Taxes When Living Aboard

[cwyckham]

Originally Posted by achil

If you have zero gain in Canada, then you have Zero gain in the US regardless of what the conversion rate is. Instead of all the worrying, hire yourself an account in the US to do your US taxes.

I didn't make up this scenario, a US expat in Europe was caught by this precise scenario. Are you a tax accountant or attorney, or are you making an assumption?

Here's a quote from a blog about the many issues US expats face because of the absurd taxation based on citizenship:

Bernard Schneider on page 26 in a recent article in the Virginia Law Review, referring to Quijano v. United States, 93 F.3d 26 (1st Cir. 1996); Rev. Rul. 90-79, 1990-2 C.B. 187. notes that:

Put another way, the United States taxes the depreciation of its own currency. In addition, gains due to foreign exchange are treated as ordinary income, even if the underlying transaction generates capital gain or loss.
For example, a taxpayer values an asset and determines its basis in U.S. dollar terms on the date of the asset’s acquisition. Expenses that are added to basis are converted into U.S. dollars at the exchange rate on the date paid. When the asset is sold, the gain is calculated on the date of disposition. By this mechanism, it is possible to have a real loss in the foreign currency that appears as a (phantom) gain in U.S. dollar terms and is taxed accordingly in the United States. The absurdity of this situation is compounded to the extent there is a loan in a foreign currency that has appreciated over the course of the term of the loan. The loss in U.S. dollar terms on the loan cannot be offset against a gain, if any, on the sale of the underlying asset.

I haven't even brought up that I can't use Canadian Tax Free Savings Accounts to invest tax free and the only reason that I can get education grants from the Canadian government for my son is that my wife isn't American.

[valhalla360]

Originally Posted by cwyckham

If I'm a resident of Canada, then no I can't just move my money out and invest elsewhere without being taxed by Canada. However, if I'm not a resident of Canada (and not a "deemed resident"), then I can absolutely move my money anywhere I want and invest it without Canada wanting a piece.

Once I leave, I leave. I know because I've done it. I would still be taxed on any investments I left behind in Canada, but not on anything outside of Canada.

As a cruiser, though, one must be careful of the residency thing. In general, the tax treaties and laws are all written such that you have to be a tax resident somewhere. If you're off traipsing around the world, then it will usually be the last place you lived.

Canada will consider you owning property and having bank accounts back in Canada to mean that you're still a deemed resident for tax purposes.

Of course if you leave, never to return, they will take thier pound of flesh on the way out and then you are free to do as you please (if you have complicated deals involved, I wouldn't be suprised if they keep an eye on your for a few years to make sure you didn't game the system).

If you retain your ties to Canada, they will continue to want their regular pound of flesh.

You can thank the guys gaming the system for the rules. The American system allowed a lot of people to get very rich and then they tried to game the system so rules were made to deal with the issue. Some countries tried to help them for a slice of the profits and so now reporting rules have become a pain.

As far as your original example, every country I am aware of requires profit and loss to be calculated based on their own currency and that opens you to currency valuation changes. There is an implicit assumption that as you are retaining your citizenship, your intent is to ultimately return. If it's not, break the tie and don't worry about it.

[belizesailor]

Odds are reasonable that you can complete transactions in US$ and mitigate the exchange rate issue (for USA Citizens/Residents anyway). I've bought and sold real estate in several countries and the transactions have always been to/from my USA bank account in US$. One reason I do this is that it is also less likely to raise questions with the IRS...esp now with increased foreign asset reporting requirements.

[BlackTiger]

I'm so ticked off about being forced to participate in the affordable healthcare act or get taxed. I can't believe I have to pay $2,500 a year now, or get taxed at least $2,500 (2%). Next year it will be 2.5%, year after that 4%? I need to get off the mainland... $2,500 a year can probably cover the cost of a slip in south/latin america for 6 months to a year. I have roughly 2 weeks to decide what to buy. I plan on doing a 6 month contract and hopefully be outside the U.S. by then.