So, you have received bank letter asking about your tax residence for CRS or FATCA – A @taxresidency primer Part 2

cross-posted from citizenshipsolutions.ca

Part B – The Combined FATCA/CRS Letter

This letter is particularly worrisome for Canadian residents (whether Canadian citizens or not) who were either born in the United States or are (otherwise) U.S. citizens or U.S. permanent residents (AKA Green Card Holders). Could this mean that they would be required to apply for a U.S. Social Security number?

What follows is a sample letter …

Dear Valued Customer:

We appreciate our relationship with you and we are committed to informing you about matters that affect you. We are writing today to inform you that changes have been made to the Canadian Income Tax Act (Part XVIII and Part XXIX), requiring TD to provide information about customers who have a tax residence in other countries to the Canada Revenue Agency (CRA). The CRA may then share information with other countries through existing provisions and safeguards under the Tax Convention.

To comply with this legislation, we have reviewed our records (eg. address) in order to identify customers who may be residents of other countries for tax purposes.”

Part C – “Tax Residency 101”: It’s about where you should be paying your taxes

Some Question and Answer …

Q. I don’t want to listen to the above interview. What is meant by “tax residence” or “tax residency”?

A. At the risk of oversimplification, your “tax residence” AKA country of “tax residency” is usually (with the exception of the United States which also imposes taxation based on citizenship) the country where you live or have another type of connection. It’s the country that has the right to impose taxation on your “worldwide income” BECAUSE you live in or have a sufficient other connection to the country. For example, if you live in Canada, sleep in Canada, work in Canada, raise your family in Canada, have a Canadian drivers license in Canada, etc. – you are a ““tax resident” of Canada“. For most people, “tax residency” is a “common sense” concept. It’s like this:

“I am subject to taxation on my “worldwide income”* in Canada because I live in Canada”.

or

“I am subject to taxation on my “worldwide income”* in ________ because I live in _______”

(*Most countries impose taxation on the “worldwide income” of their “tax residents”. A small number of countries impose “territorial taxation” on their “tax residents”. “Territorial taxation” is where a country imposes tax on ONLY the income sourced in the country of residence.)

Q. Does this mean that ONLY my country of “tax residence” can impose taxation on me?

A. No. Every country has the primary right to impose taxation on income sourced in that country. Maybe you receive income which is “sourced” in another country. Maybe you own property in another country. In these cases you might be subject to tax in the countries where you own the property or receive the income. In general, if you are not a “tax resident”, you would be taxed in another country ONLY on the income sourced in that other country. On the other hand, your country of “tax residence” would impose taxation on ALL of your income wherever its source.

Q. Is it possible that I could actually meet the conditions to be a “tax resident” of more than one country?

A. Absolutely yes! Different countries have different rules for determining tax residency. There is no reason why a person could not meet the definition of “tax resident” in more than one country. In fact, it is very possible that one could be a “tax resident” of more than country. (This is the reason for the existence of “tax treaty tie breaker” provisions.)

Q. If I meet the conditions to be a “tax resident” of more than one country, will I really be treated as a “tax resident” of more than one country?

A. Yes. Although it is possible to meet the definition of “tax resident” for more than one country, most countries have tax treaties that (1) identify those “instances” where an individual is a “tax resident” of more than country and (2) use the tax treaty to deem the individual to be a “tax resident” of only one country. It wouldn’t be fair for an individual to be treated as a “tax resident” of more than one country, would it? (U.S. citizens living outside the United States are always tax residents of the United States even if they are also “tax residents” of another country.)

Q. What do you mean by “unless you are a U.S. citizen”? As a “U.S. citizen” am I a “tax resident of more than one country?

A. Well, if you are a “U.S. citizen” (or Green Card holder) you are ALWAYS a “tax resident” of the United States. It doesn’t matter whether you actually live there or not. As long as you are a U.S. citizen, you are subject to the full force of the Internal Revenue Code. This includes a variety of “Taxes, Forms and Penalties”. It includes a number of very specific reporting requirements including (but not limited to): FBAR, Form 8938, Form 3520 and Form 5471. For this reason, it is very difficult for a U.S. citizen to move from the United States, become a “tax resident” of that other country and engage in effective financial and retirement planning. See for example:

The biggest cost of being a “dual Canada/U.S. tax filer” is the “lost opportunity” available to pure Canadians

“How To Live Outside The United States In An FBAR And FATCA World”


Q. I understand that as a “U.S. citizen” I am always a “tax resident” of the United States. But, if I move to Canada, does that mean that I am a “tax resident” of Canada too?

