Avoiding Double Taxation

newuser · Post by **newuser** » Wed Jun 20, 2007 9:52 pm

I am a Canadian citizen and a US Green Card Holder.

Dilemma: I have an option to start a business in the near future that could result in an eventual income of >$10 million.

Since I have the option to reside in either US or Canada, I am reviewing the tax implications of both.

Things that I have looked at:
- Residing in the US and remaining a non-resident of Canada
- Residing in Canada and giving up my US GC (and hence US citizenship)
- Setting up a corporation in Canada and/or the US

Things that I am worried about:
- Gift tax in the US: I would eventually like to transfer portions of my income to other persons (members of my family, etc.). The US is unfavorable in this regard.
- As a US resident, I have the option of becoming a US citizen as early as next year; do I want to jeopardize that?
- If I chose to become a US citizen, my worldwide income would be taxable and I would no longer have the option to live in Canada (otherwise, I would be taxed twice).
- As a US resident and Canadian non-resident, I would only be double-taxed on income from Canadian sources.

Things that I am open to:
- Using a corporation to divvy the income to recipients instead of gifting
- Becoming a resident of the US and then giving up my resident status when I would like to gift away portions of the money
- Anything else

My main question, then: Is there any way to avoid double taxation while maintaining my GC status in the US and being able to give money to other individuals (either at a later date or while the income is being accrued)?

[Thanks in advance for any guidance/help that anyone can provide...]

newuser · Post by **newuser** » Wed Jun 20, 2007 11:44 pm

Never mind. I think I have a good answer that works for me.

Assuming that I am successful, I can give up my GC and move to Canada (and be answerable to Canadian tax laws). I'd still be able to go back to the US as a visitor without tax implications.

Assuming that I am unsuccessful, I can retain my GC and the possibility of an eventual US Citizenship. In this case, I would be able to continue to live and work in the US - which is my preference if I'm not filthy rich.

nelsona · Post by **nelsona** » Thu Jun 21, 2007 6:03 am

Be careful. If you are successful and then give up your GC, you may be considered as having given up GC for tax purposes, which would then subject you to expat tax.
Most people don't have to worry about this, but in the numbers you are dreamng about it is quite likley.

BTW, there is almost nothing that is truly 'double-taxed'. If you live in Canada, the US has very favourable foreign tax credit rules that would reduce your IRS tax to zero. The gift/estate tax is a concern however, and would apply to any assets in US, even if you did give up CG/USC.

newuser · Post by **newuser** » Thu Jun 21, 2007 2:04 pm

Thanks for the reply. And, thanks for pointing out something I may not have come across otherwise: the [slightly ridiculous] expat tax.

Thankfully, it doesn't seem to apply to me:

(2) Long-term resident
For purposes of this subsection, the term ''long-term
resident'' means any individual (other than a citizen of the
United States) who is a lawful permanent resident of the United
States in at least 8 taxable years during the period of 15
taxable years ending with the taxable year during which the event
described in subparagraph (A) or (B) of paragraph (1) occurs.

I gained my US GC in 2003. That would legally give me until 2011 to give up my GC and not be subject to an expact tax.

> BTW, there is almost nothing that is truly
> 'double-taxed'. If you live in Canada, the US
> has very favourable foreign tax credit rules
> that would reduce your IRS tax to zero.

Thanks - I just revisited the Canada-US Tax Treaty and you are correct. So, if I were to choose to remain a GC holder or a citizen, I would not have to worry about double taxation. The only thing that I would have to worry about, then, is the estate/gift tax.

nelsona · Post by **nelsona** » Thu Jun 21, 2007 2:22 pm

There are other exceptions to expat tax tha tyou NOW qualify for. I say NOW, since these are laws and the treaty does not have any wording that protects you from US expat tax should you wake up one morning subject to it rules.

newuser · Post by **newuser** » Thu Jun 21, 2007 2:41 pm

Can you elaborate on that?

This is what I've been looking over:
http://www.taxalmanac.org/index.php/Sec ... _avoid_tax

Everything in there refers to 'a loss of US citizenship.' A lawful permanent resident is treated as a citizen (for tax purposes) only if he/she meets at least the criteria I mentioned above (resident for 8 of 15 taxable years).

newuser · Post by **newuser** » Thu Jun 21, 2007 2:44 pm

(I understand that the laws and exceptions can change. But, as things currently stands, am I not exempt if I choose to give up my GC before 2011?)

nelsona · Post by **nelsona** » Thu Jun 21, 2007 2:55 pm

As I said, you are exempt "now".

You only need one exemption to avoid the tax. Besides the one you mention, there is also the return home exemption. It's not 'now' you have to worry about. Laws on this chaged drastically and without much notice in 2004, and could easily change again.

Its simpler to read IRS publications, like IRS Pub 519.

All I'm saying is that don't structure such that you are 'counting on' avaoiding US tax by renunciation, becaue the option cold easily be taken away from you.

newuser · Post by **newuser** » Thu Jun 21, 2007 3:19 pm

Thanks nelson - you have been helpful.

Is there a good website to keep track of changes to US and Canada tax laws and proposed legislations?