Latest / Your Estate Matters / Episode 61 - Understanding Cross-Border Tax and Estate Planning with Jonah Spiegelman
Transcript
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</script><meta http-equiv="content-type" content="text/html; charset=UTF-8"><script nonce="DbMdq014LkZrmFPyLwSV2Q">var DOCS_timing={}; DOCS_timing['pls']=new Date().getTime();</script><meta property="og:title" content="YEM ep61 Jonah Spiegelman"><meta property="og:type" content="article"><meta property="og:site_name" content="Google Docs"><meta property="og:url" content="https://docs.google.com/document/d/16IAwt0ordahOT-d0Gmec361UvryFm3eIq76qX8lfN1I/edit?usp=sharing&usp=embed_facebook"><meta property="og:image" content="https://lh7-us.googleusercontent.com/docs/AHkbwyKmmLtVYD4vFl3OrnqTOkqS_hiOCGtL-CtXHAhPUAMJWcnhJIcSY-UbPt_M4NOJ8aFcfJDPNlGhTYcqkppK2Isw2ttQCmhs5Q6tnsIq5PmcfgWzgOJR=w1200-h630-p"><meta property="og:image:width" content="1200"><meta property="og:image:height" content="630"><meta property="og:description" content="Automatically Transcribed With Podsqueeze Nicole Garton 00:00:02 Hello and welcome to Your Estate Matters presented by Heritage Trust. Your Estate Matters is a podcast dedicated to everything estates, including building and preserving your legacy. If it's estate related, we'll be talking about ..."><meta name="google" content="notranslate"><meta name="viewport" content="width=device-width, user-scalable=no, initial-scale=1.0, minimum-scale=1.0, maximum-scale=1.0"><meta http-equiv="X-UA-Compatible" content="IE=edge;"><meta name="fragment" content="!"><meta name="referrer" content="origin"><title>YEM ep61 Jonah Spiegelman - Google Docs</title><link rel="shortcut icon" href="https://ssl.gstatic.com/docs/documents/images/docs-favicon-2026-v2.ico"><link rel="chrome-webstore-item" href="https://chrome.google.com/webstore/detail/apdfllckaahabafndbhieahigkjlhalf"><script nonce="DbMdq014LkZrmFPyLwSV2Q">_docs_webfonts_fontFaces = null; _docs_webfonts_iframe_fontFaces = null;DOCS_timing['wpid']=new Date().getTime();</script><style 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Your Estate Matters is a podcast dedicated to everything estates, including building and preserving your legacy. If it\u0027s estate related, we\u0027ll be talking about it. We\u0027re having the conversations today that will help Canadians protect their families, their assets and their legacies tomorrow. \n\nHello and welcome to your Estate Matters. I\u0027m Nicole Garton. Today we\u0027re tackling one of the most complex and misunderstood areas of estate planning in Canada, planning for individuals and families who have ties to both Canada and the United States. There are well over 1 million US citizens living in Canada. Many of them were born in the U.S. and moved here decades ago. Others are Canadian born but acquired US citizenship through a US citizen parent or later through naturalization. Others are not U.S. citizens at all, but they\u0027re still U.S. tax residents, former long term green card holders, or Canadians with U.S. situs assets. Many do not realize that the United States may continue to tax them or require ongoing reporting, even after years in Canada, and that death can create tax and administration issues in both countries.\n\nNicole Garton 00:01:21 The stakes are enormous. Get the planning wrong and a family can face double taxation penalties. Loss of treaty benefits and an estate administration process that spans two countries with conflicting rules. Get it right and you can coordinate the two systems to minimize tax and protect the people who matter most. I\u0027m delighted to be joined today by one of the leading cross-border talks in estate planning lawyers in Canada. \n\nJonah Spiegelman is the principal at Polaris Tax Counsel in Vancouver. He\u0027s licensed to practice law in British Columbia and California, which means he can advise and implement strategies on both sides of the border. He holds a JD and an MA from the University of British Columbia, and a Bachelors of Science from the University of Oregon. He is the co-author, with David Altro, of the book Americans Living in Canada - Smile, the IRS Is Watching You, which has been excerpted in The Globe and Mail. He has years of experience advising clients on estate planning, trusts, business structures, residency and migration planning, and US tax compliance. Before joining Polaris, Jona led the international tax practice at a regional firm in Vancouver and ran his own boutique cross-border practice.\n\nNicole Garton 00:02:33 Jonah, welcome to Your Estate Matters. Thank you so much for joining us. \n\nJonah Spiegelman 00:02:45 Pleasure. Thanks for having me.