How many times have we heard people threaten to give up their residency in the United States if their preferred political candidate failed to win an election? This may come as a surprise to many people, but we cannot just move to other countries. In fact, Canada has immigration laws that are much stricter than those in the United States. They also have different laws and different tax systems. In general, I have found that everything that people know for sure about our own and other country’s tax and legal systems is wrong.
Unlike citizens of other nations, Americans can travel to Canada without a visa and can generally stay there for up to six months without special permission. For someone who only wants to escape the oppressive heat and humidity of Florida, that works great. Still, we need to remember that we will be in a sovereign country with unique laws. Among these are estate laws.
Canada does not have an inheritance tax. Instead, Canadians have chosen to treat death as a sale and tax the profits accordingly. There is an exception for those who make provisions in their wills to leave their homes exclusively to their spouses or domestic partners. Those owning property in Canada will need to seek the advice of a competent attorney to avoid tax traps.
The largest obstacles that I encountered came from our own government. The belief that everyone who does business in other countries is somehow a tax cheat (or maybe even disloyal) is widespread. We use our position as the world’s reserve currency and premier banking center to bludgeon other nations into following our laws. The result is that opening a checking account in Québec is not easy for an American. I discovered that no Québec bank would open an account for me. The very nice young woman in the bank on the corner, who had spent hours trying to help me, said “I am sorry Mr. Bassini, if you were from any other country there would be no problem.” The penalties imposed on foreign banks by our government made the risk of opening a checking account for an American too risky.
Ultimately, I opened an account at an Anglophone bank that has branches in the United States. Unfortunately, I could not open an account at a branch in Vero Beach, but had to travel to Canada to open a checking account there. Afterwards, transfers between the American and Canadian branches could take place easily. Once established, the United States has reporting requirements for foreign accounts. Any United States person who has a financial interest or signature authority over more than $10,000 in a foreign account at any time during the year must file a Foreign Bank Account Report (FBAR). If you live in the U.S. and have more than $50,000, you must file a Form 8938 under the Foreign Account Tax Compliance Act (FATCA). People who live abroad will be required to file under FATCA if they have more than $200,000 in specified foreign assets.
Those who threaten to move to Canada will still have to file American tax returns and Canadian tax returns. Giving up citizenship is no solution. Americans who wish to expatriate will need to use a Form 8854 to determine the amount of exit taxes they may owe. The Internal Revenue Service will assume that all of a person’s assets (with exceptions) have been sold the day before expatriation. Any gains over $737,000* will be taxed. Even after giving up citizenship, American tax returns will likely be required for ten years. Anyone thinking of quitting the country over politics will have to file taxes for two years longer than the administration they are protesting can stay in power.
There are lots of good reasons to go to Canada. Politics is unlikely to be one of them.
* Numbers based on 2020 tax year. Expatriation Tax, https://www.irs.gov/individuals/international-taxpayers/expatriation-tax