A tax crackdown by the United States has sent more than one million Americans and green-card holders living in Canada scrambling to figure out how to comply.
The move is part of a push by the U.S. Internal Revenue Service (IRS) to make sure U.S. taxpayers are paying what they owe on foreign accounts. Unlike most countries, the U.S. requires its citizens to file annual tax returns based on their worldwide income, regardless of where they live.
I've filed taxes in the US only during the couple of years I lived there. I was under the very common mistaken impression that Canada and the US had some kinda reciprocal deal, shuffling tax dough back and forth.
Well, they may well do, but I've missed filing more than 30 years.
Then, next problemo, new crackdown. The US considers my savings 'offshore accounts' on the order of Bernie Madoff's Cayman Islands holdings (if he has any).
Starting in 2013, the IRS will require financial institutions outside the United States to disclose all accounts held by current and former U.S. citizens and green-card holders. They will likely have to file years of U.S. tax returns and detailed annual account disclosure.
Finance Minister Jim Flaherty said Friday that Canada is not a tax haven and that the U.S. Foreign Account Tax Compliance Act will place an onerous burden on Canadian financial institutions.
“Unfortunately, U.S. tax law does little to distinguish between U.S. citizens living on sandy beaches in Caribbean tax havens and those living in a relatively high-tax country like Canada,” said Warren Dueck, a certified public accountant and chartered accountant with W.L. Dueck & Co. in Richmond, B.C.
The IRS has issued a limited amnesty for U.S. citizens, residents and green-card holders to report their foreign bank accounts. Under the Offshore Voluntary Disclosure Initiative, which ends on Aug. 31, penalties are reduced to a range of zero to 25 per cent of the balance of all non-U.S. financial accounts and assets in 2010.
So. I've gotta figure out what to do and do it in the next two weeks or face losing one-quarter of my life savings.
I guess I'll be eating cat food a little earlier than I expected.
For the masochists among you, here's the IRS Tax Guide for US Citizens and Resident Aliens Abroad.
UPDATE: I consulted with an expert in USian tax madness. Things are not so dire. First, because I'm a nice Canadian -- not a Bay Street fraudster or drug lord -- the penalty would be only 5% if I get in under the amnesty. Plus accountant fees. Situations will vary, so people should consult their own tax expert to decide what to do. Consult cost $100 and was well worth it.