\n\nNicole Garton 00:02:46 It\u0027s great to have all your expertise available for our listeners. So you\u0027ve spent your career at the intersection of US and Canadian tax law. What drew you to this area, and how did you end up building a practice focused on cross-border planning?\n\nJonah Spiegelman 00:03:01 Well, it\u0027s an interesting story. Maybe too long for the current environment, but the key was that I happened to join a firm that specialized in this as a result of lifestyle choices I was making, but the interest was there because I was born in the US. We moved to Canada when I was a toddler, and so as I learned all of the material, it was so relevant to my personal situation that I felt like I really wrapped my arms around it. And I can relate to clients who are in a similar situation.\n\nNicole Garton 00:03:32 And have you kept your citizenship?\n\nJonah Spiegelman 00:03:34 Oh yeah. Yeah. I\u0027ve spoken with so many about renunciation and I think I\u0027m on the same page as most.\n\nJonah Spiegelman 00:03:41 It\u0027s interesting to know about, but there\u0027s something about it that I\u0027m happy to keep it.\n\nNicole Garton 00:03:45 I\u0027ve seen both sides of the lane, people renouncing and people keeping it. And I mentioned to you, I have three children who are dual citizens as well. So…\n\nJonah Spiegelman 00:03:55 Right. It\u0027s not as bad as all 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Totally manageable.\n\nNicole Garton 00:04:00 So, speaking of that, you co-authored a book called Americans Living in Canada - Smile, the IRS is Watching You. That title alone tells a story. What was your impetus for writing it and what were you seeing in your practice at the time?\n\nJonah Spiegelman 00:04:13 Well, this was a book that I wrote during really the initial stages in the late 2000, when the US was really becoming a lot more interested in compliance for, you know, citizens who were living elsewhere. And this is when the f bar sort of awareness really began, even though it had been on the books for decades. and so I felt like there was a lot of need out there for increased awareness and getting people sort of back on track before the hammer came down on them.\n\nNicole Garton 00:04:47 So not everybody\u0027s going to know what an f bar is, right?\n\nJonah Spiegelman 00:04:50 So the foreign bank account reports this is not actually an income tax rule in the US. It\u0027s under much more of an anti-money laundering type of a legislative regime. But it does require US citizens to annually disclose foreign bank accounts that they have signing authority over. And so this is like I say, it\u0027s not that it wasn\u0027t a new thing, but it certainly became, I think, identified as a revenue source for the IRS at that time. And ever since it\u0027s become, you know, increasingly important to keep up with those obligations.\n\nNicole Garton 00:05:21 And so if you\u0027re a US citizen, is that even if you live here, is that something you have to do every year?\n\nJonah Spiegelman 00:05:27 Absolutely, absolutely. If you aggregate balances of over $10,000 in any given year, you need to report those accounts.\n\nNicole Garton 00:05:36 So when dual citizens are U.S. persons living in Canada come to you, what are the most common misconceptions they have about their tax and estate planning obligations?\n\nJonah Spiegelman 00:05:46 Well, I\u0027d say the most common is a misunderstanding of the continuing obligations that they have in the US.\n\nJonah Spiegelman 00:05:51 It\u0027s a unique country in the world that requires annual tax compliance, regardless of where you live. And so just because you moved away and don\u0027t have any assets or income coming out of the US, does not mean you\u0027re off the hook from an income tax reporting side of things. And you know, on estate planning, there\u0027s so many rules, not only in Canada, there\u0027s a lot of rules, but there\u0027s a whole different host of rules on the US side. And marrying those together into a comprehensive plan that achieves your objectives is, you know, it\u0027s really important and not obvious at all.\n\nNicole Garton 00:06:24 So let\u0027s set the foundation for our listeners. The US, as you say, is one of the only countries in the world that taxes its citizens on worldwide income, irrespective of where they live. So what does that mean in practical terms for a US citizen who\u0027s been living in Canada even for many, many years?\n\nJonah Spiegelman 00:06:42 Well, it means, first and foremost, a second accounting bill every year, maintaining compliance is often little more than hiring a separate CPA or a different CPA that has a capability of filing in both countries.