Canadian tax cheats are usually given a fine and let off but the American equivalent of this agency puts people in jail. Called the Internal Revenue Service (IRS), these federal tax collectors are much more severe than their Canadian counterparts.
Even those American citizens who pay their taxes are obligated to file annual tax returns with the IRS regardless of where in the world they live, listing in detail their bank accounts, RRSPs and inheritances. Failure to do so can result in fines and penalties.
A local notary and U.S. attorney, David Altro, specializes in cross-border taxation and has co-authored a new book with partner Jonah Z. Spiegelman, Americans Living In Canada — Smile, The IRS Is Watching You. Says Altro, “It’s one of the only countries that taxes on citizenship not on residency.”
These already stringent tax-reporting rules are about to get even tougher as of July 1 for those living in other countries, including Canada. A measure called the Foreign Account Tax Compliance Act (FATCA), to which Canada has pledged cooperation, requires banks and investment firms in other countries to inform the IRS of any accounts held by Americans.
In Canada, financial institutions will have the duty to ask customers if they’re American citizens and share the information with Canada Revenue Agency (CRA), and CRA will notify the IRS.
“The rules have always been there, but now they’re really enforcing them,” Altro said.
Renouncing U.S. citizenship is an option some choose, but Altro said even that comes at a price, since the IRS may impose an ‘exit tax’, depending on your financial situation. The complications go both ways for people with assets and ties to both Canada and the U.S.
Altro said, “Dealing with the red tape of two tax systems has always been there, but is now becoming a nightmare.”
Source: Montreal Gazette