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Despite US citizenship being the most coveted in the world, the number of people who voluntarily choose to expatriate constantly rises. US tax filing burden and complexity, associated tax return preparation cost, potential steep penalties for even an innocent mistake in a tax return or a disclosure, and a wide reach of the IRS across generations are all contributing factors for many Americans who reside outside of the US and possess a citizenship of another country. The scrutiny will only intensify once the Foreign Account Tax Compliance Act of 2010 is fully phased in on January 1, 2015

To expatriate US citizenship is never an easy decision and no one can provide an assurance on what may happen in the future especially for professional clients who tend to often cross the border for business purposes.

Our network includes qualified immigration lawyers with whom we always suggest our clients consult before making the decision to expatriate. There are several ways expatriation can be accomplished from the legal perspective. It is important that an individual understands all the potential consequences which may result from this decision, including inadmissibility of entry into the United States. If clients nevertheless are determined to proceed with the process, we assist them with their last year of US tax compliance which can be extremely complicated and if incorrectly administered can lead to significant penalties or filing requirements even after the expatriation act.

american citizens in canada

As a result of the US income tax provisions imposing residency and citizenship-based taxation on individual taxpayers, American citizen and Green card holders are required to file their US income tax returns and certain disclosures irrespective of the country in which they reside. This requirement exists even if there no additional US tax due after a foreign tax credit or earned income tax exclusion has been claimed. When completing the returns for Americans residing outside the US, we not only take into consideration the US and residency country domestic tax provisions but also account for a bi-lateral income tax treaty which may override or mitigate certain domestic tax legislation.

The complexity of US tax filings for Americans abroad directly correlates to the number and the type of accounts and holdings they may have in their country of residency. Operating through a non-US partnership or corporation, holding investments in non-US bank accounts or trusts, and deferring employment income through non-US pensions may significantly increase the filing burden and the related tax return preparation cost.

There is a presumption that if Americans reside in the country with a higher rate of tax, such as Canada, they should not owe any additional tax to the IRS. Unfortunately, this is not always the case and takes many by surprise. Investments or holdings deemed tax efficient in the country of residency may not have an identical treatment under the US tax law which leads to an overall greater tax cost either on a temporary or permanent basis.

Keeping clients US and Canadian personal income tax compliance in order, optimizing their overall income tax cost, educating about risks and penalties for failure to accurately disclose foreign accounts and assets, and providing an assistance on any tax challenges from CRA or IRS are types of services in which our company’s advisors have an extensive knowledge and experience in helping our clients.

crossborder divorce

Everyone knows that breakdown in marriage is not only emotionally but also financially draining. Crossborder divorce for dual resident Canadian couples or Canadian couples where one spouse is a US citizen, it may also be accompanied by extreme complexities and often unfavorable immediate tax implications.

Canada and the US each has somewhat similar non-elective provisions when it comes to division of assets incident to crossborder divorce at cost basis. The transferred assets are essentially a gift without any immediate tax implications. There is also an election available under the Canada Income Tax Act for the property transferred to recipient spouse at market value instead of cost. This is typically done when the transferor spouse has unused capital loss-carryovers and would like to utilize them by harvesting gains. Suitable for Canadian spouses, this election is damaging when at least one of the Canadian spouses is also a US citizen as there is no reciprocal election available under the US Internal Revenue Code. It is important to analyze each divisible asset under both countries’ tax provisions, regulations and administrative policies to avoid immediate taxation on distribution when the intent is to structure it as a rollover. Preferably, a divorce lawyer needs to have a good rapport with a crossborder tax accountant or lawyer to reflect certain references to tax provisions in a separation agreement.

There is nothing straightforward when it comes to a breakdown of marriage between ex-couples with a Canadian citizen/resident and a US citizen/Canadian resident or when a separation agreement is drafted after a former Canadian spouse severs residential ties with Canada. In these scenarios, the division of assets loses its favorable tax-free treatment on transfer. The transferred assets are taxable to the transferor as if sold. Moreover, if the transferee is a US citizen or resident, he or she accepts them at historical or adjusted cost basis, i.e., does not receive a step-up in basis equal to the value on the date of transfer. Thus, the same asset becomes subject to second round of taxation for the entire increase in value when later sold. Furthermore, if transferor is a US citizen and transferee is not, transferor may also face US gift tax implications. Alternatively, if transferee is a US citizen and transferor is not, transferee may face punitive US tax compliance