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Same-Sex Marriage and U.S. Tax: What it Means for Americans in Canada


As I’ve noted before, there are about 1,000,000 U.S. citizens living in Canada. An unknown number of them are in same-sex marriages. Some of these people have been drawn to Canada because our attitudes towards same-sex couples have been changing on an earlier timetable than those in the United States. For as many as 10 years, depending on the province, Canada has permitted same-sex marriage.

The 1996 Defense of Marriage Act ("DOMA") is a U.S. federal law. Under section 3 of the Act, “marriage refers only to a legal union between one man and one woman and a spouse refers only to a husband or wife that is of the opposite sex.”

The law was passed by a strongly Republican Congress, but with significant Democratic support, and signed by Bill Clinton, a Democrat.

While, over time, a number of states had legalized same-sex marriage, DOMA prohibited recognition of this fact for all federal purposes. Consequently, married gay Americans could not (among other things):

  • Pass on Social Security survivor benefits;
  • Obtain insurance coverage through their employment for their spouses;
  • File joint federal tax returns, and
  • Transfer assets between themselves without gift or estate tax.

DOMA has been challenged many times in court. Among others, Bill Clinton has advocated for its repeal. In 2011, President Obama said that he would enforce the law as it stood, but would not defend it in court.

On June 26, 2013 the Supreme Court of the United States , in a 5-4 decision, ruled in United States v. Windsor that DOM was unconstitutional under the due process clause of the Fifth Amendment as a deprivation of equal liberty.

The case involved two women, Edith Windsor and Thea Spyer, who had registered as domestic partners in New York City. Where they lived. They married in Ontario, Canada in 2007. New York began allowing same-sex marriage in 2011 and recognized their Ontario marriage at the time. Spyer, who died in February 2009, left her entire estate to Windsor. The estate paid more than $360,000 in federal estate tax at the time. If they had been treated as married, there would have been no tax. The estate would have been allowed a “marital exemption” for the transfer of assets between spouses.

Windsor’s refund suit against the IRS was initially denied because she was not considered a “spouse” under DOMA.Windsor won at both the federal district court and the Second Circuit court.

In its ruling, the Supreme Court determined that the heart of this case, was a fundamental inconsistency between New York law that permits same-sex marriage, and federal law that does not recognize these marriages. The court saw this inconsistency as infringing upon the dignity of all same-sex marriages that were deemed lawful and worth of protection by the states, which have long had the power to decide their own definition of marriage.

What does this mean?

This decision did not make same-sex marriage a right. It simply says that if a couple is married under state law, the federal government must recognize that fact. 13 U.S. jurisdictions currently allow same-sex unions. In a separate ruling (with different judges taking different positions), California’s “proposition 8”, which overturned same-sex marriage, was declared invalid. This will likely set in place a new round of legislation in California.

It is important to note that this case at hand challenged only section 3 of DOMA, not section 2, which deals with a state’s ability to refuse same-sex marriages performed under the laws of other states. So the U.S. is likely to remain a checkerboard of rules for a while yet.

While it is not clear, it is likely that this ruling means that people residing outside of the United States will also be affected if they live in a country that permits same-sex marriage, such as Canada.

Although most U.S. citizens living in Canada pay little or no U.S.​ tax, provided they have no U.S. sourced income, there are still benefits that could be obtained, including, for instance:

  • Joint and surviving-spouse U.S. income tax filings;
  • Employee benefits
  • U.S. estate tax planning opportunities for U.S. citizens with estates larger than the U.S. estate tax threshold, currently US$5.25 million. There are benefits even if the spouse is not a U.S. citizen, and
  • Social Security survivor benefits for widows of U.S. citizens

Nothing comes for free, however. There are situations where an individual would be better off filing as single, rather than as married filing separate, or jointly – especially where the couple lives in Canada and one spouse is not an American. Married people cannot file as single.

Where a couple can take advantage of this change, it is likely possible to go back 3 years and file a refund claim.