I just discovered this forum, and it is an invaluable resource for the topics it covers.
Searching through it, I found answers to many of my questions - but a few remain. In particular, I'm interesting in a hypothetical dual citizen from birth, who has always lived in Canada to date, and who does not have a SSN.
1) I understand that as a US citizen it is a requirement that tax be filed each year on worldwide income. At what age does this requirement start? Does the holding of a SSN by this hypothetical person matter or not, in terms of legalities or practicalities?
2) Imagine that this person has never filed a US return, but now wishes to remedy this situation - how many years would it be prudent to go back? Can you file a return without a SSN? Assuming that no tax was owned, would there be penalties or other negative repercussions?
3) From various postings here and elsewhere, I understand that understand that "typically" no tax is owing. What are the "non typical" scenarios? That is, when would tax be owing? Imagine a person with $150,000 to $200,000 in employment income and perhaps $0 to $50,000 in investment income spread between capital gains, Canadian and US source dividends and Canadian and US source interest. Is there anywhere I can go, or forms that I can fill out to ballpark how much will be owed?
4) When it is stated at that "typically no tax is owing" in the case of a dual US-Canadian citizen living in Canada, does this actually mean zero tax to the IRS, or is it just "net" - that is, some tax is typically owing to the IRS (e.g., on US dividends), but that this is offset by foreign tax credits on the Canadian side, leading to zero "net" tax burden (but not zero tax to the IRS)?
Thanks in advance for any pointers or tips.
Dual Citizen living in Canada: Questions
Moderator: Mark T Serbinski CA CPA
1. There is no minimum age (of course there is an income threshhold), and having an SSN or not does not matter.
2. You need to file 6 years. You will need to file for SSN. Even if you owe no tax, if you have accounts (incl. RRSP) that toatl $10K, it is imperative that you report these or face fines.
3. You need to file. You will probably owe some tax for US dividends.
4. Without filing you owe 100% tax to IRS. It is only by filing that you get all the credits etc.
2. You need to file 6 years. You will need to file for SSN. Even if you owe no tax, if you have accounts (incl. RRSP) that toatl $10K, it is imperative that you report these or face fines.
3. You need to file. You will probably owe some tax for US dividends.
4. Without filing you owe 100% tax to IRS. It is only by filing that you get all the credits etc.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing 
Thanks Nelson, your reply is much appreciated.
Following up - if someone has had 15% withheld on US dividends (at least those held outside an RRSP), this can be used to (at least partially) offset tax owning on those dividends, right? To the extent that the offset is not complete (if your tax rate on such dividends is more than 15%), can the additional tax owing be used as a foreign tax on a CDN return, much like the original 15% withheld can be?
If a taxpayer files for a SSN, and then files the last 6 years of returns, without being contacted by the IRS (i.e., they have presumably being flying under the radar so far), are any fines or penalties owing?
Finally, is there any way I can ballpark what tax would be owing to the US in such a scenario? Alternately, what kind of scenarios (beyond US-source dividends) result in tax owing to the IRS for a typical dual citizen living in Canada?
Thanks in advance!
Following up - if someone has had 15% withheld on US dividends (at least those held outside an RRSP), this can be used to (at least partially) offset tax owning on those dividends, right? To the extent that the offset is not complete (if your tax rate on such dividends is more than 15%), can the additional tax owing be used as a foreign tax on a CDN return, much like the original 15% withheld can be?
If a taxpayer files for a SSN, and then files the last 6 years of returns, without being contacted by the IRS (i.e., they have presumably being flying under the radar so far), are any fines or penalties owing?
Finally, is there any way I can ballpark what tax would be owing to the US in such a scenario? Alternately, what kind of scenarios (beyond US-source dividends) result in tax owing to the IRS for a typical dual citizen living in Canada?
Thanks in advance!
1. First thing you will need to do is file a W-9 with your broker. That will stop the withholding, since you are a US citizen not subject to withholding on this type of income.
2. But if you decide not to file this, remember that, for your purposes, the 15% tax withheld from your dividends is not really considered dividend tax, it is merely incoem tax that has been withheld and will go towrds your general tax account.
3. as you may have discovered, for several years, the IRS has a flat tax rate on qualified dividends, determined by your tax bracket. It wiull probably be 15%.
4. However, in the unlikley event that your dividend tax rate is over 15%, you are NOT allowed to claim more than 15% on your Cdn return as a foreign tax credit (this is by treaty). There is then a complicated procedure to deduct the excess on your Cdn return, and then re-source sufficient dividends on a form 1116 such that the IRS credits you for the excess.
2. But if you decide not to file this, remember that, for your purposes, the 15% tax withheld from your dividends is not really considered dividend tax, it is merely incoem tax that has been withheld and will go towrds your general tax account.
