Any Americans living in Canada? OUCH

Canada Immigration Forum (discussion group)

Subject: Any Americans living in Canada? OUCH
  An Aug. 31 deadline looms for an untold number of Americans living in Canada — certainly many thousands, and possibly hundreds of thousands — who are at risk of massive penalties from the IRS, even if they have no U.S. income, owe no back taxes and haven’t lived in the States for years.

Huge numbers of Americans don’t know the IRS requires all U.S. citizens living abroad to file annual tax returns. They must disclose their foreign bank accounts and other holdings even if they have no American tax liability. So says Warren Dueck, an accountant whose Richmond-based firm specialized in U.S.-Canada tax issues.

And, although the law has been on the books for years, the issue is being brought to a head by a new push to enforce this provision much more vigorously than in the past.

The Aug. 31 deadline is for an Offshore Voluntary Disclosure Initiative introduced last winter to encourage non-resident Americans to make the required disclosures. For those who meet the deadline, it provides for reduced — but still hefty — penalties, although it also holds out at least some hope that the penalties could be waived.

But Dueck, who says he and his colleagues are swamped with requests for help from new clients, thinks it may already be too late for many to meet the complex filing requirements in time.

The only alternative that will be left, he said, is a provision called “quiet disclosure.”

Although it amounts to little more than confessing and then begging for mercy, he recommends it for anyone who doesn’t get the proper paperwork filed in time for the deadline. It offers at least some hope of being better than the alternative.

The alternative may be grim. Among the penalties the law sets out for failure to disclose such things as bank accounts, or “trusts” like RESPs and TFSAs, Canadian corporations and partnerships, or Canadian mutual funds, are fines of $10,000 per offence per year. (That is, for non-wilful offences. The penalty is $100,000, or can go as high as 50 per cent of a major asset, if the IRS thinks there was deliberate attempt to cheat it of revenue.)

But even with ordinary accounts held by people who innocently failed to file, “Say you have four of them you haven’t disclosed for six years,” Dueck said. “That’s $10,000 times four times six — $240,000.”

And, “It doesn’t matter if the undisclosed account is a $5,000 TFSA or a $5-million investment, you still have maybe 10 pages of filing that needs to be done.”

The Offshore Voluntary Disclosure Initiative could reduce the penalties by as much as 90 per cent, but it comes with three conditions. To be eligible, American citizens must establish that they lived outside the U.S. from 2003 to 2010, that they made a good-faith effort to comply with tax laws in the country or countries where they’ve been residing, and that they had less than $10,000 of U.S.-source income. People who meet those criteria may be able to apply for an extension to get all the paperwork done, Dueck said, but it is not automatically granted.

It’s hard to get a count of how many Americans live in B.C. or in Canada, but the consensus is that the number is big. Published estimates range from 600,000-plus to a million or more nationwide, and the American consulate in Vancouver estimates 90,000 in this region alone.

Dueck said that, based on his considerable experience, he believes about half of these don’t know they have to file annual returns, and as many as half of those who do file don’t know they also have to disclose their bank accounts and holdings.

Even more chilling, he said, Canadian-born children of American citizens may not realize they may automatically get U.S. citizenship without ever making any effort to apply for or acknowledge it. So some may be at risk of penalties without even realizing they’re dual citizens.

Several Americans who have suddenly realized they are not in compliance declined to be interviewed for this story. But David Perrin, an American citizen who teaches chemistry at the University of B.C. and who has had professional help filing to the IRS every year since he arrived in Canada in 2000, said the filing can be complicated.

“And the more complicated your finances get, the more onerous the filing gets.”

The Canadian tax on most job-related income is higher in Canada than in the U.S., so there’s generally no money owing to the IRS on wages or salary. But certain investment income is treated differently in each country, and there are other cases — lottery winnings, or capital gains on the sales of a home — where the U.S. collects tax but Canada does not.

“The same thing can happen with end-of-life issues, or winding down investments for retirement, and that sort of thing,” he said.

In past, the IRS has had no reliable way to track down most American citizens living in Canada, but that seems likely to soon change.

The U.S. Foreign Account Tax Compliance Act, which comes into effect in 2013, will require non-U.S. financial institutions to tell the IRS about any clients who are American citizens.

Dueck said the IRS has the clout to pressure Canadian institutions that do business on both sides of the border into doing this. So the only way for Americans living in Canada to avoid being identified would be to have no dealings with any financial institution, or to commit perjury — an option he emphatically advises against — when their bank asks about their citizenship.

The IRS did not comply with The Sun’s request for an interview, and it did not send, as its spokesman promised, background information on the issue. But some fairly detailed information is available on the IRS website at

Hi (in reply to: Any Americans living in Canada? OUCH)
Are you the bad news repeater?
(in reply to: Any Americans living in Canada? OUCH)
would you like me to knock on the door when you are sleeping to warn you that a tsunami is coming - or would you rather I not repeat the bad news and let you figure it out for yourself?
(in reply to: Any Americans living in Canada? OUCH)
In this case, Vittorelli you come across as a jackass!! Man why did they not deport your arse back to Sicily?
curious George
(in reply to: Any Americans living in Canada? OUCH)
This is very important information for American expats in living in Canada. I´d be willing to bet a vast majority don´t have a clue about these requirements. Thanking Sharon for posting this.

I can´t help but wonder if this would happen between member states of the European Union. I doubt these countries would penalize thier own citizens for obscure, complex tax law violations when living in another member state. It makes me wonder why North American neighbors can´t integrate their systems and movement of their people better like the EU can on their continent. Add to this the ever increasing tight border controls, Canada/USA might as well be Syria/Isreal (well not that bad, but you get my drift).

Reply to the Any Americans living in Canada? OUCH posting
Submission Code (SX9876) Copy The Code From The Left found in the brackets
Reply Subject
Reply Message

Canada Immigration | Forever Living Products in Canada