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“ Many countries, the United
States in particular, impose
punitive reporting and
taxation on foreign assets. ”
This is a complex topic that is addressed by an increasing
number of tax treaties. The general principle is that the
individual should not be taxed twice on the same gain. Double
taxation may be prevented when the individual moves from one
country to another country and the two countries have a tax
treaty with each other. The treaty may operate so that if the first
country imposes a deemed capital gains tax on an asset, the
second country would impose a capital gains tax based only
on the gain that accrued when the person was a tax resident
of the second country. An example of this kind of “departure
tax mitigation provision” is in Article VII of the Canada-U.S. tax
treaty. As global mobility increases, the number of departure
tax mitigation provisions is also sure to increase.
POINT 9:
ENGAGE IN PRE-IMMIGRATION PLANNING
If you acquire tax residency in a new country, your existing
assets may become “foreign assets.” How will those assets be
taxed by the new country? Many people move to a new country
and leave assets (financial and other) in the old country. From
the perspective of the new country, any assets retained in the old
country will be considered foreign. Many countries, the United
States in particular, impose punitive reporting and taxation on
foreign assets. This comes as a surprise to a great many people.
POINT 10:
UNDERSTAND YOUR LIFE
AS A NEW TAX RESIDENT
What are the reporting requirements that may exist? Few
people move to a new country and sever all ties with their
previous home country. Often, they will retain bank and
brokerage accounts. They may retain pensions and may
have trusts. Some people own shares in small business
corporations. You must investigate what repor ting
requirements may exist. The United States and Canada are
examples of countries that have strict penalty-laden rules
that require one to report all foreign assets.
TO BE FOREWARNED IS TO BE FOREARMED
In a world of global mobility, you are advised to invest
in sound tax advice before your move while you are
living in your new countr y and when you decide to
move from that new country. It’s not what good advice
will cost you; It’s what good advice will save you.
JOHN RICHARDSON
John Richardson is a Toronto, Canada-based lawyer
who assists U.S. citizens abroad with the regulatory (tax
and reporting) requirements of living outside the United
States. He also helps U.S. citizens and green card holders
with expatriation (including exit tax) issues and issues
of FATCA compliance. He helps individuals with pre-
immigration planning on their paths to Canada or the
U.S. He is admitted to the bar in Ontario, Canada and both
Massachusetts and New York, USA and a member of the
Investment Migration Council.