\n\nJonah Spiegelman 00:06:57 The vast majority of Canadian resident Americans don\u0027t have any US tax to pay, because we have a mechanism of treaty credits, and also just within the domestic law that prevents, you know, if you\u0027re living and working in Canada, you\u0027ll pay Canadian tax. It\u0027s a higher rate of tax than the US imposes. So there\u0027s no tax to pay. 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So it\u0027s a really important topic. Oftentimes we say Canada doesn\u0027t have an estate tax. That\u0027s not quite true because there\u0027s a deemed disposition of all assets. That\u0027s, and that capital gains tax that may be realized there is payable in the final year.\n\nJonah Spiegelman 00:07:59 On the US side, it\u0027s a completely different regime, totally divorced from income taxes based on the fair market value with a very healthy exemption. So sometimes it becomes a matter of focusing on which is going to give rise to actual dollars to pay in the estate and focusing your planning efforts there. The treaty does a really good job of avoiding double tax. It\u0027s not perfect. I think the area where you have the biggest jeopardy is in relation to gifts. because the treaty has no system of crediting out, Canadian tax versus US gift tax and the other way around. And you can end up with all kinds of double tax problems. And so, for example, clients often come to me and say, “well, should I just add my kids to the title of the house?” And I thought, you know, that\u0027s the worst idea of all of the things we could do. Simply giving your assets away is not the good one. Many other plans that are much more tax efficient, even though it sounds like the simplest.\n\nNicole Garton 00:09:01 So is it correct that the exemption is 15 million US currently?\n\nJonah Spiegelman 00:09:06 Right. So every US citizen has an aggregate lifetime exemption amount that covers both gifts and estates. Currently it\u0027s around 15 million indexed to inflation. So it picks up a little bit every year that for the vast majority of people, takes care of all of those problems. And all of all we really need to do is make sure that we\u0027re not stepping in any traps. Now, on the Canadian side, we\u0027re much more focused on capital gains. So dying is a capital gains tax event. 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You say it does a lot of things, but it\u0027s not perfect. Like where is it currently falling short for people?\n\nJonah Spiegelman 00:15:38 Well, I think, you know, harkening back to what we talked about earlier, I think the gifts is an area where there\u0027s a real shortcoming in the treaty. We have a special, you know, quite unique provision. Article 29 B of the treaty provides the, you know, a credit for Canadian taxation on death versus US estate tax. No such coordination on gifts. So we have to be really careful around doing anything that can either be considered a gift or is actually a gift. So that\u0027s one area for sure. I think the other area really where it falls short is there\u0027s some entity characterization problems. The classic one is the limited liability company in the US is taxed fundamentally differently in the US versus Canada.\n\nJonah Spiegelman 00:16:23 And because CRA has a pretty Aggressive view on how LLCs should be taxed. You can run into some serious problems. They don\u0027t get treaty benefits because they\u0027re not taxed at the entity level. That\u0027s a real problem that I deal with monthly in my practice. You know, some of the newer sort of financial products that are out there just don\u0027t get covered. So the Resp type things, the TFSA is not yet fully recognized as a tax deferred entity or type of account. So those sorts of things a little I feel like the treaty moves very slowly. They don\u0027t update it very often. It\u0027s many years between updates. It\u0027s hard enough to get tax legislation passed in one country, let alone having two countries agree on new rules. Right. And so a lot of the sort of newer tax deferred accounts can be really problematic, notwithstanding an excellent treaty that we rely on for many important things.\n\nNicole Garton 00:17:19 So let\u0027s talk about the main planning tools. So you\u0027ve got a dual citizen. Is there anything particular they should do in their will, for example?