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I assure you that she will not be happy about this. Furthermore, should you predecease your wife, she will not be able to automatically receive all of the family estate in the same way that she could if she were a U.S. citizen. Is this fair to her?
Future Children? I am not completely sure of this, but the fact that you were born in the U.S. and are a U.S. citizen might make your children U.S. citizens too. Is this an opportunity for them or a problem? Remember, if they are U.S. citizens and do not live in the U.S., they will be subject to all the opportunities and liabilities I am describing.
Future Business Relationships. Your next four years will set the stage for your long-term business opportunities. These include partnerships and opportunities to own shares in Canadian companies. As a U.S. citizen, you will be required to disclose information about these partnerships and corporations to the IRS. Understandably, many non-U.S. citizens are unwilling to enter business relationships with U.S. citizens.
Future Employment Opportunities. Companies outside the U.S. are increasingly reluctant to employ U.S. citizens. The reasons include the high costs associated with U.S. taxation and the danger that the U.S. employee will be required by U.S. law to disclose financial data of non-U.S. companies to the IRS. Once again, this will include the obligation to report the private financial information of non-U.S. citizens to the IRS.
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U.S. laws impose high financial and legal costs on non-U.S. banks who have U.S. citizen customers. Some countries will no longer allow U.S. citizens to have bank accounts or receive mortgage financing. It is unclear what the Canadian situation will be.
Enough on the possible problems. I remind you that U.S. citizenship does carry opportunities. You must consider whether the U.S. provides you with opportunities that outweigh these problems.
To Renounce U.S. Citizenship or to Retain it? This is the decision you must make. Let’s explore what each option means. If you remain a U.S. citizen, you are subject to all of the requirements I outlined. You will be disabled from saving and investing for retirement in the same way other Canadians can.
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Examples of some disabilities include:
- you will not be able to invest in many non-U.S. investments;
- you will not be able to use a business corporation to hold investments;
- you will not be able to invest in a principal residence tax-free the way that others can
- you will be subject to the U.S. estate and gift taxes (making certain aspects of your life difficult)
- your (I assume) non-U.S. wife will be at a great financial disadvantage should she become a widow (is this fair to her)?
Should you decide to renounce your U.S. citizenship, you should realize that U.S. citizens with a net worth of two million dollars or more must pay the U.S. an Exit Tax. For those subject to this Exit Tax the financial penalty can so great that they feel trapped. At this stage in your life, you might think that a net worth of two million dollars is a lot of money. The truth is that is not. Furthermore (given the realities of inflation), you are likely to achieve that level of net worth quite quickly. Our Toronto home, where you sleep every night, is probably worth two million dollars.
Therefore, if you decide to renounce your U.S. citizenship, you should do it now rather than later. This decision does not have to be made today, but should be made by the time you graduate. I am proud of you, love you and wish the best for you.
Seize the day!
Dad
You can reach me at Wood@WoodLLP.com. This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.
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