Monthly Archives: February 2023

#FBAR Decision: Bittner Wins! Non-willful Civil Penalty Restricted Based On The One Form And Not On Each Account

On November 2, 2022 the Supreme Court of the United States heard arguments in the Bittner FBAR case. I have previously written about this case here and here. An audio of the oral argument at the Supreme Court (along with commentary) is here. On February 28, 2023 the Court issued it’s ruling.

The issue was whether:

In assessing non-willful civil FBAR penalties the government is restricted to imposing one penalty for failing to file an accurate FBAR form or may the government impose a separate penalty for each mistake related to each account. In other words, is the penalty based on the failure to file a correct form or is a separate penalty allowed for each mistake in relation to the form?

Interestingly and notably the Gorsuch majority decision specifically notes that the period in which the FBAR penalties were assessed were for years that Mr. Bittner was living in Romania. There is no acknowledgment of this in the Barrett dissent!! In addition, Ms. Boyd (of 9th Circuit fame) was also assessed penalties for the years she was living in the UK! To be clear: this decision is very relevant for Americans abroad!!

The court’s decision
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Renunciation/Relinquishment, The US Exit Tax And The Confiscatory Case Of NON-U.S. Pensions (U.S. Pensions Avoid This!)

Part I – Prologue – A Tweet Worth A Thousand Posts

For a “Readers Digest” version of the post that is to follow, simply click on the link in the above tweet!

To see examples of the deemed income inclusions and the U.S. tax owing click on the links to Appendices, B, C and D below.

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Outline And Structure

This post is for the purpose of alerting Americans abroad and their advisors to a particularly difficult and unjust aspect of renouncing U.S. citizenship. The punitive treatment of the non-U.S. pension is a reason for many Americans abroad to consider renunciation earlier (when they are not “covered expatriates”) rather than later (when they may be subject to the confiscatory rules applied to “covered expatriates”).

Part I – Introduction – The General Message
Part II: Renunciation/Relinquishment and the confiscatory case of the “ineligible” (non-U.S.) pension … A Deeper Dive
Part III: Renunciation/Relinquishment and the retention of the “eligible” (U.S.) pension … A Deeper Dive
Part IV – Conclusion
Appendix A – How Internal Revenue Code Sections 877A and 877 Lead To The Confiscation Of The Non-U.S. Pension
Appendix B – Dual Status tax return with a 1 million USD income inclusion on the day before expatriation
Appendix C – Dual Status tax return with a 1 million USD income inclusion on the day before expatriation with a $100,000 tax credit carry forward
Appendix D – Dual Status tax return with (1) a full actual distribution of the pension in Canada on the day before expatriation (generating a foreign tax credit in the current year)

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Part I – Introduction – The General Message

The warning! Some Americans abroad who renounce U.S. citizenship can expect to have punitive taxation imposed on the value of their non-US pensions. This is a tax imposed by a “deemed distribution” (not actual) of the the pension. Because there was no “actual distribution” those affected will need to find another source of funds to pay the tax. Significantly, the tax does NOT apply to U.S. pensions. Those renouncing who have U.S. based pensions may NEVER be taxed on the value of those pensions.

Once an individual’s net worth reaches 2 million USD, that individual is generally subject to this tax. This means that renunciation may become very costly. Americans abroad with non-US pensions and their advisors should be aware of (and plan around) this problem.

In this post I am joined by CPA Olivier Wagner who has generously provided excerpts from mock U.S. tax returns which demonstrate how confiscatory the U.S. Exit Tax rules are when applied to non-U.S. pensions (and therefore to Americans abroad). You will find his returns in Appendixes B, C and D at the end of this post.

The mock tax returns show that a U.S. citizen living outside the United States who:

– is a “covered expatriate”

– has a non-U.S. pension with a present value that includes a taxable amount of $1,000,000 USD

will be subject to an immediate tax of $344,963 triggered by renunciation of U.S. citizenship.

Because this tax is NOT imposed on those with U.S. based pensions, this tax applies disproportionately to Americans abroad, who earned their pensions while living outside the United Sates.

Of course, if he had renounced before reaching the 2 million USD net worth mark, he could possibly renounce and pay no exit tax on the value of his pension. Financial planners and other advisors take note!!