\n\nJonah Spiegelman 00:17:28 Well, I think, you know, for a lot of people, the first thing I think that people need to understand is that a large proportion of the estate planning sort of bar in Canada doesn\u0027t understand whether there\u0027s a problem or not. All they know is if there\u0027s Americans involved, I\u0027m not comfortable. Okay. So there\u0027s a lot of people who are having trouble finding proper help to, you know, winnow out. Is there an issue, is there not an issue. Right. And just getting any advice at all? You know, I have known very, very competent estate planning counsel here in British Columbia who in their, you know, standard forms are excluding anyone who\u0027s a US person. Just because I don\u0027t know, it sounds dangerous. It\u0027s not always dangerous, right? If you understand how to manipulate those rules, and manipulate, I think, is actually the wrong word. How did you just work in that context? then you can find solutions. and to be honest, I would say a majority of US citizens in Canada don\u0027t require any special planning in their wills.\n\nJonah Spiegelman 00:18:41 Right. But how are you going to know whether you do or you don\u0027t? Right. So the facts really drive that complexity, and the complexity drives the sophistication required in those planning documents. So I would say most of the time it\u0027s a look at the facts, rule out the major problems and prepare something that doesn\u0027t have any problems with it. Other times if they’re, you know, higher net worth or have more complicated structures or assets, then you do need specific planning that can only really be implemented by someone who understands the issues.\n\nNicole Garton 00:19:17 So let\u0027s talk about what the big minefields might be then. So just so people know where the danger areas are. So I heard from you. 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So if the child is a US person, any time a US person receives a gift, that\u0027s over $100,000 in any given year that must be reported to the IRS.\n\nJonah Spiegelman 00:19:56 Not because it\u0027s a taxable receipt. Right. But if you don\u0027t report it, then they can just absolutely hammer you with penalties. It can be, you know, 25% of the value of the gift. And I have had, you know, real files where all of those transactions happened before I was involved. And I\u0027ve had to do IRS appeals saying, look, you know, under these circumstances, this is not a reasonable penalty to impose. And, you know, I\u0027ve had some success with that, you know. But to get to a level of review within the IRS where someone has the sense and discretion to, to actually offer relief. It\u0027s punishing, you know, time consuming and therefore quite expensive. Now, if the US person is the parent, that\u0027s a bit of a different situation because we have this very generous lifetime gift tax allowance. Sometimes all you really need to do is file the gift tax return, because they\u0027ll never need the whole 15 million. So really, again, you know, I\u0027m going to sound like a broken record, but everything comes back to the facts.\n\nNicole Garton 00:21:00 Right. And what about the primary residence exemption? That\u0027s something that U.S. persons don\u0027t seem to be aware of. Do you want to talk about that?\n\nJonah Spiegelman 00:21:08 Yeah, that\u0027s a really good one. so, as we know, in Canada, the sale of a primary residence is always fully exempt from tax. If you\u0027ve lived there the whole time you\u0027ve owned it, that\u0027s just, you know, that\u0027s become a majority of Canadians’ real savings plan is the home that they live in. so what they don\u0027t realize and often this comes up for people who came up from the States a long time ago, before there was a lot of awareness of, of a lot of these issues. The Internal Revenue Code in the US offers $250,000 exempt from capital gains tax, and the rest is taxable. Now, if anyone\u0027s lived in Vancouver since the 70s, their gains are a whole lot higher than that. And I\u0027ve had to break the hard news to clients to say, I\u0027m sorry, you can never sell this home, right? You will own this home until your death, or you will pay, you know, million dollars in US capital gains tax.\n\nJonah Spiegelman 00:22:01 It can be very punishing. There are sometimes strategies that can be implemented to to relieve that. And, you know, if you\u0027ve got, you know, one US spouse, one Canadian spouse, you can avoid the capital gains tax on the sale. But, you know, for a single person who\u0027s been in their home for decades, it can be a real problem.\n\nNicole Garton 00:22:24 Yeah. So I\u0027ve seen clients and beneficiaries that did not know about that. So that\u0027s something that I\u0027ve seen a lot.