When an athlete signs with a US team, one of the most common questions I hear is: "How do I get a green card?" In most cases, the athlete does not know why he wants it, or is unaware of the obligations that come with holding a green card. Let us take a closer look.
Filing requirements
As a green card holder, you are considered a US resident and are required to file a US tax return, irrespective of where you live. This means you report your worldwide income and may have to pay US tax on that income. For example, a hockey player living in Canada possessing a green card would be subject to taxation in both Canada and the United States and he would effectively pay the higher of the two rates.
In addition, there would be an annual requirement to file a report of foreign bank and financial accounts (FBAR). An FBAR is required when a green card holder has either $10,000 or more in bank or investment accounts outside of the US at any time in a calendar year. The form is also required should you have signing authority over such accounts. This yearly filing does not result in additional tax but failure to file can result in onerous penalties for non-disclosure.
Future Planning & Estate Tax
Asset protection and estate planning is a challenge for green card holders due to US gift and estate tax. For example, estate tax may apply on the value of your worldwide assets (including RRSPs and life insurance proceeds) if you die while holding a green card. This could severely limit the ability to pass on wealth to your children.
Inability to access tax incentives
Obtaining a green card could also impact your RRSP deductions, Canadian exploration expenses, and taxes on the sale of your principal residence (which is normally tax exempt in Canada). Other factors need to be examined, such as the effect upon Retirement Compensation Arrangements (RCA), should a player apply for a green card while payments are being made on his behalf by the team.
Departure Tax
Leaving Canada can trigger an array of tax consequences. On departure, almost all of your personal property will be considered to be disposed of at its fair market value. This triggers capital gains tax even if you do not sell the property or investment and continue to hold it after you leave Canada. Further, if you purchased a home in Canada and used your Home Buyers Plan to fund the purchase, the remaining balance due would have to be repaid to your RRSP within 60 days of your departure or earlier.
Conclusion
The decision to apply for a green card should not be taken lightly. The onerous tax consequences as a result of obtaining a green card may outweigh the benefits. Once you obtain your green card not only may you be subjecting yourself to unintended tax consequences, but relinquishing it may lead to further tax obligations to the IRS.
There may be better options for Canadians playing on U.S. teams such as various types of work visas. The decision to move forward and obtain a green card should consider your current circumstances, plans, and tax consequences for not only yourself but also your immediate family members.
An examination of all the factors should be undertaken with your tax and legal advisors prior to making the decision so that the future consequences are well understood and in your best interest.
JEFFREY STEINBERG is a partner in the Audit & Advisory Group and established the firm's Sports & Entertainment Group. Jeffrey deals with Canadian, American and International clients handling a variety of issues including tax compliance and filing, cross-border and residency planning, investment review and due diligence.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