3. as you may have discovered, for several years, the IRS has a flat tax rate on qualified dividends, determined by your tax bracket. It wiull probably be 15%.
4. However, in the unlikley event that your dividend tax rate is over 15%, you are NOT allowed to claim more than 15% on your Cdn return as a foreign tax credit (this is by treaty). There is then a complicated procedure to deduct the excess on your Cdn return, and then re-source sufficient dividends on a form 1116 such that the IRS credits you for the excess.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing
Thanks again, nelsona.
If this person were to backfile their taxes, they can use the withholding against dividends over those years to offset any tax liability, including liability on dividends, as I understand it - is that correct? Would it be a problem tracking this withholding given that no SSN was provided?
If this person were to backfile their taxes, they can use the withholding against dividends over those years to offset any tax liability, including liability on dividends, as I understand it - is that correct? Would it be a problem tracking this withholding given that no SSN was provided?
Yes, the tax that was withheld was sent to IRS. However, since you didn't have an SSN, you will need to include your Cdn tax paperwork to show them that that was you back then.
Another thing to keep in mind is that if your IRS tax returns yield no tax, and you get some or all of that tax refunded (which is likely), you are obligated to go back to your Cdn tax returns and reduce your tax credit, and pay CRA that money.
that is why, you really want to be up-to-date in your IRS fgilings, and why you really need to file a w-9 with the broker to stop withholding.
Another thing to keep in mind is that if your IRS tax returns yield no tax, and you get some or all of that tax refunded (which is likely), you are obligated to go back to your Cdn tax returns and reduce your tax credit, and pay CRA that money.
that is why, you really want to be up-to-date in your IRS fgilings, and why you really need to file a w-9 with the broker to stop withholding.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing
Only if you actually owe taxes. Even with your high income, it is unlikely that you owe any taxes on your dividends or interest, since you've been having tax withheld by accident.
Your taxes will be prety complicated, but once you ahve them done once, you should be able to follow them (or have a plain Cdn cpa follow them).
Your taxes will be prety complicated, but once you ahve them done once, you should be able to follow them (or have a plain Cdn cpa follow them).
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing
Me too ! Accidental citizen with tax filing burden surprize.
I recently discovered I am a dual citizen since birth (was born in US to 2 Cdn parents studying there) and moved back to Canada days after my birth (went driect from hospital to Canada). My ties are all in Canada as I have lived worked and invested in only Canada ever since days following my birth thinking my US citzenship was formally given up when my parents registered my birth abroad in Canada in the 1960's shortly after my birth. I now think I may need to do some back filings with the IRS and perhaps renounce this citizenship I never even knew I had to simply my life going forward. Had I realized earlier I was a US citizen I likely would have taken formal steps to renounce that citizenship. I do not have a SSN and do not have any plans to work or live in the US in future. Might I have any legal options to pursue to support my expatriation actually happened years ago? Any suggestions to direct me to in terms of people or firms with expertise on this front would be much appreciated.
Tweenie,
I realize that nelsona has his own reasons for avoiding discussion of renunciation (and I'm totally fine with that), but I'm not sure if that means others can still discuss the issue on this forum or not. There are legitimate cross-border tax issues involved with renunciation, so it seems like a valid topic of conversation for this forum. I hope I'm not violating any rules by trying to help answer Tweenie's questions. I've looked into this matter for a family member recently, so I think I have a pretty good grasp of what is involved.
First off, if you were born in the US then you have US citizenship. You cannot renounce until you are 18, and you have to go through an official process. So yes, you have citizenship obligations even though you never realized it.
Having said that, you can certainly follow through with the renunciation process now if you would like, but it is a permanent process, so be very sure that it is what you want before proceeding down that road. But if you are 100% sure that you will never work or live in the US for the rest of your life (and that you won't have any children whom you may wish to give US citizenship to down the road), then you may find it to be the right choice for you.
The US government completely revamped the whole renunciation process a few years ago.
There is a $450 fee for renouncing, and the process will probably take you somewhere around half a year to complete, including a couple different interviews at a US consulate, and some paperwork.
There is also now an "Exit Tax" that you must pay upon renouncing. Although if you are not fairly wealthy, then it won't apply to you. If your average income taxes owed to the US were more than $145,000 per year over the last 5 years, then you owe the "Exit Tax". Or if your net worth is more than $2 million, then you also owe the "Exit Tax". To figure out the "Exit Tax", you have to account for all assets that you own, and figure out the unrealized gains on those assets as though you sold everything you own on the date of renunciation. Those gains are then taxable in the year of your final income tax filing. However, the first $630,000 of gains are excluded, so even if you meet the threshold for the "Exit Tax", if your total unrealized gains are less than $630,000, then you still won't actually owe any "Exit Tax".