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Like Canada’s Underused Housing Tax, U.S. Estate Taxation Depends On Citizenship Of The Owner

Taxation based on source vs. taxation based on residence – More commentary on the Canada Underused Housing Tax

Suzanne Herman has got it right!

There is no doubt that Canada’s “Underused Housing Tax” is triggered by citizenship. There is no doubt that Canada’s Underused Housing Tax is unfair to Americans who own second homes and cottages in Canada. There is no doubt that Canada’s “Underused Housing Tax” in its application to noncitizen and nonresidents is similar to the U.S. Estate Regime*. (They both impose taxation on the noncitizen/nonresident owners of property located in their countries.) There is no doubt that while complaining about Canada’s “Underused Housing Tax” that Congressman Higgins should be apologizing for the way the U.S. Estate Tax treats nonresident/noncitizen owners. They are both taxes triggered by (n0n) citizenship and are based on property located in their respective jurisdictions.

Taxation of nonresidents triggered by the ownership of local property is different from U.S. taxation of non-US source income received by persons who don’t live in the United States

That said, there is no moral equivalence between Canada’s Underused Housing Tax based on property located IN CANADA and the U.S. taxation of INCOME received OUTSIDE THE United States by a person who does not live in the United States. The United States is using “citizenship” as a pretext to claim that people who are tax residents of other countries (including Canada) are U.S. tax residents.

It is an assumption of international taxation that every country has the right to define who are its “tax residents”. On the other hand, no country has the right to (1) claim that the tax residents of other countries are also their tax residents and (2) disable those “claimed” tax residents from using a treaty tie break provision to avoid the claim of tax residence! (The “saving clause” included in all U.S. tax treaties prevents U.S. citizens from using a treaty residence tax break provision to assign allocate residence to solely their country of actual residence.)

In FATCA related discussions it has been common for Government Officials to claim that the United States has the sole right to determine who are its tax residents. Although true, this cannot mean that the United States (or any country) has the right to claim the residents of another country as its tax residents. (The debate is illuminated here and here.)

It’s about American exceptionalism

The international standard for definitions of tax residence is “residence”. Residence is a term that is correlated with the “circumstances of one’s life”. The United States (in addition to “residence”) claims tax residence based on “citizenship” (which is mostly based on the “circumstances of one’s birth”). To put it simply U.S. tax residence is primarily defined in terms of the “circumstances of birth” rather than the “circumstances of life”.

In the 21st Century there is almost NO correlation between citizenship and residence.

At first blush, one might say:

Both Canada and the United States are taxing based on citizenship. They are both equally wrong. Nothing could be further from the truth.

Suzanne Herman’s tweet explains the difference. As her tweet makes clear the Canadian tax is based on property that is located in Canada. It is a tax based on citizenship because of property located in Canada. Although the tax is based on the citizenship of the owner, Canada is NOT claiming that U.S. residents are “tax residents of Canada” for all purposes. The Canadian tax, although based on citizenship, is a tax based on the ownership of property located in Canada.

On the other hand, the United States is imposing full taxation on certain Canadian residents because and only because the U.S claims them as U.S citizens. The claim is that because they were “Born In The USA” that they are U.S. tax residents for ALL purposes. They are subject to U.S. taxation on ALL of their income received outside the United States. They are subject to reporting on all their assets LOCATED OUTSIDE THE UNITED STATES. This is because and only because they are U.S. citizens.

To put it simply: The U.S. is using citizenship (the circumstances of their birth) to claim that residents of other countries are U.S. tax residents for ALL purposes!

A U.S. resident can avoid the Canadian tax by simply selling the property located in Canada.

A Canadian resident subject to the U.S. citizenship tax can avoid the tax only through relinquishment of U.S. citizenship or death (and that may not be enough).

Bottom line: Canada is imposing a tax based on the citizenship of the owner of property located in Canada. This is different from the U.S. imposing taxation on income earned outside the United States and received by a Canadian resident who has U.S. citizenship. The Canadian tax is based on the location of property in Canada. The U.S. tax is based on the citizenship of the person who is actually living in Canada.

The United States is using citizenship as the basis to claim the tax residents of other countries as U.S. tax residents.

The question becomes:

Should the United States be permitted to use citizenship to effectively claim the tax residents of other countries as U.S. tax residents? Should the rest of the world tolerate this blatant assault on their sovereignty and erosion of their tax base? Should the world sign tax treaties with the U.S. that entrench this principle (via the “saving clause”) in their tax treaties with the United States? Should U.S. citizens be the only people in the world who disabled because of their citizenship from being able to become treaty nonresidents?