\n\nJonah Spiegelman 00:22:32 So it happened to my parents. Oh, when they sold their home. My childhood home. and it didn\u0027t occur to them because I was not yet, you know, into this practice area so deeply. No one asked the question. The CPA never asked the question. It was before we had to designate the principal residence on sale. Right. and then from, as a result of their F Barr filings, all this money was suddenly in their reported bank account. The CRA, the IRS said, well, where\u0027d that come from? 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DOCS_modelChunkLoadStart = new Date().getTime(); DOCS_initialLoadTiming.incrementTime('mp', DOCS_modelChunkLoadStart - DOCS_modelChunkParseStart); DOCS_warmStartDocumentLoader.loadModelChunk(DOCS_modelChunk); DOCS_modelChunk = undefined;</script><script nonce="DbMdq014LkZrmFPyLwSV2Q">DOCS_modelChunkParseStart = new Date().getTime();</script><script nonce="DbMdq014LkZrmFPyLwSV2Q">DOCS_modelChunk = {"chunk":[{"ty":"is","ibi":33741,"s":"\nNicole Garton 00:33:43 Are you seeing clients increasingly coming in with AI materials or?\n\nJonah Spiegelman 00:33:48 Oh, yeah, absolutely. They do their research before they come in. And oftentimes there\u0027s some it\u0027s not like everything in there is incorrect, but it\u0027s unreliable enough that you\u0027d be foolhardy to leave it at that. And so I think that there is a level of education, the sort of preliminarily that the clients can, can accumulate using those tools.\n\nJonah Spiegelman 00:34:13 and but the answer is always yes, with, with those tools. And so, you know, I think that if you\u0027re going to use those things as a, as a way to set the stage or figure out what we want to talk about, don\u0027t close your minds to things you don\u0027t know, because those tools do not, they don\u0027t have the context and they don\u0027t know what questions to ask. and, and, you know, it\u0027s really important to seek out those advisors who have experience in this area and can, you know, confidently tell you, you know, do you have a problem or don\u0027t you? And that sets the stage for good planning.\n\nNicole Garton 00:34:57 So back to the minefields. Can we circle back to the registered funds? Like what if we\u0027re assuming the parents are U.S. taxpayers, but maybe dual. What are the things they should know about registered funds like roofs and TFSA and things like that?\n\nJonah Spiegelman 00:35:16 Well, certainly on the RSP and reef side of things, there\u0027s not too much uncertainty left.\n\nJonah Spiegelman 00:35:25 Okay. So the U.S. certainly does not grant a deduction for your contributions. So it is possible for U.S. persons living in Canada to over contribute to their RSP such that their Canadian income tax falls below the US tax. Right. And then you can end up paying some U.S. tax. So if you\u0027re a dual citizen, you should have a financial advisor who\u0027s aware of this? You should have accountants, clearly, who can do both sides. and, you know, any other team of advisors. So you don\u0027t step in that one at least. Both countries will permit the deferral of investment income within that type of plan and fully tax it on the way out. So that stuff is okay. Alright? You know, the TFSA is the classic one. That is I mean, I still feel like there\u0027s some uncertainty. One thing that\u0027s not uncertain. The US will tax investment income within your TFSA. So it is not tax free on the US side. Again because of the high tax we pay in Canada, it doesn\u0027t always mean you\u0027re going to have dollars to pay to the IRS.\n\nJonah Spiegelman 00:36:30 But it\u0027s important to know it\u0027s not tax free. In the best case scenario, it\u0027s just another portfolio account. And I think that there is some movement. I believe there\u0027ve been some recent cases that came out that have sort of supported that position. I mean, it\u0027s been our position for a long time that that\u0027s the case. I think we\u0027re getting a bit of validation on that. Having said that, I have active IRS appeals where the IRS has imposed penalties as though this TFSA was a foreign grantor, trust is the technical term. And if you don\u0027t file the necessary information returns in the US, or more specifically, if you file them late, they\u0027re going to penalize first and ask questions later. So it is a bit fraught. Still with the TFSA. And I generally say, look, you know, if we\u0027re getting started with planning, US citizens says, “should I have a TFSA or should I not have a TFSA?” I feel like it\u0027s not worth the trouble.\n\nNicole Garton 00:37:32 That\u0027s what I understand.\n\nJonah Spiegelman 00:37:33 That\u0027s my take on it. I think that reasonable people can differ on that recommendation, but that\u0027s been my view.