Taxation if living abroad

[ice9]

Let’s assume the following:

1. A person is a Canadian citizen who is a US permanent resident.

2. This person has substantial assets in IRAs held at Fidelity.

3. This person also holds substantial assets in stocks held through Etrade and TD Ameritrade.

4. Said person would like to minimize taxes on income derived from interest, dividends, captial gains, and IRA distributions.

This person has decided to move to Uruguay or Panama, which does not tax income earned outside of the country.

This person knows Uncle Sam wants his fair share, so prior to leaving the USA all stocks (outside of IRAs) are sold. Tax on any gains will be paid to the US government for that tax year.

This person reluctantly terminates their permanent resident status and surrreders their Green Card. The USA has been good to this person.

After stepping off the plane in Montevideo or Panama City, what exactly does this person owe to the USA in terms of taxes for:

a. Interest from cash held at US banks/brokerages?

b. Dividends for stocks purchased AFTER arriving in the new foreign country. Assume these would be purchased through the same US brokerages (Etrade and Ameritrade) where this person opened their accounts in the USA.

c. IRA distributions. This one in particular is dicey, as money put into the IRA tax-defferred was earned while living in the USA. I expect Uncle Sam won’t leave that money on the table.

[davelj]

These are all good questions and I hope someone has some good answers for you. I ain’t no tax perfeshnul, but I believe items (a) and (b) are Canadian tax issues while item (c) is a U.S. tax issue.

I believe that once you terminate your permanent resident status and pay all taxes due for that tax year to the U.S., you revert back to Canadian tax laws for whatever happens after that.

I know that if you’re a U.S. Citizen with a net worth over $500K and you give up your U.S. Citizenship and move to any country designated as a “tax haven” by the U.S. government, the IRS will assume that you’re doing this to avoid payment of income taxes and will force you to pay regular income taxes for the 10 years following your move to the tax haven. The standard presumption of innocence does not apply – that is, the IRS will assume that you have moved to the tax haven in order to avoid paying U.S. taxes unless you can prove otherwise (which, apparently, is extremely difficult). So, when people say, “Well, if you don’t like the U.S. Tax System, why don’t you just move?” – you can respond, “If only it were that easy.” In essence, you gotta pay to leave. Anyhow, that’s a bit off topic, but I think interesting nonetheless.

Hopefully you’ll get some answers from someone who actually knows something about this topic.

[davelj]

These are all good questions and I hope someone has some good answers for you. I ain’t no tax perfeshnul, but I believe items (a) and (b) are Canadian tax issues while item (c) is a U.S. tax issue.

I believe that once you terminate your permanent resident status and pay all taxes due for that tax year to the U.S., you revert back to Canadian tax laws for whatever happens after that.

I know that if you’re a U.S. Citizen with a net worth over $500K and you give up your U.S. Citizenship and move to any country designated as a “tax haven” by the U.S. government, the IRS will assume that you’re doing this to avoid payment of income taxes and will force you to pay regular income taxes for the 10 years following your move to the tax haven. The standard presumption of innocence does not apply – that is, the IRS will assume that you have moved to the tax haven in order to avoid paying U.S. taxes unless you can prove otherwise (which, apparently, is extremely difficult). So, when people say, “Well, if you don’t like the U.S. Tax System, why don’t you just move?” – you can respond, “If only it were that easy.” In essence, you gotta pay to leave. Anyhow, that’s a bit off topic, but I think interesting nonetheless.

Hopefully you’ll get some answers from someone who actually knows something about this topic.

[davelj]

These are all good questions and I hope someone has some good answers for you. I ain’t no tax perfeshnul, but I believe items (a) and (b) are Canadian tax issues while item (c) is a U.S. tax issue.

I believe that once you terminate your permanent resident status and pay all taxes due for that tax year to the U.S., you revert back to Canadian tax laws for whatever happens after that.

