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Canada/US dual citizenship tax question

35418 Views 12 Replies 7 Participants Last post by  Bevdeforges, 
C
Hi all,

I was born in the USA as a US citizen, moved to Canada 10 years ago, married a born Canadian citizen, and became a dual Canada/USA citizen myself. I live and work exclusively in Canada (although I do have some investments of Canadian and US stocks and such).

Since I moved to Canada, I've always filed Canadian taxes. However, I've recently been informed that I might have had to file US tax returns, even though I have nothing more to do with the USA other than my citizenship from birth. Is this true?

If so, and given that I haven't filed a US return since moving to the USA 10 years ago, am I going to be in for a world of financial problems if I file now? I'd almost rather give up my US citizenship if it's going to cause a huge financial headache at this point....

Thanks for any advice you can provide!

--Dave
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Bevdeforges
Yes, you do have to file US tax returns as long as you remain a US citizen - and giving up your US nationality "for tax purposes" can be a dangerous route as there are potential penalties for so doing. It's far easier to clear your record with the IRS, and chances are it won't cost you anything in back taxes or penalties.

What you need to do is to file the last 3 years of US returns (2006,2007 and 2008). Take the overseas earned income exclusion for your salary. You may wind up paying some small amount of taxes if you have big income from your US investments. But read the instructions (publication 54) carefully, as you'll probably be filing as "married, filing separately" and if any of the investments or bank accounts are in joint name, you may be able to avoid declaring interest or dividends on those in whole or in part since your husband is not subject to US taxes.

Once you've filed those back 3 years, and assuming you're not found to owe much or any taxes, you're square and can just continue filing your annual "love letter to the IRS". (And you have until June 15th to file the current return, since you're out of the country.)

There is also a requirement to file a form with the Treasury Dept listing your foreign bank accounts if the total in all accounts you hold signature authority over exceeds $10,000 at any point during the year. In your situation, I'd just file the report this year (i.e. for 2009) if you need to and let the Treasury Dept. decide if they want you to file for any back years. (Most likely, they won't bother.)
Cheers,
Bev
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canadave said:
Hi all,

I was born in the USA as a US citizen, moved to Canada 10 years ago, married a born Canadian citizen, and became a dual Canada/USA citizen myself. I live and work exclusively in Canada (although I do have some investments of Canadian and US stocks and such).

Since I moved to Canada, I've always filed Canadian taxes. However, I've recently been informed that I might have had to file US tax returns, even though I have nothing more to do with the USA other than my citizenship from birth. Is this true?

If so, and given that I haven't filed a US return since moving to the USA 10 years ago, am I going to be in for a world of financial problems if I file now? I'd almost rather give up my US citizenship if it's going to cause a huge financial headache at this point....

Thanks for any advice you can provide!

--Dave
Click to expand...
Dave

I'm not a legal or tax expert but let me try to assist based on the limited knowledge i have. US and Canada have two very different taxation models.

In US system, US citizens are taxed on their worldwide income regardless of whether they have any residence in US or not. However the minimum income for this is somewhere around 75k or 90k USD. You may be better off consulting a US tax consultant for some professional advice as it appears you have never filed US tax return.

In Canadian system, unless you continue maintaining ties with Canada (regardless of your physical residence) you will not be paying any taxes in Canada.

Some of the points revenue canada considers as maintaining ties are 1) physical property in Canada 2) holding your medical card in Canada etc

Even on a worse case if you may have to pay taxes in US, i'm sure there might be a Double Tax treaty US may have with Canada where by you will have relief for taxes paid in Canada. With Canadian tax rates always on the higher side when compared to US, your potential tax liability in US may be quite negligible.

I would suggest you take some professional tax advice just to be 100% certain.

Hope this helps.

Source for my knowledge - I'm a Chartered Accountant and a Permanent Resident in Canada. I took professional advice before i left Canada to ensure i did not get taxed on my Dubai income.
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Bevdeforges
VADXB said:
In US system, US citizens are taxed on their worldwide income regardless of whether they have any residence in US or not. However the minimum income for this is somewhere around 75k or 90k USD. You may be better off consulting a US tax consultant for some professional advice as it appears you have never filed US tax return.
Click to expand...
This is a common misconception. There is indeed a $90K overseas earned income exclusion for US citizens living abroad, but you must file a return in order to claim it. And the exclusion applies only to earned income (basically, salary, though self-employment income and certain kinds of royalties can be included).

For any other sort of income (interest, dividends, rents, etc.) you can take a tax credit for taxes paid in your country of residence or elsewhere.

It shouldn't really be necessary to seek professional help in filing a US return from overseas, unless you have very high income or complicated financial holdings. The first return can be a little tricky, but after that one, they go fairly quickly. All the forms (including the back year forms) are available on the IRS website, along with many instruction booklets.
Cheers,
Bev
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Bevdeforges said:
This is a common misconception. There is indeed a $90K overseas earned income exclusion for US citizens living abroad, but you must file a return in order to claim it. And the exclusion applies only to earned income (basically, salary, though self-employment income and certain kinds of royalties can be included).

For any other sort of income (interest, dividends, rents, etc.) you can take a tax credit for taxes paid in your country of residence or elsewhere.

