The following article has little to do, directly, with the U.S. tax and legal consequences of renouncing U.S. citizenship. It is an opinion piece reflecting a Canadian perspective of renouncing Canadian citizenship.
Nothing against the United States, until now
Sen. Ted Cruz (R-Texas) will renounce his Canadian citizenship.
[U.S. News & World Report issued a story on 11 June 2014 of the renunciation of Senator Cruz’s Canadian citizenship]
That’s a perfectly logical, rational perspective.
It is one shared by many Canadians, only in reverse. They have lived their entire lives as Canadians only. They were born to Canadian parents temporarily working or studying in United States. Like Cruz, they returned to their country of citizenship as small children. Some were born in United States only because it was the closest hospital for their mother to give birth.
Like Cruz, they had no idea they had citizenship of another country. They never claimed U.S. citizenship. They never had a U.S. passport or Social Security number and never worked in United States. Until recently, they had “nothing against” United States.
Suddenly, the U.S. Congress, U.S. Treasury and Internal Revenue Service turned their lives topsy-turvy..
These “accidental Americans” only recently learned IRS expects them to file income tax returns each year. Most owe no U.S. tax because they pay taxes to Canada, where they have lived their entire lives. Yet accounting and legal costs are prohibitive due to the complexity of the U.S. tax code, especially for non-resident aliens.
In addition to annual IRS returns, these Canadians are expected file a Foreign Bank Account Report (FBAR), outlining all “foreign” bank and credit union accounts, insurance policies, mutual funds, retirement savings and other assets and investments they have in Canada. If they don’t, they could face draconian penalties of up to 50 percent for each account or $100,000, whichever is greater.
Fortunately, the Canadian government resists that absurdity. Canada’s Finance Minister Jim Flaherty has made it clear Canada Revenue Agency (CRA) does not and will not collect penalties for IRS for any Canadian citizen or resident. Nor will CRA collect any tax liability for IRS for a Canadian citizen, even if the person was also a U.S. citizen at the time of the tax liability.
As Flaherty has stated numerous times, “Canada is not a tax haven. People do not flock to Canada to avoid paying taxes.”
That’s not enough to keep IRS away from the business of Canada, Canadian banks or Canadian citizens and residents. Beginning in 2015, IRS expects Canadian banks to report on assets held by “US persons” living in Canada under the U.S. Foreign Account Tax Compliance Act (FATCA). If banks refuse, U.S. will impose huge financial penalties. If Canadian citizens and residents refuse to give consent for personal information to be released to IRS, FATCA demands Canadian banks declare these honest, law-abiding citizens “recalcitrant” and close their legal Canadian accounts.
Flattery calls this intrusion into Canada “unwarranted” and “extraterritorial.”
These accounts are not “foreign.” They are not “offshore.” They are held in Canada where citizens and residents live, work, earn an income, bank and pay taxes. Many are retirement savings of seniors.
FATCA clearly violates Canadian banking, privacy and human rights laws and Canada’s constitution and Charter of Rights and Freedoms, as well as laws of other countries. Congress, IRS and U.S. Treasury have shown disdain for other countries as they inflict their atrocious demands on the globe.
Who are “US persons” living in Canada?
*Canadian citizen, but “acccidental Americans” born in United States to Canadian parents.
*Canadian citizens who were told clearly and firmly by United States Consulates decades ago they were “permanently and irrevocably” relinquishing U.S. citizenship by becoming Canadian citizens.
*Dual Canadian-American citizens who took pride in U.S. heritage—before FATCA, FBAR and IRS entered their responsible Canadian lives;
*Canadian-born citizens with one parent born in U.S.;
*Canadians who returned home after working in U.S. on a green card;
*and Canadian “snowbirds” who support the U.S. economy by spending winters in southern states
If Canadians and others around the world want to renounce U.S. citizenship to protect their private financial information from U.S. snooping, IRS expects five years of income tax returns, destructive penalties and a possible exit tax.
Senator Cruz, Canada respects your decision to renounce your Canadian citizenship. When it is granted, I assure you Canada will not stalk you for information about your private finances and will not demand taxes or penalties from you.
Senator Cruz, will you and your Congressional colleagues do the same to protect Canadians and others around the world from outrageous demands of the IRS and U.S. Treasury?
Swanson is a retired human resources manager, writer and blogger. Born and raised in Pennsylvania, she has been a Canadian citizen for 40 years.