Tips for U.S. clients on renouncing citizenship

June 22, 2015 | Last updated on September 15, 2023
3 min read

Over the last couple of years, U.S. tax law changes have been top of mind for Americans residing in Canada. In fact, due to the increased scrutiny of the IRS, there is currently a record number of expatriates in our country.

To detail these issues, Leslie Kellogg, partner at Hodgson Russ LLP and Michael Van Severen, senior manager at Deloitte, presented a panel on U.S. taxation at STEP Canada’s 17th annual national conference last week.

Even though the process to renounce U.S. citizenships is expensive, says Kellogg, it has become easier for clients who qualify for the new streamlined process. She and Van Severen reviewed who qualifies as a U.S. citizen, and shared tips for those who are considering renouncing their U.S. citizenships.

For more, check out assistant editor Katie Keir‘s live tweets below (and, for more event coverage, click here).

Here are some additional articles to help U.S. clients.

Happy birthday, FATCA! What’s happened, and what’s to come

New trust rules impact U.S. citizens in Canada

What the sharing economy economy means for clients’ taxes

Top destination for expats is…

What you missed at STEP’s 2015 CRA roundtable

Live tweets from Step Canada’s 17th annual national conference

If you were born to a U.S. citizen, you’ll [likely] be a U.S. citizen. If born there, but parents are Canadian, then rules are not as strict, says Kellogg.

According to a live-tweeted slide, those born after 1952 but before 1986 are considered U.S. citizens if: at least one parent is a U.S. citizen, and if that parent was physically present in the U.S. for at least 10 year prior to the person’s birth, of which at least five must be after the parent turned 14-years-old.

Those born after 1986 are considered U.S. citizens if: at least one parent is a U.S. citizen, and if that parent was physically present in the U.S. for at least five years prior to the person’s birth, of which at least two must be after the parent turned 14-years-old.

Fee to process renouncing U.S. citizenship is currently $2,350. To be exempt from exit #taxes, have to be tax-compliant with IRS for 5 years.

Still, number of U.S. expats in Canada is rising, and could be more than 5,000 this year, says Kellogg @STEPSociety

Long-term U.S. green card holders can be considered covered expats under certain conditions. For example, their level of US$ assets will be considered. Here’s more info on covered expats, click here #tax @STEPSociety

There are 2 options for U.S. ppl who haven’t been tax compliant: file 6 years returns or use new streamlined program, if can @STEPSociety

For example, to qualify for the streamlined renouncing process, says Van Severen, you need a social security number, and any non-filling of taxes must have been non-willful conduct. FinCEN form 114 (formerly the FBAR) reports foreign bank accounts, he adds, and even if you’re just the signing authority on a U.S. spouse’s or kids’ account, the form is needed.

This form (finCEN 114) must be filed if all accounts (trusts and bank accounts) exceed $10,000, and it’s due by June 30th, electronically #tax And, even if no #tax return for U.S. citizen, still need finCEN 114, if applicable. And steep penalties if not filed, says Van Severen.

If you want to give up U.S. citizenship, then you need to file form 8854 @STEPSociety Part 4 of that form deals with deemed disposition of U.S. property. If have gain on deemed disposition of U.S. property when you renounce, first $690,000 is not subject to taxation, says Van Severen.

And, IRS allows #expats to defer departure tax, but interest still charged on that tax. CRA doesn’t charge interest to expats if tax deferred.

So far, IRS has collected more than $6.5 billion in taxes and interest as a result of streamlined program’s introduction: Van Severen. It’s one of the best programs he’s ever seen, but could likely be changed again @STEPSociety

Q: Can minors expatriate? Kellogg: Not likely since you need to be adult. You have six months after your 18th bday to do so without exit taxation @STEPSociety