Skip to main content

From start to finish, renunciation can take a year or more, depending on where in Canada the application is made.Paul J. Richards

A crush of Canadians seeking to give up their U.S. citizenship is causing long delays and mounting frustration.

A record number of Americans willingly renounced their U.S. citizenship in 2015 as the burden of a sweeping U.S. tax crackdown spreads. U.S. Treasury Department figures released this week show that 4,279 individuals renounced last year, up from 2,999 in 2014 – a 43-per-cent jump.

Becoming un-American has become a protracted and costly journey, particularly in Canada, where it can take up to a year or more due to significant backlogs at the U.S. embassy and consulates.

"It's very clear that there is no particular attempt to make it easier to get out – to provide more resources or expedite the process," complained John Richardson, a Toronto citizenship lawyer, who has guided numerous Canadians through the complex process.

The U.S. publishes the names of people who renounce every quarter, but it does not disclose their citizenship or where they apply. Experts believe a significant chunk, if not the majority, are from Canada, home to hundreds of thousands of Americans.

From start to finish, renunciation can take a year or more, depending on where in Canada the application is made. Wait times at the U.S. consulate in Toronto are particularly long, according to lawyers and tax experts.

"Toronto may be the renunciation capital of the world," Mr. Richardson said.

The United States has twice increased the processing fee – to $2,350 (U.S.) from $450 in 2014. Before 2010, it was free. The fee hike hasn't stemmed the flow, which nonetheless remains small relative to the seven-million-plus Americans living in other countries and the larger number of people who become U.S. citizens.

Some Canadians are travelling to other cities – and even other countries – to get out faster and avoid having to file additional years of U.S. taxes and potentially steep future tax liabilities.

"I was concerned about taxes and what would happen to my estate," said Jane (not her real name), a 67-year-old Toronto resident who flew to Nassau, Bahamas, in December to renounce rather than wait nearly a year in Canada.

"I couldn't deal with the unknown," she said, reluctant to disclose her identity while she awaits confirmation from the United States that her case is closed.

A U.S. embassy spokesman would not comment directly on the reasons for the long wait times, but he confirmed that it currently takes anywhere from 45 days to 10 months to arrange a mandatory meeting, depending on the location. He acknowledged that the process is not meant to be easy, even as the embassy works to "refine" it.

"Due to the serious implications the decision to renounce U.S. citizenship carries, the process is intended to be deliberative in order to permit individuals to reflect upon their decision before returning to execute the Oath of Renunciation," the official said.

Adding urgency to the rush to leave is a sweeping U.S. law – the Foreign Account Tax Compliance Act – that is forcing financial institutions around the world to share much more information about their U.S. customers. Key disclosure rules take effect this year that will make avoiding filing U.S. taxes more difficult.

The United States appears to be dragging out the renunciation process, said Kevyn Nightingale, a tax partner at MNP LLP in Toronto, whose firm has done tax filings for nearly 200 clients giving up their U.S. citizenship. "There are a lot of consular services being provided to Americans abroad. Nothing takes this long," he said.

U.S. officials may be embarrassed that their efforts to crack down on wealthy tax cheats has instead triggered an exodus of frightened middle-class Canadians, Mr. Nightingale suggested. "It does not look good to have a lot of Americans renouncing their citizenship because of stupid rules – rules that don't generate significant revenue," he argued.

Renunciation remains a difficult call for many people because it's complex, unpredictable and often very costly.

Bob, a 79-year-old retired Ontario doctor who took his renunciation oath in December, estimated that he's spent $50,000 (Canadian) to $60,000 in U.S. taxes and fees to lawyers and accountants. Mistakes made by a lawyer on his original application dragged out the process for more than two years.

Born in the United States to Canadian parents, he left as an infant and lived his entire life in Canada, unaware until recently that he was still an American. "It's been a long, expensive and distressing situation," Bob said, unwilling to identify himself because he has an adult child who is still an American.

Most Canadians typically owe no taxes to the United States because taxes here are generally higher. But there are some key differences, including capital gains and estate taxes, which can be more onerous in the United States. Those who renounce must show they have filed several years of back taxes.

The United States also charges a hefty exit tax on people with a net worth of more than $2-million (U.S.) – a penalty that can catch many middle-class Canadians with a home or pension. Unlike Canada and virtually all other countries, the United States taxes people based on citizenship, not residency. That means that Americans must file taxes in the United States for their entire lives, regardless of where they live.

Interact with The Globe