There is one exception to the "Exit Tax", and that is if you were a dual-citizen at birth, if you continue to hold the citizenship of that other country, if you are taxed as a resident of that country, and if you have lived in the USA for no more than 10 of the previous 15 years. If you meet all those conditions, then you are automatically exempted from the "Exit Tax". And it sounds like you may very well quality for that exception if you have had Canadian citizenship from birth.
Part of the renunciation process also involves you certifying that you have complied with all US tax obligations and filings for the past five years. So whether you choose to renounce or not, you must still go back and file your previous tax returns that you have missed the past several years, and you are still responsible for the accuracy of those returns even after you renounce.
But once you have renounced, your tax obligations to the US are ended. You will file one final tax return for the year of your renunciation (up to the date that you officially renounce), and then you are done. There used to be a requirement to file for 10 more years after renouncing, but that was scrapped when they brought in the "Exit Tax". So now you pay the "Exit Tax" with your final tax return, and that's it.
You are still free to visit the US just the same as any other non-citizen, and you are still eligible for any Social Security benefits that you have earned. But you will obviously no longer be granted any of the advantages that come with citizenship.
Anyway, I hope this has helped give you some information to ponder as you make your choice. [url]http://www.renunciationguide.com/Site-Overview.html[/url] is a really great site put together by people who have gone through the process and who have spoken with many other people who have also renounced. There is a ton of information on that site explaining the whole process in great detail. Spend some time with that site if you are serious about renouncing. It's a very big choice that should not be taken lightly.
I realize that nelsona has his own reasons for avoiding discussion of renunciation (and I'm totally fine with that), but I'm not sure if that means others can still discuss the issue on this forum or not. There are legitimate cross-border tax issues involved with renunciation, so it seems like a valid topic of conversation for this forum. I hope I'm not violating any rules by trying to help answer Tweenie's questions. I've looked into this matter for a family member recently, so I think I have a pretty good grasp of what is involved.
First off, if you were born in the US then you have US citizenship. You cannot renounce until you are 18, and you have to go through an official process. So yes, you have citizenship obligations even though you never realized it.
Having said that, you can certainly follow through with the renunciation process now if you would like, but it is a permanent process, so be very sure that it is what you want before proceeding down that road. But if you are 100% sure that you will never work or live in the US for the rest of your life (and that you won't have any children whom you may wish to give US citizenship to down the road), then you may find it to be the right choice for you.
The US government completely revamped the whole renunciation process a few years ago.
There is a $450 fee for renouncing, and the process will probably take you somewhere around half a year to complete, including a couple different interviews at a US consulate, and some paperwork.
There is also now an "Exit Tax" that you must pay upon renouncing. Although if you are not fairly wealthy, then it won't apply to you. If your average income taxes owed to the US were more than $145,000 per year over the last 5 years, then you owe the "Exit Tax". Or if your net worth is more than $2 million, then you also owe the "Exit Tax". To figure out the "Exit Tax", you have to account for all assets that you own, and figure out the unrealized gains on those assets as though you sold everything you own on the date of renunciation. Those gains are then taxable in the year of your final income tax filing. However, the first $630,000 of gains are excluded, so even if you meet the threshold for the "Exit Tax", if your total unrealized gains are less than $630,000, then you still won't actually owe any "Exit Tax".
There is one exception to the "Exit Tax", and that is if you were a dual-citizen at birth, if you continue to hold the citizenship of that other country, if you are taxed as a resident of that country, and if you have lived in the USA for no more than 10 of the previous 15 years. If you meet all those conditions, then you are automatically exempted from the "Exit Tax". And it sounds like you may very well quality for that exception if you have had Canadian citizenship from birth.
Part of the renunciation process also involves you certifying that you have complied with all US tax obligations and filings for the past five years. So whether you choose to renounce or not, you must still go back and file your previous tax returns that you have missed the past several years, and you are still responsible for the accuracy of those returns even after you renounce.
But once you have renounced, your tax obligations to the US are ended. You will file one final tax return for the year of your renunciation (up to the date that you officially renounce), and then you are done. There used to be a requirement to file for 10 more years after renouncing, but that was scrapped when they brought in the "Exit Tax". So now you pay the "Exit Tax" with your final tax return, and that's it.
You are still free to visit the US just the same as any other non-citizen, and you are still eligible for any Social Security benefits that you have earned. But you will obviously no longer be granted any of the advantages that come with citizenship.
Anyway, I hope this has helped give you some information to ponder as you make your choice. [url]http://www.renunciationguide.com/Site-Overview.html[/url] is a really great site put together by people who have gone through the process and who have spoken with many other people who have also renounced. There is a ton of information on that site explaining the whole process in great detail. Spend some time with that site if you are serious about renouncing. It's a very big choice that should not be taken lightly.