Although all forms of taxation based on citizenship are wrong. There is no moral equivalence between Canada’s tax based on property located in Canada and the U.S. tax based on claiming Canadian residents as U.S. tax residents.

John Richardson – Follow me on Twitter at @VacantHomeTax

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*Appendix – The U.S. Estate Tax System Is Similar To Canada’s Underused Housing Tax

When it comes to the ownership of U.S. situs assets:

– a U.S. citizen is subject to an 11 million dollar lifetime estate tax exemption

– a noncitizen, who is NOT domiciled in the U.S. is subject to taxation on all U.S. situs assets in excess of $60,000 USD.

Although not the specific topic of this post I highly recommend the article by Omer Harel about the application of the U.S. Estate Tax to nonresident aliens. The article includes:

The U.S. estate tax imposed on NRAs today is an inefficient tax without serious policy justifications and it distorts behavior in ways that the estate tax imposed on residents does not. Also, this tax decreases the attractiveness of investments in the U.S. from the NRAs’ perspective as it forces NRAs to invest in U.S.-situated assets using a foreign corporation. This insulates them from estate tax exposure and subjects them to additional costs and higher taxes that the U.S. Treasury does not necessarily benefit from. The fairness arguments that were presented to support the retention of the NRA estate tax are not persuasive as NRAs owe much lower ‘‘debt’’ to the U.S. government than residents and, unlike residents, are sometimes unable to fully benefit from the step-up in basis. Further, after the Obama tax reform — which basically repealed the estate tax for almost all residents in 2011-2012 — the current regime has become extremely discriminatory and might in some instances violate U.S. income tax treaties.

Now that the U.S. (in particular the real estate industry) needs foreign investments more than ever, it is the right time to rethink this tax and repeal it or drastically modify it so that it will not deter foreign investors.

Bottom line: The United States is already doing exactly what Canada does in it’s Underused Housing Tax! Nobody seems to complaint about it! But, everybody should complain about it. Like Canada’s Underused Housing Tax, the U.S. Estate tax regime is simply a system of asset confiscation based on citizenship! Perhaps, Congressman Higgins should raise this issue with the U.S. Government?

Help With The Canada Underused Housing Tax

Purpose

Canada’s Underused Housing Tax is a tax which is primarily based on citizenship and immigration status. Specifically, it is a tax imposed on owners of Canadian residential property who are neither Canadian citizens nor permanent residents. It is Canada’s form of citizenship taxation. The tax will incentivize people to naturalize as Canadian citizens.

I continue to create blog posts, podcasts and videos explaining this tax (along the the Municipal Vacant Property Taxes in Toronto, Vancouver, Ottawa and other Canadian cities). This post is to consolidate this information.

I note also that opposition to this Canadian tax is growing in the United States. For example Congressman Brian Higgins (representing people in Buffalo, Niagara Falls, etc.) is organizing U.S. residents and politicians to seek a “carve out” for U.S. citizens. I encourage Congressman Higgins to approach this from the perspective of the unfairness of citizenship-based taxation generally.

If you need help (fee based) with filing the Canadian Underused Housing Tax return you may reach out to me at:

vacanthometax at runbox dot com.

I have also created a smaller dedicated site at:

VacantHomeTax.com

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My resources to assist in the understanding of this tax include:

Blog Posts:

1. US Residents Who Own Residential Property In Canada May Be Subject To Various Vacant And Underused Property Taxes

2. NY Congressman Brian Higgins Draws Attention To The Injustice Of Citizenship Taxation By Challenging Canada’s Underused Housing Tax

3. U.S. FBAR And Form 8938 Penalties May Be A Bigger Problem For U.S. Residents Than Canada’s Underused Housing Tax

4. Canada’s Underused Housing Tax: No Good Options For U.S. Residents Who Own A Second Home In Canada

5. Help With Canada’s Underused Housing Tax

6. Like Canada’s Underused Housing Tax, the U.S. Estate Tax Often Turns On The Citizenship Of The Owner of U.S. Situs Real Estate

7. @RepBrianHiggins Begins Formal Challenge Of Canada’s Underused Housing Tax

8. A Primer On Canada’s Vacant Home Taxes For U.S. Citizens And Residents

9. Canada’s Underused Housing Tax May Violate The Non-discrimination Clause In The Tax Treaty

Podcasts:

YouTube Videos:

Social Media:

Twitter – @VacantHomeTax

Facebook Group – Canada Underused Housing Tax

Facebook Page – Canada Underused Housing Tax

Reddit – Canada Underused Housing Tax And Other Vacant Home Taxes

If you need help …

If you need help (fee based) with filing the Canadian Underused Housing Tax return you may reach out to me at:

vacanthometax at runbox dot com.

