Americans in Canada may be unknowing tax evaders
U.S. taxation rules based on citizenship, not residency
Americans living in Canada are discovering that even if they haven't lived or worked in the United States in years, they're still required to fill out a U.S. tax return, and if they don't file returns by August 31, they could be facing some stiff financial penalties.
Christina Simmons is a U.S. citizen who has been living and working in Windsor, Ont., as a professor for more than 25 years. She didn't learn until recently that the IRS has been cracking down on Americans who don't file forms declaring what's in their bank accounts along with their U.S. tax returns.
"They're really enforcing it and there's going to be these really big fines if you don't do it," said Simmons. "I decided to get some help with it since I had never done the form before," she said.
The Internal Revenue Service website has a 22-page document to help Americans living abroad, but there are no easy answers to be found there and many don't even know they have to file in the U.S. — a law which has been in place for years.
The IRS has set up the Offshore Voluntary Disclosure Initiative, which is giving those who have broken the law, knowingly or not, a bit of a break.
Applicants have until Aug. 31 to voluntarily file taxes and banking information dating back to 2003 in exchange for less severe civil penalties.
"If it's an effort to solve the U.S. financial problems that's not going to help," said Simmons. "They just need to raise their tax rates which are incredibly low for the developed world, so that's what really bothers me. Canada, Europe, you know, people pay a lot more in taxes for good reasons."
Penalties can be substantial
Gordon Lee, a Windsor, chartered accountant said he has been helping clients meet the Wednesday deadline. What confuses people is that most countries base taxation on residency, but in the U.S. taxation is based on citizenship, said Lee — citizens have to file from whatever country they live in, for as long as they live.
"I think the undercurrent is they detest it," Lee said. "This is not what I do, telling people they have to pay penalties, but unfortunately the law is there and you better to pay the smaller penalties rather than the big penalties later."
Lee said the U.S. government wants a piece of what's in Canadian retirement savings accounts, bank and investment accounts.
"It's either five per cent, 12 and a half [percent], or 25 per cent depending on the circumstances," he said.
In 2006 there were almost 7,000 Americans living in Windsor. Lee said those who cross the border into Michigan could be getting stopped in the near future if they haven't paid their dues to Uncle Sam.
The chances of the IRS catching those who don't voluntarily file will go up in 2013 when a law requiring Canadian banks to share client information with the U.S. government takes effect.