[Reg]

Canada Revenue assails sister agency's workers
Don Cayo, Vancouver Sun
Published: Friday, June 20, 2008
For 12 years, helping Canadians in distress has been Tania Lam's job at Canada's Los Angeles consulate -- people who fall ill traveling, or families of those who die, people who get into legal trouble or who are left destitute when their Hollywood dreams collapse.
So it's a sad irony that, with Lam now distressed herself, the Vancouver native doesn't know what to do or who to turn to. And it's a bitter irony that the cause of this distress is none other than her long-time employer, the Government of Canada.
Specifically, her problem is cold-blooded dunderheads at the Canada Revenue Agency. With no apparent thought for the harm to either employees or their employer, and no attempt to work out a fair deal with U.S. tax agencies, they've "reinterpreted" a tax provision that used to make it affordable for dual Canada-U.S. citizens to work in the States for the Canadian government.
Lam's precise circumstances may be unique, but her plight is shared by a number of others -- about three dozen -- at Canada's embassy in Washington or its various consulates.
Until last summer, Lam was a citizen of just one country -- Canada, the land of her birth. But with an American husband and two U.S.-born children, she thought it was time to formalize her ties to her adopted country. As a long-time consulate staffer and a former employee of Citizenship and Immigration in Vancouver, she was well aware of the dual-citizenship provision, and on July 6 she took advantage of it.
Formerly, as a Canadian working for the Canadian government in the U.S., she paid her taxes only in Canada. Federal and B.C. income tax, Employment Insurance premiums and Canada Pension contributions were all deducted from her pay.
When she accepted U.S. citizenship, she assumed that -- like the other 30-odd government-employed dual citizens in the same boat as her -- she'd get a Canadian government waiver and start paying taxes in the U.S.
Then, in December, a re-interpretation pulled the plug, not only on her but on her colleagues as well. CRA rescinded any waivers already granted, and refused to issue any more.
The only reason Lam has received is a vague reference that it's "in response to jurisprudential developments that clarified the meaning of the word tax."
As a result, Lam has to continue paying her four Canadian taxes. And, although the U.S. government does honour a tax treaty with Canada and exempt her from its federal income tax, she must also pay a hefty U.S. Social Security levy. Other employees in the U.S. split this cost with their employers, but, because the consulate doesn't deduct and remit it for her, she's considered self-employed and must pay the full 15.3 per cent herself.
Plus, the state of California -- "one of two states that doesn't even read the tax treaty" -- takes an additional eight per cent.
So, on top of Canadian taxes, she loses nearly a quarter of her gross pay.
Her situation is at the point where she can scarcely afford to keep working, but she can't afford to quit. With the U.S. economy sagging, it's a crummy time to look for work in L.A. Besides, she doesn't want to be forced to give up a long-standing career in Canada's public service. And, most important of all, as a wife and mother she dares not give up her health insurance because her husband has none.
She briefly considered renouncing her American citizenship. But she no longer has a green card, which used to allow her to work in L.A., and there's no guarantee she'd get another one. She could be refused continued admission to the country.
Thus, renouncing her Canadian citizenship may be the only viable option. Most other Canadians will understand her reluctance, but it may come to that.
Aside from the unfairness of rushing to a policy change that imposes double taxation on a relatively small group of Canadian citizens, the CRA action is stupid. Several of those in Lam's position have already resigned their jobs or renounced their Canadian citizenship, and if this isn't resolved soon the rest won't be far behind. So there's no long-term revenue potential for Canada in this. And CRA is costing a sister agency, the consular service, some of its experienced employees.
The reinterpretation should be delayed and the waivers reinstated -- or in Lam's case issued -- until the ramifications of this policy are worked out satisfactorily. If the law makes no other interpretations possible, and if no compromise with U.S. tax agencies can be reached, then the law is -- once again -- an ass. And it needs to be changed. Pronto.
dcayo@png.canwest.com
ONLINE: Read Don Cayo's blog at vancouversun.com/blogs

[Bert_Mulder_CGA]

Did they, among other things, forget about the Canada-US Social security agreement, which would exempt her from either CPP or Social Security?

Seems like she should be talking to an accountant versed in Canada-US tax issues, instead of to the press....

[D.F. (Nick) Lapenna]

Bert_Mulder_CGA, on Jun 20 2008, 04:10 PM, said:

Did they, among other things, forget about the Canada-US Social security agreement, which would exempt her from either CPP or Social Security?

Seems like she should be talking to an accountant versed in Canada-US tax issues, instead of to the press....

Excellent answer, Bert!

She sounds like a DIY (do it yourself) person, for which I applaud her.......but she is probably "over her head" right now.

When an expert is called for, one should not hesitate.

Ciao!