Renouncing US Citizenship From Canada: Catch Up First, Then the Exit Tax

Catch up on the US filings first, then renounce. Form 8854 asks you to certify under penalty of perjury that you met your US federal tax obligations for the five tax years before you expatriate, and IRC 877(a)(2)(C) makes a failure to certify one of the three tests that turn you into a covered expatriate, whatever your net worth. Renouncing also doesn’t change your Canadian residency or what Canada taxes you on. Run the two steps in the wrong order and there’s no undo.

Do I have to catch up on US taxes before I renounce?

If you want to stay out of covered-expatriate status, yes. Form 8854 carries a certification that you met your US federal tax obligations for the five tax years before the year you expatriate, and IRC 877(a)(2)(C) counts a failure to certify as a test in its own right. Nothing in the consular process looks at your filings first, so the oath can be administered to someone who is already going to fail that test.

“U.S. citizens who renounce or otherwise relinquish their citizenship must comply with Federal tax requirements for the year of expatriation and for the five tax years prior to their expatriation” (IRS, Relief Procedures for Certain Former Citizens).

The certification covers more than 1040s. Notice 2009-85 reads it as reaching “obligations to file income tax, employment tax, gift tax, and information returns, if applicable, and obligations to pay all relevant tax liabilities, interest, and penalties.” On a Canadian file that usually pulls in the FBARs and the TFSA and mutual-fund forms too.

Then there’s the arithmetic almost nobody publishes. The catch-up route most Canadians use is the Streamlined Foreign Offshore Procedures, and the IRS asks there for returns “for each of the most recent 3 years for which the U.S. tax return due date (or properly applied for extended due date) has passed” plus six years of FBARs (IRS, U.S. Taxpayers Residing Outside the United States). The certification runs five. Three and five don’t line up, so a streamlined submission getting accepted doesn’t by itself put five certified years behind you. Which years stay open turns on when you file and when you expatriate, which is why the sequence gets built backwards from the expatriation date you want. What a streamlined file costs and which catch-up path you’re eligible for are separate questions.

A narrower IRS route exists for this exact situation, and by its own terms it’s for citizens. The Relief Procedures for Certain Former Citizens are “only available to U.S. citizens with a net worth of less than $2 million” and an aggregate tax liability of “$25,000 or less for the taxable year of expatriation and the five prior years”. Meet every criterion and you “will not be ‘covered expatriates’ under IRC 877A”. Note that its $2,000,000 net worth test “applies without any exceptions, including the exceptions to covered expatriate status under IRC 877A(g)(1)(b)”.

What makes someone a covered expatriate?

Meeting any one of three tests in IRC 877(a)(2), measured as of the expatriation date. Two are size tests: your average annual net income tax for the five years ending before you expatriate, and your net worth on the day itself. The third is the certification. One is enough to make you covered, and the certification test doesn’t care what the other two say about you.

Test	What it measures	Where the line sits (US dollars)	Does the figure move?
Average annual net income tax for the 5 years ending before the expatriation date (IRC 877(a)(2)(A))	US income tax assessed on you rather than income earned	More than $211,000 for calendar year 2026 (Rev. Proc. 2025-32, sec. 4.37). Use the figure published for the year you actually expatriate	Yes, indexed annually from a statutory base of $124,000
Net worth on the expatriation date (IRC 877(a)(2)(B))	Everything you own, worldwide	$2,000,000 or more	The statute attaches no inflation adjustment to this one, so it sits where Congress set it
Certification of 5 years of US tax compliance on Form 8854 (IRC 877(a)(2)(C))	Whether you filed and paid, rather than what you’re worth	Failing to certify makes you covered whatever your net worth and income are	No figure attached

One exception matters a great deal in Canada, and it leaves the third test standing. Under IRC 877A(g)(1)(B), someone who “became at birth a citizen of the United States and a citizen of another country”, still holds that other citizenship, is taxed as a resident there, and has been a US resident for not more than 10 of the 15 taxable years ending with the expatriation year is not treated as meeting the income-tax or net-worth test. The Form 8854 instructions spell out what survives:

“these individuals will still be treated as covered expatriates unless they file Form 8854 and certify that they have complied with all federal tax obligations for the 5 tax years preceding the date of expatriation” (IRS, Instructions for Form 8854).

