Things you should consider if you’re a U.S. Citizen or Green Card Holder
On February 19th 2016, I attended a seminar in Victoria put on by Moodys Gartner Tax Law; the subject was “Renouncing Your U.S. Citizenship”.
I realize that most of you are not U.S. citizens (dual or otherwise), but we do have a number of clients who are, and many of you know someone who is. For those of you who are interested, here are a few things I found out:
Most people know that if you’re born on U.S. soil, you’re automatically a U.S. citizen. If you happen to move to Canada after birth your Canadian Passport will be issued indicating that your place of birth was, for example, Denver, Colorado. Until recently, U.S. Immigration has allowed U.S. citizens to use their Canadian passports to gain access to the U.S., but this will be changing according to Moodys Gartner.
Did you know that it’s actually illegal for a U.S. citizen to travel to or from the United States without a valid U.S. passport? U.S. Immigration has started a pilot project at certain airports that flag people traveling under foreign passports (Canadian or otherwise) who were born in the U.S. There is a case where a woman got stopped making a connection in New York when she was flying back to Canada from Europe. She was detained by U.S. Immigration for 11 hours and missed her connecting flight. Considering this, if you’re traveling on a Canadian passport and it indicates that your place of birth is anywhere in the United States, you should either have a valid U.S. passport with you or you risk being detained by U.S. Immigration.
Also worth noting, if you sell a property (including your principal residence) and make more than a $250,000 gain on the sale, you’re subject to a 20% tax on the amount over $250,000. If you’re a U.S. citizen and you happen to live in Toronto or Vancouver, this could easily happen to you.
This currently has a large number of people looking to renounce their U.S. citizenship. If you do decide you want to renounce, now might be the best time to do so. Besides the fees for renouncing being increased and the waiting times growing longer, there’s the issue of “exit” tax.
In order to renounce, you must have filed at least the last 5 years of U.S. tax returns. In the year you renounce, you have to file your last U.S. tax return and include with that return a form which outlines what you own and its corresponding value. If your net worth is over $2,000,000 US you could be subject to an exit tax. This can be a problem for a lot of people because the calculation includes 100% of any joint assets you own (think of your principal residence and bank accounts), as well as the value of a medical or dental practice.
The reason I said now might be the best time to renounce is because the exit tax calculation is done in U.S. dollars. In this respect you’d be converting your Canadian dollar assets to U.S. dollars.
Something else to note, if you’re an American citizen and you renounce your U.S. citizenship, it has no effect on your children if they’re U.S. citizens.
If you’re a U.S. citizen perhaps it’s time to renounce your citizenship if you’re not planning on living in the United States. Think about it. If you have any questions, please contact us.