With all the issues that arise for US citizens living in Canada, the idea of renouncing US citizenship is a common one. Perhaps these individuals came to Canada as young children, and are only now learning about their neglected US tax obligations. Others may have moved here as adults and are fed up with ever expanding compliance obligations.

All US citizens have the right to renounce their citizenship through a formal process at a US consulate. Generally, two appointments are required, during which the Consular official is required to confirm that renunciation is being done voluntarily and with a clear understanding of the implications of doing so.

In addition, the Immigration and Nationality Act specifies conduct that can result in a loss of citizenship. Such conduct is broadly worded in the law to include swearing an oath of allegiance to another country, serving in a foreign military and accepting high-level employment in a foreign government. However, the US Supreme Court has imposed a requirement that such acts be done with the present intention of relinquishing citizenship. Consequently, the US Department of State will presume that retention of citizenship was intended when, for example, a US citizen becomes naturalized as a Canadian citizen. The burden of proving intention to relinquish citizenship rests with the party alleging that citizenship was lost.

Since 2008, a special tax applies to US expatriates who meet certain criteria including a net worth of greater than $2 million, or an inability to certify tax compliance for the previous 5 years. So-called “covered expatriates” must pay a “mark-to-market” capital gains tax as though all assets were sold at fair market value immediately prior to losing their citizenship. Additional tax applies any time a covered expatriate makes a gift or bequest to a US person after renouncing.

As a consequence of the tax impacts of expatriation, careful planning is advisable to ensure that the benefits of doing so outweigh the costs. Attorneys at Altro LLP can assist in this analysis and develop pre-expatriation plans to minimize the consequences.