Cardinal Point Wealth Management Identifies Potentially Costly Tax Issues for Former U.S. Citizens and Green Card Holders in Canada
United States, 19th Dec 2025 – Cardinal Point Wealth Management has released an advisory for former U.S. citizens and long-term green card holders now residing in Canada, highlighting the complex U.S. tax issues that can continue after expatriation.
While giving up U.S. citizenship or residency ends worldwide taxation, it does not always mean a complete break. Exit taxes, estate exposure, and ongoing reporting requirement can persist for years. The firm’s 2025 guidance points out common pitfalls and key planning opportunities for those navigating life in Canada after becoming U.S. expatriates..
“Many people believe that renouncing citizenship severs all ties to U.S. tax law,” explains Kris Rossignoli, Senior Private Wealth Manager at Cardinal Point Wealth Management. “But the U.S. system reaches far beyond its borders. Former citizens must still manage residual estate tax exposure, retirement accounts, and the risk of double taxation.”
Expatriation and Covered Status
Under U.S. tax law (IRC §877A), expatriation occurs when a U.S. citizen renounces citizenship or a long-term green card holder (who was a resident at least 8 of the past 15 years) abandons that status.
Those who meet the covered expatriate definition face exit taxes and transfer penalties. In 2025, to avoid covered status, an individual must:
- Have a net worth below USD $2 million.
- Average annual U.S. tax liability under USD $206,000 for the prior five years.
- Certify full tax compliance via Form 8854.
Failing any one of those tests results in covered status, triggering deemed asset sales, taxation on pensions, and potential 40% taxes on gifts or inheritances to U.S. persons.
Estate and Gift Exposure
After expatriation, former citizens are treated as non-resident, non-citizens (NRNCs) for U.S. estate purposes. They are taxed only on U.S.-situs assets, such as U.S. real estate, company shares, and tangible property.
However, the exemption drops from $13.99 million for citizens to just $60,000 for NRNCs. The unlimited marital deduction is unavailable unless assets pass through a Qualified Domestic Trust (QDOT).
Gift tax applies to tangible property or cash transferred within the U.S., with 2025 exclusions of $19,000 per recipient and $190,000 for gifts to non-citizen spouses.
The Section 2801 Transfer Tax
Starting in 2025, U.S. recipients of gifts or inheritances from a covered expatriate must pay a 40% tax on the value received. This Section 2801 tax applies to worldwide transfers and is reported by the U.S. recipient on Form 708.
Exemptions include charitable gifts, transfers already taxed under estate or gift rules, and annual exclusion amounts. Strategic pre-expatriation gifting or restructuring can help reduce exposure.
Retirement Accounts and Treaty Relief
Many expatriates retain 401(k)s, IRAs, or other deferred accounts.
- Eligible deferred compensation: Avoids exit tax but faces 30% withholding on future payments.
- IRAs and ineligible plans: Deemed distributed at expatriation and still subject to 30% withholding later.
- Canada–U.S. treaty: May reduce withholding for non-covered expatriates, shifting taxation to Canada.
Rossignoli notes, “Timing the move and aligning Canadian tax residency with expatriation can eliminate double taxation on deemed gains — but this must be planned for very carefully.”
Ongoing Reporting Requirements
Even after expatriation, individuals with U.S. income or assets may need to file:
- Form 1040NR for U.S.-source income.
- Form 8854 to certify expatriation and compliance.
- Form 706-NA for U.S. estate assets.
- Form 708 for U.S. heirs receiving covered gifts or bequests.
Maintaining W-8BEN or W-8CE forms ensures proper withholding and helps avoid penalties.
Key Takeaways
- Covered expatriates face exit and transfer taxes; non-covered must still certify compliance.
- U.S. estate tax applies to U.S.-situs assets with a $60,000 exemption.
- Section 2801 creates 40% taxes on gifts to U.S. heirs.
- Timing expatriation and Canadian residency can prevent double taxation.
- Professional coordination is essential for retirement and estate assets.
What This Means for Expats
Expatriation may simplify global taxation, but lingering U.S. rules demand ongoing vigilance. Proper planning ensures compliance and minimizes exposure to exit, estate, and transfer taxes. As Rossignoli observes, “The goal is not just to leave the system, but to do so strategically — preserving wealth while maintaining peace of mind.”
About Cardinal Point Wealth Management
Cardinal Point Wealth Management provides integrated financial, tax, and estate planning services for clients with assets in both Canada and the United States. The firm specializes in Canada–U.S. financial planning, Canada–U.S. financial advisor services, cross-border transition planning, and cross-border financial planning, serving as a trusted resource for individuals navigating complex post-expatriation and multi-jurisdictional tax matters. Its team helps clients manage compliance and optimize financial transitions with precision and care.
Disclaimer: This press release may contain forward-looking statements. Forward-looking statements describe future expectations, plans, results, or strategies (including product offerings, regulatory plans and business plans) and may change without notice. You are cautioned that such statements are subject to a multitude of risks and uncertainties that could cause future circumstances, events, or results to differ materially from those projected in the forward-looking statements, including the risks that actual results may differ materially from those projected in the forward-looking statements.
Contact Person: Kris Rossignoli, Senior Private Wealth Manager
Website: www.cardinalpointwealth.com
Company Details
Organization: Cardinal Point Wealth Management, ULC
Contact Person: Kris Rossignoli, Senior Private Wealth Manager
Website: http://www.cardinalpointwealth.com/
Email: Send Email
Country: United States
Release Id: 19122539335