enhanced Drivers License, and I've done that probably 50 times with no problems. If I wanted to fly to/from the U.S., I would do so through a nearby U.S. city. But I don't fly much anyway.

The only change that I've noticed is that the last two of the past three times I've crossed the U.S. border, I was asked where I was born. This info is not disclosed through my driver's license, and I was never asked for it previously . In any case, I was passed right through.

The EDL simplifies things. If a prickly border guard looks at the CLN in your passport, I think your chances of an uncomfortable encounter are higher -- though it's definitely the best strategy if you fly a lot. The CLN has remained safely in my SDB and it won't be coming out. It's one of the most important documents I own. I wouldn't want to try to get that thing replaced.
CLN, SDB??
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Shakespeare
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Re: Cost of US citizenship?

Post by Shakespeare »

Certificate of Loss of Nationality, Safety Deposit Box.
Sic transit gloria mundi. Tuesday is usually worse. - Robert A. Heinlein, Starman Jones
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