It shouldn't really be necessary to seek professional help in filing a US return from overseas, unless you have very high income or complicated financial holdings. The first return can be a little tricky, but after that one, they go fairly quickly. All the forms (including the back year forms) are available on the IRS website, along with many instruction booklets.
Cheers,
Bev
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Bev, thats quite helpful as my nephews are US Citizens and i may probably suggest this to them.

Cheers
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C
Hey, thanks everybody! :) Those were all very helpful replies...I appreciate it. I'll have a look-see on the IRS website and download the necessary forms.

I guess I have a quick followup question in relation to my original one. I left the US on somewhat unfriendly terms with debt collectors for a couple of student-loan-related debts from years earlier (I was young and stupid). Persistent collection agency calls, the whole nine yards.

If I "settle up" with the IRS by filing these back taxes, does that open me up to "pursuit" by these debt collectors, even living here in Canada now as I do? I actually would like to settle those debts at some point, but I was not prepared to do that this year, so I'm a little leery of what might happen if my name, address, and phone number in Canada are suddenly available in an IRS database, if that makes sense.

Thanks all--I really appreciate the good advice.
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Bevdeforges
canadave said:
If I "settle up" with the IRS by filing these back taxes, does that open me up to "pursuit" by these debt collectors, even living here in Canada now as I do? I actually would like to settle those debts at some point, but I was not prepared to do that this year, so I'm a little leery of what might happen if my name, address, and phone number in Canada are suddenly available in an IRS database, if that makes sense.
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Due to confidentiality rules within the IRS, filing your taxes shouldn't lead to you getting "found" by the debt collectors. There's always the chance that someone "has a friend" in the IRS, but if your whereabouts is disclosed to someone outside the Service, you can raise bloody hell and possibly sue for major big bucks.
Cheers,
Bev
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Bevdeforges said:
Due to confidentiality rules within the IRS, filing your taxes shouldn't lead to you getting "found" by the debt collectors. There's always the chance that someone "has a friend" in the IRS, but if your whereabouts is disclosed to someone outside the Service, you can raise bloody hell and possibly sue for major big bucks.
Cheers,
Bev
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Bev, you just made my day :) Thanks so much for all your help!
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K
3 years or 6 years ???

Bevdeforges said:
Yes, you do have to file US tax returns as long as you remain a US citizen - and giving up your US nationality "for tax purposes" can be a dangerous route as there are potential penalties for so doing. It's far easier to clear your record with the IRS, and chances are it won't cost you anything in back taxes or penalties.

What you need to do is to file the last 3 years of US returns (2006,2007 and 2008). Take the overseas earned income exclusion for your salary. You may wind up paying some small amount of taxes if you have big income from your US investments. But read the instructions (publication 54) carefully, as you'll probably be filing as "married, filing separately" and if any of the investments or bank accounts are in joint name, you may be able to avoid declaring interest or dividends on those in whole or in part since your husband is not subject to US taxes.

Once you've filed those back 3 years, and assuming you're not found to owe much or any taxes, you're square and can just continue filing your annual "love letter to the IRS". (And you have until June 15th to file the current return, since you're out of the country.)

There is also a requirement to file a form with the Treasury Dept listing your foreign bank accounts if the total in all accounts you hold signature authority over exceeds $10,000 at any point during the year. In your situation, I'd just file the report this year (i.e. for 2009) if you need to and let the Treasury Dept. decide if they want you to file for any back years. (Most likely, they won't bother.)
Cheers,
Bev
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Hi Bev,

I enjoyed living in France for 10 years before coming to Quebec 12 years ago !

I, too, am a delinquent filer who wants to make amends with the IRS. I was told by an accountant that 6 years of previous filing was now required by the IRS. It seems that there is not a clear number of years but a recommendation for 3 to 5...

Can you confirm ?

Thanks,
Kevin :)
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new september deadline

I've been a US immigrant living in Canada for near 40 years. It never dawned on me that I had to file a US tax each year. Just heard it in the news this week.

Just to get the right info:

1- how many returns of years back need to be prepared?

2- when is the cutoff date all has to be ready for?

Appreciate any help I can get to get this cleared up soon.

Thanks
Sam
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I am in the same situation.
Does anyone have a reliable firm to recommend in Canada? Help...
Thanks
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M
Hi
I am a canadian and i am working in Dubai
Since 2007 and from that date I am filling tax as I don't have any income inside Canada but I am paying my property tax along my mortgage and still I am holding my medical card. My question is: if I am doing anything wrong while not declaring my overseas income?
note that monthly I am transferring money to my Canadian account only to pay my mortgage, my bills and my credit cards.
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Bevdeforges
samleonard said:
I've been a US immigrant living in Canada for near 40 years. It never dawned on me that I had to file a US tax each year. Just heard it in the news this week.

Just to get the right info:

1- how many returns of years back need to be prepared?

2- when is the cutoff date all has to be ready for?

Appreciate any help I can get to get this cleared up soon.

Thanks
Sam
Click to expand...
Normally, the number of years to back file is related to the statute of limitations on reporting income. Used to be 4 years, but now I'm told it may be 6. Best place to check would be with an IRS office in Canada (probably through one of the US Consulates). The IRS outside the US is normally far more reasonable to deal with than those "back home."

You are hardly the first long-time foreign resident who didn't realize they were supposed to be filing all these years, and the IRS does have procedures in place to deal with the situation calmly and rationally, as long as your failure to file isn't willful or trying to cover up some situation.
Cheers,
Bev
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