Guess when a Canadian TFSA is not really tax exempt?

Renounce U.S. citizenship and rejoice!


6 thoughts on “Guess when a Canadian TFSA is not really tax exempt?

  1. So what?

    The same rule applies to US citizens with “tax-free” IRA accounts holding foreign securities that pay dividends subject to foreign withholding.

    If you cannot get a refund of the withheld tax to the extent it exceeds the allowable treaty rate (if any), the money is lost.

    Spain withholds 19% but the treaty rate is only 15%. Anyone here willing to go through the hassle of applying for a refund of the 4% difference?

    How much of your remaining lifetime are you willing to spend trying to get the withholding-treaty rate difference back from the exceedingly sticky-fingered French or Italian tax authorities?

    The Swiss withhold 35% regardless of the treaty rate but at least they offer a fairly quick – if not simple – refund procedure.

    At least the US allows its source withholding to be reduced to the allowable treaty rate – and asks for no greater assurance of treaty eligibility than a signed W-8BEN form.

    Bottom line: think before you invest – or badmouth the USA.

  2. I.e., invest in Canada with your TFSA. That’s why the Canadian government set this thing up.

    But what makes me more angry is that the TFSA is taxable in the United States when you do your “voluntary” tax return. I relinquished over this and HEROES (exit tax–get out while the getting is good). I suppose I will be exiled from returning to the US as a tax dodger under the Reed Amendment. Or I will be picked up at the border as a violator of the Bank Secrecy Act. I think I have just cause for saying that the United States has treated me and most other American expats ill. Of course, the persecutor Timothy Geithner apparently received a pardon. And Barack Obama, who was advertising that he was Kenyan-born in 1991, is his boss. So we have an usurper in office, but we are not allowed to bad-mouth the USA. Why? Because drone is going to take us out? One day, if I stop blogging, everyone will know why.

  3. The US tax system is not geared up for refunds like in Europe. Most European tax systems (not France’s it’s pretty complex with 1% deducted for one thing, and .7654% for another, and it doesn’t operate PAYE at all) have some kind of PAYE system where you’re assigned a tax code. The goal is to keep you and the taxman “even” throughout the year so you haven’t grossly “overpaid” tax for that year. For payroll, you are able to get a “tax refund” during any time in the tax year by paying negative tax for that week.

    To my best knowledge, the IRS is only geared up for the once a year refund post-April, and collecting quarterly payments from corporations and self-employed individuals.

    Refunding money quickly and mid-year would be a departure from IRS’s normal course of business.

    Oddly enough refunding withholding tax quickly has never been mentioned by the IRS or how they would even do it. Foreign investors will not wait until April next year for a refund because the IRS can’t adapt its system, this will increase FATCA’s negative effect on the US economy.

    I’m sure the fraudsters will figure a way to get phony refunds out of the IRS as well. Between fraud and pi**ed off investors (especially Europeans who expect to get money back quickly) US inward investment probably will drop initially and hopefully never return to teach Levin and others like him a lesson about World 2012 and the US’s new role.

    The IRS will struggle as I’ve mentioned before with the following:

    – Data Integrity (people using doctored passports etc) to conceal the US as their place of birth to FFIs or even their real identity so the data never reaches the IRS to begin with

    – Dual citizens closing down bank accounts in their real name, changing their legal name in Europe and re-opening accounts with their new identities and supplying erroneous W2 information if necessary. When the IRS goes to match it up it will always be an exception, turning it into a full scale manual investigation for the IRS which they won’t be able to go to some database to get a quick answer. If years later the heat gets too much, repeat the process over again. If someone is hard headed enough they’ll exploit the data integrity issue to the max.

    – A foreign bank manager who is willing to put down another place of birth for you regardless what your passport says.

    – Quick refunds of FATCA withholding tax mid-year wrongly held and refunded months later by the IRS

    I very much doubt the IRS is going to be able to rely fully on data from the 175+ countries provided by some guy in a run down old building in the Yemen or even Europe. Hey they could’ve made a mistake on the “place of birth” section on the computer screen. Who’s going to be punished for such a mistake and what are the chances of it being caught once it’s in the system. It’s unlikely governments or FFIs will accept a future US government’s suggestion they should re-check everyone’s identity annually.

    Think of this is practical terms, what problem will it really be to the local tax authority or the FFI if you committed a white lie to avoid FATCA and it goes undiscovered for years?

    Congress seems to think FATCA is some kind of magical panacea, it isn’t. If you make FATCA a manual difficult unprofitable process with garbage data for the IRS someone someday is going to say at 1111 Constitution Ave this is dumb and it will quietly start playing lip service to Congress that they are actually enforcing it. How is Carl Levin to know either way?

    If Levin kicks up what is he going to do about it? Pass another law like the knee-jerk reaction those clowns Schumer and Casey had about Saverin the other day?

    The biggest danger is FATCA is going to become the US law foreigners will pay lip service to and don’t really care if the data is correct or not except for what their own government wants. Entering the wrong place of birth will not affect the local government’s ability to collect their own tax. The local government is more interested in correct tax number, name and address for them not the IRS.

  4. Hey Petros and John,

    Now that you’ve had your morning coffee and your sugar levels are back up to where they ought to be, here’s a little blurb that should warm your hearts and will no doubt convince you and Renounce to take back all those unkind things you’ve had to say about Mr. Shulman and his troops:

  5. Douglas Shulman is my hero. He is so wonderful, I just can’t wait for him to take all my money. It was such a wonderful privilege an American and to have partaken in the most wonderful tax system in the world. I must have been taken over by an evil alien when I renounced my citizenship. I really never wanted stop having the privilege of sending all my forms to the IRS.

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