The US House of Representatives has passed the Tax Collection Responsibility Act of 2007. Within this Bill is the change to the rules on Expatriation for Individuals.

The Bill has yet to be approved by the House of Congress and signed by The President.

The new law will be similar to the Canadian Law whereby all assets are deemed sold on the day before expatriation and any subsequent gain/ income taxed accordingly.

There will be a one-time exemption of $600,000 on the net gain for the person who “Expatriates”.  This will increase with inflation each year after 2008.

The deemed sale would not apply to US Real Property, which would be taxed as and when sold irrespective of the residence status of the individual at the date of sale, as is the case already under current legislation.

The new regulations will not apply to interests in pension plans, which will be subject to a 30% withholding rate when distributed and without the ability to claim any Double Taxation Treaty benefits.

One piece of good news is for those long term residents, they can claim a step up in basis of property if held on the date they first become US residents.

Special rules apply to non grantor Trusts which would tax distributions at 30%.  Again there is no Treaty benefit available.

Individual Retirement Accounts will be considered distributed out to the beneficiary on the day prior “expatriation”. 

The US is also creating a new “Capital Transfer Tax” on all gifts and bequests to a US citizen or resident from an expatriator.  This will relate to amounts in excess of $10,000 a year and be charged at the highest Estate Tax Rate.  Any foreign taxes paid will be allowed as a credit.

The new rules would not come into effect until the Bill has been signed by The President.

Article Added Tuesday, 23 October 2007 | 3217 Hits

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