The U.S. is one of the only countries in the world that taxes individuals based on citizenship.[1] That means that if you’re a U.S. citizen living in Canada, you will continue to have annual IRS tax filing obligations, you may be required to report certain non-U.S. assets and you could be subject to complex U.S. tax requirements.
While renouncing U.S. citizenship could reduce some of those tax concerns, individuals considering renouncing their U.S. citizenship should be aware that the act of renunciation is serious, potentially irrevocable, and requires thoughtful consideration.
U.S. citizenship is granted by birth or by naturalisation. Amendment XIV, Section 1, Clause 1 of the U.S. Constitution states that all persons born or naturalized in the U.S. are U.S. citizens. Therefore, if you were born on U.S. soil, you are automatically a U.S. citizen. However, if you were not born in the U.S., but have a U.S. citizen parent, then your qualifying U.S. citizen parent must first petition or file the appropriate paperwork with the State Department or the U.S. Citizenship and Immigration Services (USCIS) before your 18th birthday for you to be granted U.S. citizenship. Without this qualifying act, you are not a U.S. citizen.
According to U.S. law, a person over the age of 18 who wishes to renounce their U.S. citizenship must voluntarily and with intent to relinquish U.S. citizenship: 1) appear in person before a U.S. consular or diplomatic officer, 2) in a foreign country at a U.S. embassy or consulate; and 3) sign an oath of renunciation. Renunciations abroad that do not meet these three conditions have no legal effect. Because U.S. citizens can renounce their citizenship only in person, they therefore cannot do so by mail, electronically or through agents.
The renunciation process consists of submitting the appropriate documentation to the U.S. embassy or consulate and in most regions participating in two interviews with a consular or diplomatic officer . While many embassies or consulates require both interviews to take place in person, some will accommodate phone interviews for the first interview. During the second interview, you must appear before a consular or diplomatic officer and sign the oath of renunciation. In Canada, however, two interviews are not required, and the oath of renunciation may be administered during one interview. The U.S. Department of State charges a USD 2,350 fee for administrative processing of a request for a Certificate of Loss of Nationality (CLN). This fee is payable in U.S. dollars, local currency or major credit card on the day of the appointment to take the oath of renunciation and is not refundable.
For U.S. income tax purposes, a person who renounces U.S. citizenship will be required to file a final U.S. tax return for the year of renunciation. Depending on certain factors, the person may also be subject to an “exit tax.” To determine whether the exit tax will be levied, the IRS will look at factors such as personal net worth, average net income tax liabilities after foreign tax credits over the past five tax years ending before the date of expatriation and U.S. tax filing compliance for the previous five tax years. It is important to speak with your BDO advisor to help you understand your tax obligations and help optimise your tax situation well before you expatriate.
Taking all that into account, any U.S. citizens currently residing in Canada can renounce U.S. citizenship at a specific U.S. consulate in Canada or request the first available appointment at any of the various U.S. consulates in Canada (Ottawa, Calgary, Montreal, Quebec City, Toronto, Halifax, and Vancouver). Scheduling appointments in Canada can take up to two years; however, the U.S. embassies in Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica and Panama are currently accepting loss of nationality appointments for non-residents willing to travel to those locations. Of those locations, the U.S. embassies in Argentina, Brazil, Chile and Colombia allow for the first interview to be conducted over the phone, which eases the burden of traveling abroad to conduct both interviews. In most cases, the second interview can be scheduled at these locations in a matter of months.
Expatriation is a personal right; however, it is imperative that you fully understand the potentially irrevocable nature and consequences of this right prior to renouncing your citizenship as well as the potential tax consequences.
Renouncing citizenship severs your ties with the U.S., meaning that you may lose the right to freely work and live in the U.S. in the future. Furthermore, should you change your mind after the fact, you must go through the complicated visa and permanent resident processes to regain your U.S. citizenship.
Consulting with your BDO advisor well before you make the decision to renounce your U.S. citizenship can help you assess and optimise your situation, answer any questions you may have, remediate any inadvertent past tax noncompliance issues and help you decide if renouncing U.S. citizenship makes sense for you. If you decide renunciation is the right choice, we can assist you with completing and submitting the required paperwork and coordinating your appointment request.
This article provides general information and not legal advice. Prior to embarking on the path to renunciation, always consult with U.S. tax and immigration professionals.
Franklin Mackie
BDO in Canada
[1] Permanent residence status also imposes tax obligations.
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