One major motivation regularly cited for the increase is the
cost and aggravation of complying with U.S. tax and banking rules
while living abroad.
Unlike citizens of any other advanced nation, Americans are
subject to U.S. tax on their worldwide incomes, no matter where
It is believed that the vast majority of people expatriating are
residents of relatively high-tax countries, such as Canada, Japan,
Australia and those in Western Europe. Canada has the greatest
number of Americans living abroad of any nation on earth, so a
disproportionate number likely were residents of Canada.
Americans in Canada, like those in the other countries
described, already pay substantial Canadian taxes, so they rarely
owe meaningful U.S. tax (the U.S. Internal Revenue Code has a
number of mechanisms designed to avoid double taxation).
However, Americans still have to file returns, reporting all
their activities in U.S. dollars. They have to provide detailed
information about their bank and other financial accounts, both
within the return and in a separate report. If they engage in what
most Canadians would consider ordinary tax planning strategies,
they have yet more reporting and possibly additional U.S. tax.
Consider someone who has an RRSP, an RESP, a TFSA and a bank
account for each of his minor children. Perhaps the RESP is
invested in mutual funds. And he has a house, with a mortgage. All
of these things create reporting and tax-paying complexities under
the U.S. system. And we haven't even gotten started on people
with closely-held corporations, partnerships or trusts.
In Canada, virtually all financial institutions are complying
with the U.S. Foreign Account Tax Compliance Act (FATCA). Canada
signed an Intergovernmental Agreement with the United States to
facilitate implementation of FATCA. So Americans in Canada
can't hide much longer.
In Europe, many banks are unwilling to comply, so they are
simply refusing to deal with Americans. This becomes a problem for
their spouses, too, even if they are not Americans, because they
sometimes have joint accounts.
All in all, it's not the tax itself – it's the
complexity of complying that's driving people to renounce.
Expect this trend to continue.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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