\n\nNicole Garton 00:37:41 So one of the themes of your book is that the IRS is watching. So maybe let\u0027s summarize so people know what are the key filing and reporting obligations that US citizens in Canada need to be aware of? Like what should they be doing every year?\n\nJonah Spiegelman 00:37:56 Well, certainly every year filing a 1040 tax return is the basic. And in that return you report your worldwide income regardless of its source. If you\u0027ve paid Canadian tax, obviously that forms a credit. So you\u0027re taking it off the US tax bill. So that\u0027s your basic basic. Your other basic basic is the f bars the foreign bank account reports. Most people have more than $10,000 across their Canadian bank accounts because it includes your RSP and your TFSA and everything. So most people are filing FBARs and ten 40s every year. 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I don\u0027t have to file a return. Not true. Because of all the information returns that are increasingly required under US tax compliance. So, you know, there\u0027s a whole suite of information returns of $10,000 a year, penalties for not filing it on time. And, you know, those penalties were designed with the absolute worst offenders in mind. And so then what you\u0027re left with is having to beg and plead for relief after they hit you with these monstrous penalties. And so that\u0027s a challenge. That\u0027s a challenge. So, you know, again, going back to the good advice thing, having a CPA that understands all of those information returns and the fact patterns that can give rise to having to file a 54, 71 or 54, seven 3520 there\u0027s all of these information returns. It seems like every year there\u0027s more. And they\u0027re not obvious. You know, a layperson can\u0027t really determine whether or not they have to file.\n\nJonah Spiegelman 00:39:49 And so, you know, good advice is key. Those are the main ones, you know. And then everything else is sort of just it just all flows from the facts. But, you know, if you\u0027re involved in Canadian trusts or Canadian corporations or, you know, have investment portfolios, we have to make sure that you have the right products in there and don\u0027t have things that give rise to US tax problems. You know, you have to keep your eyes on the prize here. And, you know, make sure that you\u0027re getting the right advice.\n\nNicole Garton 00:40:17 So I don\u0027t see this as much anymore. But earlier in my practice, I used to see a lot of what we would call stealth Americans, where, you know, they were born in Chicago in 1945. They\u0027ve been here for 50 plus years and they\u0027ve never filed. You know, I understand there was a window of relief for the people like that. That didn\u0027t get the memo. Is there something similar to Canada? Like in Canada, we have the voluntary disclosure program.\n\nNicole Garton 00:40:48 Is there something left in the US where somebody can come forward and file 40 years of returns or.\n\nJonah Spiegelman 00:40:53 So, 40 years of returns you\u0027ll never have to do? Okay. Okay. So there\u0027s a number of different streams that you can find yourself flowing down. The best is called the Streamlined Foreign Offshore Compliance Program. And if you match the eligibility criteria for that program, it\u0027s basically three years of tax returns, six years of f bars. And if there\u0027s any tax to pay, you pay it. Chances are there won\u0027t be, as I\u0027ve said. And then you\u0027re deemed compliant. Okay, now you have to have some explanation for why you weren\u0027t filing and that it was non willful is the key term, which has a bit of an abstract legal definition that, you know, we could get into if we had more time. If you are more of an “okay, I\u0027ve known about this the whole time and I\u0027ve intentionally either underreported or failed to report.” And I can\u0027t characterize this as non willful.\n\nJonah Spiegelman 00:41:58 There are other compliance programs that come with penalties. and my view is those are best suited for people who, you know, really think that they might be going to jail, right. I mean, that\u0027s the major carrot they offer on this program. you\u0027re not going to jail. but it\u0027s like 27% penalties or something. It\u0027s like crazy penalties. And so I\u0027ve never actually had a client who fit that criteria. You know, the other thing to keep in mind too, is like, especially with the fact pattern that you threw out at the beginning of the question. You know, you\u0027ve been here for 50 plus years. never filed. You didn\u0027t think you were American anymore. 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