# Taxation of Canadian Dividends as a US Citizen



## Argonaut (Dec 7, 2010)

I can't seem to find any information about this easily online, so thought I would ask here as I know there are some people here with accounting backgrounds.

Scenario: I am the sole owner of a business that I just incorporated in January. I'm at the point where I'm trying to decide whether to pay myself in salary or dividends. Normally, I would choose dividends as I don't have to deal with payroll timewasting. I also don't care about CPP, and the extra RRSP room isn't super exciting. Dividends are very clean by comparison, especially as a one-shareholder corporation.

Unfortunately, I am now coming to grips with the extreme-burden of being a dual-citizen. In some ways, I wish I never got a Social Security Number (I've never even lived down south). Now, normal salaried income from Canada as a US Citizen is fine, as they don't look at anything under ~$100,000, and even for salary more than that the foreign tax credits from Canada would probably waive any fees from the IRS. But if I took money from my corporation as a dividend, would the same principles apply?

Basically: Does Uncle Sam want a cut of my non-eligible Canadian dividends? On top of what Trudeau is taking? If so, salary may be a better option as a dual-citizen.


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## tdiddy (Jan 7, 2015)

I'm not up to speed on the recent US tax changes, previously however incorporating as a dual citizen was generally felt to be less than ideal, so this would be best addressed by whomever helped you incorporate. As a primary shareholder of a foreign business you will likely need fairly good (and probably expensive) accounting support


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## twa2w (Mar 5, 2016)

You may want to try the Serbinski forums.
Google Serbinski cross border and you should get a link


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## Eclectic12 (Oct 20, 2010)

I doubt anything changes from Canadian salary ... unless maybe the favourable tax treatment of the dividends by Canada means the US taxes owing are larger so that they are not wiped out?
Not an expert and as you say, there's not a lot of info for this specific case.


Incorporation is supposed to be only partially effective.
https://www.hutcheson.ca/canadian-doctor-with-us-citizenship-thinking-about-incorporating/
https://www.tridelta.ca/2013/10/31/...how-the-irs-impacts-your-investment-strategy/


Cheers


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## Argonaut (Dec 7, 2010)

tdiddy: I incorporated by myself, it's an easy process. Unfortunately everything as a dual citizen is less than ideal, it's a huge burden because of the IRS. But I'm not letting this stop me from doing business or protecting myself from personal liability.

twa2w: Thanks for that forum, it looks to be what I'm after.

Eclectic: Thanks for the links.


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## tdiddy (Jan 7, 2015)

my wife is a dual citizen, so I can certainly sympathize, we spoke with a couple of accountants a few years back and a cross border tax attorney and decided not to incorporate her. I've had a DIY tilt with financial stuff myself but I'd certainly advice getting some outside help with IRS now that you are shareholder of a foreign corp. One other tip I've got is if you do go that path, look broadly for an accountant, the ones here in BC were significantly more costly than elsewhere in Canada for US filing when we inquired.


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## Nononymous (Jun 10, 2015)

It's now potentially worse with the new "repatriation tax" for small businesses owned by US citizens abroad - you're looking at a potential one-time 15 percent tax on all retained earnings. (Great news if you're a doctor who used that method for retirement savings.) Recent Financial Post article on this.

But honestly, if you are a dual citizen, the best thing you can do is stay out of the US tax system. If you've been filing, stop. If you haven't been filing, don't start. Non-compliance is the best, safest course of action. The US cannot touch Canadian citizens in Canada, under the terms of the tax treaty the US has no ability to collect penalties or taxes owing from Canadian citizens. Having obtained a US passport or SSN doesn't necessarily mean you're on the IRS radar.

Renounce if you feel it's necessary, but unless you're having significant problems with banking due to FATCA (pretty rare in Canada because you can simply answer "no" if asked about US citizenship and the bank won't validate your answer) it's easier and cheaper and probably safer to just stay hidden. Note also that you can renounce without tax compliance, before or after - it's a totally separate process. 

An excellent source of information is the Isaac Brock Society - started as part of the lawsuit against FATCA but has evolved into a resource for accidental US citizens and expats. Be particularly wary of accountants and lawyers - the "compliance-industrial complex" provides a certain type of advice that is not necessarily the best advice for dual citizens.


