Adam McHenry, CFA, MBA

Portfolio Manager, Raymond James Ltd.

Obtaining dual citizenship, particularly for those split between Canada and the United States, is an exhilarating prospect. It provides both increased flexibility and enhanced opportunities, from employment to retirement. However, it’s essential to understand the financial implications tied to this decision. My name is Adam McHenry, a licensed cross-border Financial Advisor with an expertise in Canadian-U.S. fiscal considerations, and I’m here to guide you through this financial journey.

Taxation

The first major aspect you should consider is taxation. Canada and the U.S. employ different tax systems: Canada uses a residency-based system, taxing individuals primarily on where they live, while the U.S. uses a citizenship-based system, taxing its citizens on worldwide income, regardless of their residence.

Upon acquiring U.S. citizenship, you will be obligated to report all global income to the IRS. For example, if David, a Canadian citizen, decides to become a dual citizen and retains investments or bank accounts in Canada, he will now need to report the earnings from those to the U.S., potentially leading to a higher tax liability. There are also many challenges that a U.S. citizen will encounter because of the U.S. tax treatment of certain investment types and account types available in Canada.

Estate Taxes

Next, consider the impact on estate taxes. The U.S. imposes an estate tax that could potentially apply to your global assets after death, unlike Canada, which only has probate fees and a deemed disposition tax at death. If Sandra, a Canadian with significant assets, pursues U.S. citizenship, her estate may be subject to U.S. estate tax upon her passing.

FATCA and FBAR

Lastly, as a U.S. citizen, you need to be aware of Foreign Account Tax Compliance Act (FATCA), foreign asset, and Foreign Bank Account Report (FBAR) requirements. If the total value of your foreign financial accounts exceeds certain thresholds, you will need to report these accounts annually to the U.S. Department of Treasury and to the IRS on Form 8938. Neglecting these obligations can result in severe penalties.

Benefits of Dual Citizenship

Despite these financial implications, dual citizenship also carries several advantages. U.S. citizenship can grant greater ease of travel and residency, increased employment opportunities in the U.S., and access to certain federal benefits and protections.

Consider Michael, a Canadian who often works on projects in the U.S. Obtaining U.S. citizenship could simplify his work-related travel, allow him to contribute to and benefit from U.S. social security, and potentially offer more employment opportunities in the U.S.

As you can see, becoming a dual citizen is not solely an emotional or lifestyle decision but a financial one as well. It’s crucial to understand how dual citizenship can impact your tax situation, estate planning, and compliance requirements.

As a CFA and MBA designated cross-border Financial Advisor at Langill and McHenry Investment Advisors at Raymond James Ltd, I can help you navigate these financial implications and seize the opportunities dual citizenship may present.

Feel free to reach out to me, Adam McHenry, at 416-901-6500 or adam.mchenry@raymondjames.ca. Let’s ensure your pursuit of the American dream doesn’t turn into a financial nightmare. Your cross-border life awaits, and I’m here to help make it as seamless as possible.

Information in this article is from sources believed to be reliable; however, we cannot represent that it is accurate or complete. It is provided as a general source of information and should not be considered personal investment advice or solicitation to buy or sell securities. Raymond James advisors are not tax advisors and we recommend that clients seek independent advice from a professional advisor on tax-related matters.] The views are those of the author, Adam McHenry, and not necessarily those of Raymond James Ltd. Investors considering any investment should consult with their Investment Advisor to ensure that it is suitable for the investor’s circumstances and risk tolerance before making any investment decision. Raymond James Ltd. is a Member Canadian Investor Protection Fund.

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