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Renunciation of U.S. citizenship and U.S. taxation

If you are a U.S. citizen residing in Canada, you are not doubt filing a U.S. tax return every year (if not, please consult our article on the Streamlined Foreign Offshore Procedure). You may be asking yourself whether it would not be better to renounce your U.S. citizenship in order to stop having to file a yearly return, an FBAR, a 3520, a 3520-A, etc… This article is designed to help you make this decision.

There are number of advantages to keeping your U.S. citizenship. Some of the most common reasons are:
• Emotional attachment to U.S. citizenship
• Proud of being American
• Makes it easier to work in the U.S.; no need to apply for costly visas
• Easier to travel to the U.S.
• Fear (founded or not) of being considered a persona non grata in the U.S.
• Other

The disadvantages include:
• Having to file a tax return and fill out numerous forms every year
• Potential for non-recoverable taxation in the U.S.
• Laws could change, making you subject to additional taxation
• Possible penalties incurred for not keeping up to date
• Other

Of course there are fees for renouncing your U.S. citizenship (currently about US$2,500). These are payable at a U.S. consular office and do not include accounting costs.

You must also respect certain conditions, like having filed an income tax return in the U.S. for each of the past 5 years and met all tax obligations for these years (you may use the Streamlined Foreign Offshore Procedure to do this, assuming the program has not been discontinued in the meantime). The renunciation must not be done in order to avoid tax obligations. In fact, you may continue to be subject to U.S. taxation even after renouncing your U.S. citizenship!

But a word of caution: think carefully before making this decision and be sure to consult a professional. Otherwise, there could be some unexpected, and costly, repercussions! For example, you may be required to pay an exit tax, an obligation that may be difficult to meet when not planned for.

Please note that this article has covered only a few aspects of this issue and must not be considered tax advice. To receive tax advice adapted to your particular situation, we recommend that you consult a specialist who thoroughly understands both U.S. taxation and Canadian taxation, as results in one system impact the other.

Nicolas Godbout, Tax master and Financial Planner

See our other American tax articles

U.S. taxation for Canadian expats The Streamlined Foreign Offshore Procedure