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The First Canadian in the White House?

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Our very own, Terry Ritchie, recently wrote an article for the website, Advisor.CA. He touches on the latest news surrounding Ted Cruz. Cruz, a U.S. senator, has decided to renounce his dual Canadian citizenship to prevent confusion regarding his political loyalties, experts suspect, because the Republican Party has shortlisted him as a candidate for the presidential election in 2016. Ted Cruz, a U.S. senator from Texas, may be attempting to avoid the same election complications that plagued President Barack Obama when his citizenship came under fire prior to becoming the 44th U.S. president due to living abroad during his childhood and having a father from Africa. Cruz was born in Calgary and his American mother and naturalized American father relocated to the U.S. when he was four years old.

Technically Cruz is both a Canadian and American citizen, and according to the U.S. Constitution is eligible to run for president, but when a candidate’s birth origin is ambiguous, a phenomenon called “birtherism” sometimes develops that involves political opponents publicly disparaging and questioning a politician’s patriotism.

The tax and financial implications are minimal but could have been serious had Cruz lived in and reported income taxes to Canada as a dual U.S. citizen. The U.S. Internal Revenue Service requires all American citizens, regardless of residence to report income taxes as U.S. income. Conversely, Canada collects income taxes from only those Canadians living within the country’s border. The American law has become more enforced since the Foreign Account Tax Compliance Act was implemented in 2010, compelling many ex-patriot Americans to renounce U.S. citizenship to avoid paying higher taxes.

In a single fiscal quarter, according to the U.S. Treasury Department, 1,130 Americans renounced American citizenship, whose names are recorded in the Federal Register. The public record can be viewed by anyone, and accounting professionals can search for their clientele.

In a statement by Cruz, he claimed to have no awareness of his dual citizenship and said, “I have never taken affirmative steps to claim Canadian citizenship, I assumed that was the end of the matter… Nothing against Canada, but I’m an American by birth and as a US senator, I believe I should be only an American,” Cruz said.

There has been no confirmation that Cruz will indeed run for presidential election, but as a Hispanic former presidential legal adviser and Tea Party backed policy maker, some experts consider him a strong contender and his inner circle of advisors have indicated a bid.

Tax Implications for Americans Living in Canada

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In this video clip, Terry Ritchie updates Rob Carrick on the IRS crackdown on Americans who live and work in Canada but haven’t been filing their annual tax returns. There is serious documentation required by U.S. tax authorities regarding financial holdings. Last September, a new program was introduced for Americans living and working abroad: the Offshore Volunteer Disclosure program. Of the 5 to 7 million Americans who live/work abroad, only 740,000 actually filed a Financial Bank Account Report (FBAR) in 2011.

While only 18 parties have been criminally prosecuted for hiding assets, clearly there is a large percentage that doesn’t know what to do or where to go for advice. Every situation is different, but it’s important to talk to a specialist who understands these issues. Next year, when the IRS imposes the Foreign Account Tax Compliance Act (FATCA), traditional banks in Canada must comply and provide information. Following this, it will be harder to fight reasonable cause. For most Americans working in Canada, there is a Foreigner Income Exclusion imposed on employment income. This, plus the use of foreign tax credits, generally means there are no taxes owed, but the proper documentation must be filed with the IRS to be in compliance.

Why Is It Important For Canadian Expats To Disclose Foreign Based Accounts to the IRS?

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John McCord’s article focuses on the IRS (US Internal Revenue Service) policy that taxes the worldwide income of US residents. Many US residents are unaware of this policy and the law that requires the disclosure of the majority of foreign accounts, as they are subject to US taxation. Disclosure rules also apply to Registered Retirement Savings Plans, pensions and bank accounts. In order to enforce these policies the IRS is aggressively pursuing civil and criminal penalties for noncompliance and maintains close communication with the CRA (Canadian Revenue Agency), references the FBAR (Report of Foreign Bank and Financial Accounts) and, beginning in 2013, will enforce the FATCA (Foreign Account Tax Compliance Act) in order to do so. FATCA will focus on the compliance of foreign-based accounts and increase communication with foreign financial institutions in order to identify US residents who do not report their foreign-based accounts. For both Canadian Expats and US residents with foreign accounts, McCord stresses it is critical to consult with a cross-border financial advisor in order to ensure compliance and identify the right solution that may include tax, legal and investment professionals depending on your personal situation.