A. Absolutely YES!!! You are an American. “To whom much is given, much is expected.” U.S. citizens living in Canada (who meet the definitions of Canadian “tax residency”) are ALSO “tax residents” of Canada (or any other country where they may live). In other words, U.S. citizens living abroad are generally “tax residents” of at least two countries! How cool is that?

John Richardson

So, you have received bank letter asking about your tax residence for CRS or FATCA – A @taxresidency primer – Part 1

cross-posted from citizenshipsolutions.ca

So, you have received bank letter asking about your tax residence for CRS or FATCA – A @taxresidency primer

Introduction – So, what’s this “tax residence” stuff about? What does “tax residence” mean?

In 2014, as people started to receive “FATCA letters” I wrote a lengthy post describing “What to do if you receive a FATCA letter“. Information exchange under the Common Reporting Standard “CRS” has begun in 2018. As a result, I am writing this post which is to explain what the CRS is and how it relates to the FATCA letter. It is important to understand that the “CRS letter is actually a combined “CRS/FATCA” letter which is more likely to be received than the original FATCA letter. I urge that those who have received a letter of this type to read this post PRIOR to seeking professional advice!!!

You are reading this post because you have received a letter from your bank that is asking you to identify the countries where you are a “tax resident” and/or whether you are a “U.S. Person”.

The purpose of this post is to help you understand:

– why you are receiving the letter
– what the letter means
– what is the meaning of “tax resident”, “tax residence” and “tax residency” (terms which are used interchangeably)
– why “tax residency” is important to you
– the significance of being a U.S. citizen or Green Card holder
– how to identify where you may be a “tax resident”

Why are you receiving this letter?

The letter is intended to fulfill the bank’s due diligence obligations under both the OECD Common Reporting Standard (all countries of “tax residence” except the United States) and FATCA (whether you are a “tax resident” of the United States).

In other words, the letter is for the purpose of satisfying bank “due diligence” under two separate reporting regimes – FATCA and the OECD Common Reporting Standard “CRS”

This is long post which is broken into the following parts:

Part A – How does FATCA differ from the “CRS”?
Part B – The Combined FATCA/CRS Letter
Part C – “Tax Residency 101”: It’s about where you should be paying your taxes
Part D – Different definitions of “tax residence” – Not all countries define “tax residence” in the same way
Part E – Oh My God! I think I might be a “tax resident” of two countries – What is a “tax treaty tie breaker”? How does a “tax treaty” tie breaker work?
Part F – A “U.S. citizen” cannot use a “tax treaty tie breaker” to break U.S. “tax residence”. How then does a “U.S. citizen” cease to be a “U.S. tax resident”?
Part G – How a “permanent resident” of the U.S. – AKA “Green Card Holder” – ceases to be a U.S. tax resident
Part H – Are you, or have you ever been a U.S. citizen or Green card holder? Sometimes it’s not what it seems.
Continue reading So, you have received bank letter asking about your tax residence for CRS or FATCA – A @taxresidency primer – Part 1

Update on UK Accidental Americans

uk accidental logo

Back in June we were asked to do a post on the formation of several new Accidental American groups. There seemed to be some confusion as to whether these were “real” groups or just new attempts without substance. Today, while doing something completely different, I came across the UK Accidental Americans group and want to make sure this is posted so as many in the UK as possible, will become aware of the work they are doing there.

The FaceBook Page is here. Please check out the Page and “like” it as well as inviting other friends to do the same.

The FaceBook Group is here. This is a closed group. You must ask to join and answer two questions first.

Further, this article was posted on our Media and Blog Articles Open for Comment page but I only noticed one comment. I want to make sure it is seen on a larger scale. There were also some other similar articles:

“Accidental Americans” must be protected from draconian US tax system

Labour MEPs: Time to give accidental Americans their independence from US tax authorities

And last but not least, our colleague Fabien Lehagre has once again managed to get media and government attention on the plight of French Accidentals Macron Backs Accidental Americans . Truly outstanding effort and results – great stuff Fabien!

If anyone knows anything further concerning the new Accidental American groups in Ireland Italy or Poland could you please update us with a comment or ask one of our admins to do it for you? Thanks.