I know that if you’re a U.S. Citizen with a net worth over $500K and you give up your U.S. Citizenship and move to any country designated as a “tax haven” by the U.S. government, the IRS will assume that you’re doing this to avoid payment of income taxes and will force you to pay regular income taxes for the 10 years following your move to the tax haven. The standard presumption of innocence does not apply – that is, the IRS will assume that you have moved to the tax haven in order to avoid paying U.S. taxes unless you can prove otherwise (which, apparently, is extremely difficult). So, when people say, “Well, if you don’t like the U.S. Tax System, why don’t you just move?” – you can respond, “If only it were that easy.” In essence, you gotta pay to leave. Anyhow, that’s a bit off topic, but I think interesting nonetheless.

Hopefully you’ll get some answers from someone who actually knows something about this topic.

[davelj]

These are all good questions and I hope someone has some good answers for you. I ain’t no tax perfeshnul, but I believe items (a) and (b) are Canadian tax issues while item (c) is a U.S. tax issue.

I believe that once you terminate your permanent resident status and pay all taxes due for that tax year to the U.S., you revert back to Canadian tax laws for whatever happens after that.

I know that if you’re a U.S. Citizen with a net worth over $500K and you give up your U.S. Citizenship and move to any country designated as a “tax haven” by the U.S. government, the IRS will assume that you’re doing this to avoid payment of income taxes and will force you to pay regular income taxes for the 10 years following your move to the tax haven. The standard presumption of innocence does not apply – that is, the IRS will assume that you have moved to the tax haven in order to avoid paying U.S. taxes unless you can prove otherwise (which, apparently, is extremely difficult). So, when people say, “Well, if you don’t like the U.S. Tax System, why don’t you just move?” – you can respond, “If only it were that easy.” In essence, you gotta pay to leave. Anyhow, that’s a bit off topic, but I think interesting nonetheless.

Hopefully you’ll get some answers from someone who actually knows something about this topic.

[davelj]

These are all good questions and I hope someone has some good answers for you. I ain’t no tax perfeshnul, but I believe items (a) and (b) are Canadian tax issues while item (c) is a U.S. tax issue.

I believe that once you terminate your permanent resident status and pay all taxes due for that tax year to the U.S., you revert back to Canadian tax laws for whatever happens after that.

I know that if you’re a U.S. Citizen with a net worth over $500K and you give up your U.S. Citizenship and move to any country designated as a “tax haven” by the U.S. government, the IRS will assume that you’re doing this to avoid payment of income taxes and will force you to pay regular income taxes for the 10 years following your move to the tax haven. The standard presumption of innocence does not apply – that is, the IRS will assume that you have moved to the tax haven in order to avoid paying U.S. taxes unless you can prove otherwise (which, apparently, is extremely difficult). So, when people say, “Well, if you don’t like the U.S. Tax System, why don’t you just move?” – you can respond, “If only it were that easy.” In essence, you gotta pay to leave. Anyhow, that’s a bit off topic, but I think interesting nonetheless.

Hopefully you’ll get some answers from someone who actually knows something about this topic.

[ice9]

That is interesting about the IRS going after former citizens for 10 years if they believe the move was for tax reasons. I hope that doesn’t apply to permanent residents. 🙂

I’m pretty sure that Canada doesn’t tax world-wide income like the USA. So, if for all intents and purposes I’m a Canadian living in Panama, income from interest/dividends/capital gains should be tax free. Since Panama/Uruguay specifically exempt income earned outside the country from tax. Canada doesn’t even try to get in on that action.

The IRA withdrawls are questionable. I could always cash it out, eat the 10% penalty and pay the US before I go. I still have decades before I can actually start taking it out penalty-free. Or, if the US is only going to tax that (and not anything else like interest/dividends) the lower US tax brackets aren’t so bad.

[ice9]

That is interesting about the IRS going after former citizens for 10 years if they believe the move was for tax reasons. I hope that doesn’t apply to permanent residents. 🙂

I’m pretty sure that Canada doesn’t tax world-wide income like the USA. So, if for all intents and purposes I’m a Canadian living in Panama, income from interest/dividends/capital gains should be tax free. Since Panama/Uruguay specifically exempt income earned outside the country from tax. Canada doesn’t even try to get in on that action.