So for someone born in Canada to a US-citizen parent, holding both passports since birth and filing Canadian returns as a resident, the money tests can fall away by statute and the certification becomes the whole question.

What does the exit tax charge if I’m covered?

A deemed sale of everything you own, with an indexed exclusion off the gain first. The green-card version of expatriation carries that machinery and the 2026 figures.

One relief that does real work on that side has no purchase here. IRC 877A(h)(2) floors your basis at fair market value “on the date the individual first became a resident of the United States (within the meaning of section 7701(b))”, and Notice 2009-85 heads it “In-bound step-up in basis for nonresident aliens becoming resident aliens”. A US citizen from birth who never moved to the US has no such date for the floor to key to.

Does renouncing change anything on the Canadian side?

No. Canada charges income tax on residence. Section 2(1) of the Income Tax Act puts the liability on “every person resident in Canada at any time in the year”, and section 3(a) computes that income from sources “inside or outside Canada”. Handing a US passport back moves none of the facts CRA weighs, so a Canadian resident who renounces is still a Canadian taxpayer on worldwide income.

“To determine your residency status, all of the relevant facts in your case must be considered, including residential ties with Canada and the length of time, purpose, intent and continuity of the stay while living inside and outside Canada” (CRA, Determining your residency status).

Renunciation isn’t on that list. It also doesn’t retire US returns that were already due, which is the same point the ordering rule rests on.

What does renouncing actually cost, and how does the process run?

You appear in person at a US embassy or consulate abroad and take a formal oath of renunciation before a diplomatic or consular officer, under 8 U.S.C. 1481(a)(5). The consular fee for “Administrative Processing of Request for Certificate of Loss of Nationality” sits at item 8 of the fee schedule in 22 CFR 22.1, and that schedule currently reads $450. It read $2,350 until State lowered it to $450 effective 13 April 2026 (91 FR 12296; corrected at 91 FR 20583), and plenty of pages still print the old figure.

“Set by the Department of State, the U.S. consular fee for ‘Administrative Processing of Request for Certificate of Loss of Nationality’ is $2,350, and the fee cannot be waived” (IRS, Relief Procedures for Certain Former Citizens, as it reads today).

That IRS sentence is the stale one; the codified schedule governs, and the fee has been $450 since 13 April 2026. If you’re budgeting from a blog post, open the regulation instead.

The fee buys the immigration act and nothing on the tax side, and the two processes don’t check each other: “Compliance with all U.S. income tax filings or obtaining a Social Security number is not a pre-condition to relinquishing citizenship under the Immigration and Nationality Act” (IRS, Relief Procedures for Certain Former Citizens). That’s why the ordering trap exists.

The consular side isn’t tax advice and this page doesn’t give it. Two things about it belong in the tax planning anyway. The IRS states that “unless a finding of loss of U.S. citizenship is vacated by the Department of State, relinquishing U.S. citizenship is irrevocable”, and tells readers to “consider consulting legal counsel before making any decisions about relinquishing U.S. citizenship” (IRS, Relief Procedures for Certain Former Citizens). Whether to renounce is yours to decide, and nothing here argues either way.

When is Form 8854 due, and what happens if I skip it?

It attaches to your return for the year that includes your expatriation date. The instructions say to “attach your initial Form 8854 to your income tax return (Form 1040, 1040-SR, or 1040-NR) for the year that includes your expatriation date, and file your return by the due date of your tax return” (IRS, Instructions for Form 8854). Skipping it costs $10,000 under IRC 6039G(c), with a reasonable-cause defence written into the same sentence.

“such individual shall pay a penalty of $10,000 unless it is shown that such failure is due to reasonable cause and not to willful neglect” (IRC 6039G(c)).

The quieter cost is the certification. It lives only on that form, so someone who skips the form has not certified, and IRC 877(a)(2)(C) makes them covered on that basis alone. The exit-year return and the form travel together, and both land well after the oath, past the point where anything can still be sequenced.

What should I do next?

Work backwards from the date you’d want on the Certificate of Loss of Nationality. List the five tax years before that year, mark which ones have a filed US return behind them, and you’ll see straight away whether a catch-up has to run first and roughly how long it needs. If you’ve never filed at all, the never-filed corridor is the starting point; if the returns went in and only the FBARs were missed, late FBARs on their own is a shorter road. Book the consulate appointment last.

This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.