When an athlete signs with a US team, one of the most common questions I hear is: “How do I get a green card?” In most cases, the athlete does not know why they want it, or is unaware of the obligations that come with holding a green card. Let's take a closer look at the tax obligations of Canadian athletes with green cards.
Tax obligations in Canada and the US
As a green card holder, you are considered a US resident and are required to file a US tax return, regardless where you live. This means you report your worldwide income and may have to pay US tax on that income. For example, a hockey player living in Canada possessing a green card would be subject to tax in both Canada and the United States and they would effectively pay the higher of the two rates.
In addition, there would be an annual requirement to file a report of foreign bank and financial accounts (FBAR). An FBAR is required when a green card holder has bank or investment accounts outside of the US that have a combined amount of more than $10,000 at any time in a calendar year. The form is also required should you have signing authority over such accounts. This yearly filing does not result in additional tax but failure to file can result in heavy or troublesome penalties for non-disclosure.
Future Planning & Estate Tax
Asset protection and estate planning is a challenge for green card holders due to US gift and estate tax. For example, estate tax may apply on the value of your worldwide assets (including RRSPs and life insurance proceeds) if you die while holding a green card. This could severely limit the ability to pass on wealth to your children.
Inability to access tax incentives
Obtaining a green card could also impact your RRSP deductions, Canadian exploration expenses, and taxes on the sale of your principal residence, which is normally tax exempt in Canada. Other factors, such as the effect upon Retirement Compensation Arrangements (RCA), need to be examined should a player apply for a green card while payments are being made on their behalf by the team.
Departure Tax
Leaving Canada can trigger an array of tax consequences. On departure, almost all of your personal property will be considered disposed of at its fair market value. This triggers capital gains tax even if you do not sell the property or investment and continue to hold it after you leave Canada. Further, if you purchased a home in Canada and used your Home Buyers Plan to fund the purchase, the remaining balance due would have to be repaid to your RRSP within 60 days of your departure or earlier.
Making the decision
Once you obtain your green card, not only may you be subjecting yourself to unintended tax consequences but relinquishing it may lead to further tax obligations to the IRS.
There may be better options for Canadians playing on US teams such as various types of work visas. The decision to move forward and obtain a green card should consider your current circumstances, plans, and tax consequences for not only yourself but also your immediate family members.
An examination of all the factors should be undertaken with your tax and legal advisors prior to making the decision so that the future consequences are well understood and in your best interest.
The decision to apply for a green card should not be taken lightly. The heavy or troublesome tax consequences as a result of obtaining a green card may outweigh the benefits.
Need professional advice?
A Crowe Soberman advisor can assess your unique situation and provide professional advice. Book a no-obligation consultation with us today.
This article has been prepared for the general information of our clients. Specific professional advice should be obtained prior to the implementation of any suggestion contained in this article. Please note that this publication should not be considered a substitute for personalized tax advice related to your particular situation.
Jeffrey Steinberg
Partner,
Business Management & Transactional Services
Jeffrey Steinberg CPA Professional Corporation
