Canadian w US green card - apply US citizen, move back?

[CanadianN-400]

Hello!

I am a Canadian citizen who has lived in the USA for 10 years. I have a green card and got it 5+ years ago.

I am thinking of applying and getting my US citizenship and then returning to Canada next year. I have 2 kids born in the USA and on the surface, having dual citizenship seems to be a flexible and valuable option. But....

I am not a tax expert! What major considerations am I missing? I know that the IRS levies tax based on citizenship and worldwide income, NOT based on residency, so I won't be able to avoid the IRS when I move back to Canada if I have US citizenship. But....

I also know that the US-Canada tax treaty will help me avoid double taxation and my minimum requirement will be compliance (file tax returns). My questions are:

1) What else do I need to consider? What other questions do I need to answer?
2) I read that TFSA doesn't qualify under the US-Canada tax treaty, and that income will not be tax deferred for US purposes. This is a big one. I don't have TFSA, but in principle this bothers me.
3) Related to #2 above I have RRSPs. Since they are similar vehicles, do the rules apply the same?

Lastly - after I move back to Canada I will be looking for a tax advisor / firm to take care of both my Canadian and US tax needs. I look forward to working with Serbinski if the fit is right!

thank you

[nelsona]

US INCOME Taxation will rarely be an issue for a Cdn resident required to file in Canada. What is troublesome is the foreign reporting that almost inevitably will come because of holding what "normal" Cdns investing (TFSA, RESP, mutual funds). These have been addressed at length in other threads.

This is a REPORTING issue mostly. Once you do your taxes one time with these types of investment you should be able to handle this yourself, otherwise be prepared to pay north of $1500 a year.

I would get my citizenship for the mobility. Make sure you have the 40 quarters in SS to get medicare later. Note that even if you don't get US citizenship, you would have to meet these reporting requirements anyway, so giving up GC or citizenship later just to avoid something that you would already be familiar with would not be wise.

[CanadianN-400]

This is so helpful, thank you!

Another question. My US friend was telling me that there is a US exit tax if you relinquish US citizenship. Is this something I need to be concerned about before I get my dual US citizenship as a Canadian citizen already?

[nelsona]

As I said, plan NOT to feel you need to give up citizenship and you will hav nothing to worry about.

[tdott]

[quote="CanadianN-400"]This is so helpful, thank you!

Another question. My US friend was telling me that there is a US exit tax if you relinquish US citizenship. Is this something I need to be concerned about before I get my dual US citizenship as a Canadian citizen already?[/quote]

Look up form 8854 for the details on the exit tax.

[tdott]

[quote="CanadianN-400"]Hello!
...
I am not a tax expert! What major considerations am I missing?
...
[/quote]

Ways that a USC in Canada can end up owing taxed:
- Gains above $250K USD on the sale of your principal residence are taxed (exclusion is $500K USD for a USC couple).
- Gains in the sale of (shares in) a qualified small business are fully taxed ($800K CAD exclusion is not recognized)
- Gains in a Canadian mutual fund held outside of a RRSP are hideously taxed because they are considered PFICs (Passive Foreign Investment Company). Possible double taxation.
- Gains from the exercise and sale of employee stock options can result in US tax owed.
- Gains in a RESP are taxed.
- Gains in a TFSA are taxed.
- Gains in a RDSP are taxed.
- Lottery winnings are taxed.
- The NIIT (Net Investment Income Tax) can result in true double taxation.
- Phantom gains caused by exchange rate fluctuations are taxed. E.g., buy shares in a stock when CAD is weak, sell it for the same price in a different year when CAD is strong.

Because the above are all considered passive income (with the exception of employee stock options), the FEIE (Foreign Earned Income Exclusion) does not apply to them.

Also note that FTCs (Foreign Tax Credits) accrue in earned income and unearned (passive) income buckets, and earned income FTCs can only apply to tax on earned income, and unearned income FTCs can only only apply to tax on unearned income. So, don't expect to use your earned income FTCs (which you may accrue due to Canada's higher income tax rate) to lower your US tax on, say, the gain on selling your principal residence.

[tdott]

[quote="CanadianN-400"]Hello!

..

Lastly - after I move back to Canada I will be looking for a tax advisor / firm to take care of both my Canadian and US tax needs.

...
thank you[/quote]

If you are in the Vancouver area, you can consider SKL Tax. I've used them, as well as some other people I know.

[nelsona]

tdott, good summary.
As I said, a person moving to Canada would take these into consideration. It is those who lived in Canada, and who merrily went along without knowing that they were subject to these reporting issues, that had the hard spot about keeping USC.

And just to add, RESP/TFSA/RDSP and brokerage accounts would also be subject to foreign reporting, which would in many cases be more arduous that the income tax.