The IRA withdrawls are questionable. I could always cash it out, eat the 10% penalty and pay the US before I go. I still have decades before I can actually start taking it out penalty-free. Or, if the US is only going to tax that (and not anything else like interest/dividends) the lower US tax brackets aren’t so bad.

[ice9]

That is interesting about the IRS going after former citizens for 10 years if they believe the move was for tax reasons. I hope that doesn’t apply to permanent residents. 🙂

I’m pretty sure that Canada doesn’t tax world-wide income like the USA. So, if for all intents and purposes I’m a Canadian living in Panama, income from interest/dividends/capital gains should be tax free. Since Panama/Uruguay specifically exempt income earned outside the country from tax. Canada doesn’t even try to get in on that action.

The IRA withdrawls are questionable. I could always cash it out, eat the 10% penalty and pay the US before I go. I still have decades before I can actually start taking it out penalty-free. Or, if the US is only going to tax that (and not anything else like interest/dividends) the lower US tax brackets aren’t so bad.

[ice9]

That is interesting about the IRS going after former citizens for 10 years if they believe the move was for tax reasons. I hope that doesn’t apply to permanent residents. 🙂

I’m pretty sure that Canada doesn’t tax world-wide income like the USA. So, if for all intents and purposes I’m a Canadian living in Panama, income from interest/dividends/capital gains should be tax free. Since Panama/Uruguay specifically exempt income earned outside the country from tax. Canada doesn’t even try to get in on that action.

The IRA withdrawls are questionable. I could always cash it out, eat the 10% penalty and pay the US before I go. I still have decades before I can actually start taking it out penalty-free. Or, if the US is only going to tax that (and not anything else like interest/dividends) the lower US tax brackets aren’t so bad.

[ice9]

That is interesting about the IRS going after former citizens for 10 years if they believe the move was for tax reasons. I hope that doesn’t apply to permanent residents. 🙂

I’m pretty sure that Canada doesn’t tax world-wide income like the USA. So, if for all intents and purposes I’m a Canadian living in Panama, income from interest/dividends/capital gains should be tax free. Since Panama/Uruguay specifically exempt income earned outside the country from tax. Canada doesn’t even try to get in on that action.

The IRA withdrawls are questionable. I could always cash it out, eat the 10% penalty and pay the US before I go. I still have decades before I can actually start taking it out penalty-free. Or, if the US is only going to tax that (and not anything else like interest/dividends) the lower US tax brackets aren’t so bad.

[Arty]

It is almost impossible to renounce your US citizenship that’s the problem. However, I think it is far more relaxing for green card holders.

Go see the following in Wiki for quick reference about US citizenships:

Perez vs. Brownell

Afroyim v. Rusk (over-turned Perez vs. Brownell)

Vance v. Terrazas (introduce preponderance of evidence which make it kind of hard to get rid of US citizenships).

Three ruling by the United States Supreme Courts.

[Arty]

It is almost impossible to renounce your US citizenship that’s the problem. However, I think it is far more relaxing for green card holders.

Go see the following in Wiki for quick reference about US citizenships:

Perez vs. Brownell

Afroyim v. Rusk (over-turned Perez vs. Brownell)

Vance v. Terrazas (introduce preponderance of evidence which make it kind of hard to get rid of US citizenships).

Three ruling by the United States Supreme Courts.

[Arty]

It is almost impossible to renounce your US citizenship that’s the problem. However, I think it is far more relaxing for green card holders.

Go see the following in Wiki for quick reference about US citizenships:

Perez vs. Brownell

Afroyim v. Rusk (over-turned Perez vs. Brownell)

Vance v. Terrazas (introduce preponderance of evidence which make it kind of hard to get rid of US citizenships).

Three ruling by the United States Supreme Courts.

[Arty]

It is almost impossible to renounce your US citizenship that’s the problem. However, I think it is far more relaxing for green card holders.

Go see the following in Wiki for quick reference about US citizenships:

Perez vs. Brownell

Afroyim v. Rusk (over-turned Perez vs. Brownell)

Vance v. Terrazas (introduce preponderance of evidence which make it kind of hard to get rid of US citizenships).

Three ruling by the United States Supreme Courts.

[Author]

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