But, the implications are not just restricted to filing personal income tax. Registered accounts such as RESPs and TFSAs are considered "foreign trusts" by the IRS
and are also potentially taxable. This becomes more complicated for people – for example those born in Canada to U.S. parents or born in the U.S. to Canadian parents – who may not realize they are U.S. citizens.
This, according to Altro, is why Canadian advisors need to get with the program.
“In addition to filing taxes, there is usually a bunch of other problems,” says Altro, who is one of a niche group of advisors qualified to service both Canadian and U.S. clients. “There are people getting advice from good Canadian advisors that are good at Canadian financial planning, but are not taking into account the U.S. tax system. Some good planning in Canada does not work on the U.S. side and they (clients) end up with onerous tax consequences.”
In his business, Altro conducts a financial audit on every client he decides to take on, making sure that all U.S. citizens clean up their acts (i.e.. filing outstanding taxes), before a financial plan is developed. He recommends all advisors do the same for their U.S. clients over the next several months, working with a cross-border specialist – either in-house or third-party – who knows the U.S. system inside and out.
“If an advisor is not getting ahead of this, figuring out which clients are U.S. citizens and what they need to do to clean up any issues they may have, then some other advisor will point this out to the client,” warns Altro. “(The law) will create a lot more awareness of the importance of understanding whether you need external or internal help to figure out what the implications are for U.S. clients.” (continued on Page 3)