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## Nerd Investor (Nov 3, 2015)

I'd be less concerned about the dividends (which are still taxed preferentially in the US) and more concerned with the extra reporting and tax consequences of have a CFC (Controlled Foreign Corporation) and Sub-part F income. It's a pain in the ***. Definitely talk to a good accountant who's a US/cross-border specialist. Honestly, if you've been compliant in the US up to this point (and it sound like you have) I would strongly consider renouncing your citizenship if you're not planning to live there. If you do file the correct tax forms and do it while your net worth and tax liability is relatively low you can be done with these issues forever.


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## Nononymous (Jun 10, 2015)

Yes. Get out of the US tax system. Either renounce and wrap up the tax affairs, or stop filing (not much they can do about it).

If you have been compliant with personal returns but have not reported the business - do NOT report the business. The IRS only knows what you tell them, they have no other source of information. Keep your affairs simple and be only partially compliant during the exit process.

And be cautious with professional advice, which generally leans toward more compliance, not less. This may not be in your best interests.


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## Argonaut (Dec 7, 2010)

I was facing this question somewhat recently -- basically to hide forever from the IRS or to become compliant. The first option does sound enticing, and eliminates the headache of excessive reporting and/or cost. A lot of my family have American citizenship as well, but I highly doubt they bother with any sort of compliance.

Unfortunately I made a decision a few years back that I thought was in my best interest -- filling out a W9 form at RBC with my SSN. This was before I knew about FATCA. I could close down all my accounts and move them elsewhere and fill out a W8, but that would be another headache. And I would be losing a long-term banking relationship with RBC that has now branched into business credit.

I've chosen instead to go with the Streamlined Offshore Procedure to get caught up with US taxes. 2018 will be a rough year for accounting with a new corporation. If I can't figure out the reporting myself, maybe I'll have to hire an accounting specialist.

I don't think renouncing is an option.. I consider myself a US citizen and want to have the opportunity to move there someday. Haha, I was so proud of my dual-citizenship as a child, now I see that it is a burden imposed by the IRS. Maybe the current government will listen to Rand Paul and give a break to US citizens abroad.


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## diharv (Apr 19, 2011)

Argonaut said:


> I don't think renouncing is an option.. I consider myself a US citizen and want to have the opportunity to move there someday. Haha, I was so proud of my dual-citizenship as a child, now I see that it is a burden imposed by the IRS. Maybe the current government will listen to Rand Paul and give a break to US citizens abroad.


Yes , what was once a source of pride is now just a poisoned apple . I became compliant and got caught up and got out . Never felt so good . Horrifically expensive and maybe it was $30000.00 wasted ( as Nononymous would probably agree ) but I sleep better now.


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## Nononymous (Jun 10, 2015)

diharv said:


> Yes , what was once a source of pride is now just a poisoned apple . I became compliant and got caught up and got out . Never felt so good . Horrifically expensive and maybe it was $30000.00 wasted ( as Nononymous would probably agree ) but I sleep better now.


Yes I agree, but if you sleep nights, possibly worth it for you.


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## Nononymous (Jun 10, 2015)

Argonaut said:


> Unfortunately I made a decision a few years back that I thought was in my best interest -- filling out a W9 form at RBC with my SSN.


Depending on your risk tolerance and interest in ever living in the US, your having signed a W9 might not be a problem. It's not ideal, of course, but it doesn't necessarily mean that you need to become compliant with US taxes.

Two reasons:

1. First off, you're not sure that any information has been reported to the US under FATCA. But even if it is, it's not clear that the US is doing anything with that information. There is no evidence to date of the IRS reaching out to find non-compliant US citizens overseas purely on the basis of FATCA reporting. At this point it looks like more and more like FATCA is only intended to find unreported foreign accounts of US residents, while serving as giant John Doe summons for citizens outside the country in case they get into some other sort of tax trouble with the US government. The IRS seems to be quite aware of its inability to collect outside its borders, and doesn't devote resources to finding or auditing non-resident US citizens unless they are extremely wealthy and naughty.

2. If you are a Canadian citizen, under current law the tax treaty contains no provision whatsoever for the US to collect tax debts or penalties against you in Canada. Your Canadian assets and income are fully protected. 

In your shoes I would forget about the fact that you signed a W9, remind yourself never to do it again, and get on with your life. If the IRS sends you a letter, drop it straight into the shredder. Personally I would change banks and lie about US citizenship, but that might be overkill. Unless of course you are serious about one day going to the US, in which case the long, painful and potentially expensive road to compliance is your only option.


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