John Richardson – Follow me on Twitter @VacantHomeTax

Canada’s Underused Housing Tax: No Good Options For U.S. Residents Who Own A Second Home In Canada

Introduction – Responding To Canada’s Underused Housing Tax

Canada’s Underused Housing Tax is NOT a tax imposed because the “foreign owner” doesn’t spend enough time in the property. Rather Canada’s Underused Housing Tax is a tax imposed because the “foreign owner” doesn’t make the property sufficiently available to non-owners!!

This is the fourth in my series of posts about Canada’s “citizenship-based” Underused Housing Tax.

The first three post are:

1. US Residents Who Own Residential Property In Canada May Be Subject To Various Vacant And Underused Property Taxes

2. NY Congressman Brian Higgins Draws Attention To The Injustice Of Citizenship Taxation By Challenging Canada’s Underused Housing Tax

3. U.S. FBAR And Form 8938 Penalties May Be A Bigger Problem For U.S. Residents Than Canada’s Underused Housing Tax

The purpose of this post is two-fold:

First: to explain what “Canada’s Underused Housing Tax” really means for “foreign owners” of certain Canadian property:

Conclusion: It means that foreign owners who own property that is NOT in a designated recreational location and who do NOT release their property into the rental market will be forced to pay the 1% tax.

Second: to explain that owners of most Canadian residential property that is not in a designated recreational location, who are neither Canadian citizens nor permanent residents of Canada can avoid releasing their property into the rental market ONLY if they either:

1. Pay Canada’s Underused Housing Tax

2. Sell their property in Canada

In my opinion U.S. (and other foreign residents) should be advised to simply pay the annual tax.

The Government Of Canada’s “Underused Housing Tax” is designed to force “foreign owners” of property to choose among the choices of: releasing their property into the rental market, paying the 1% tax or selling their property!

Explaining this conclusion.

This post ignores the “fringe situations” of properties that are newly purchased, uninhabitable, etc. I am focussing on the situation as it is likely to affect the majority of people. I urge people to read the actual legislation.

Final warning!!! All individual owners of residential housing in Canada who are neither Canadian citizens nor permanent residents of Canada are required to file the Underused Housing Tax return even if the tax is not payable! The penalty for failing to file the return is $5000 CDN.

Here we go …

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U.S. FBAR And Form 8938 Penalties May Be A Bigger Problem For U.S. Residents Than Canada’s Underused Housing Tax

Introduction

Canada’s Underused Property Tax came into force effective January 1, 2022. The return for the 2022 year is due on April 30, 2023. Generally, a tax of 1% of the value of the property will be imposed on the owners of property that are not occupied in an acceptable manner (principal residence or rented out) for at least six months of the year. The rules are drafted in a way that would appear to exclude short term rentals (think AirBNB) from meeting the test for “occupancy”. In addition, individuals who are are neither Canadian Citizens nor Permanent Resident are (1) required to file a return and (2) may (depending on whether the property meets the test for occupancy) be subject to the 1% tax. To put it simply: U.S. Citizens and Residents May Be Subject to “Canada’s Underused Property Tax”. New York Congressman Brian Higgins is been very active in drawing attention to the unfairness of “Canada’s Underused Property Tax” being applied to U.S. citizens. He has launched a public and visible campaign to pressure the Government of Canada to offer an exemption to U.S. citizens.

The basic structure of Canada’s “Underused Housing Tax”

In contrast to the Municipal (Toronto, Ottawa and Vancouver) “Vacant Home Taxes“, Canada’s Underused Property Tax is complicated. It is likely that those required to file the return will need assistance.

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NY Congressman Brian Higgins Draws Attention To The Injustice Of Citizenship Taxation By Challenging Canada’s Underused Housing Tax

Introduction

You can see the complete twitter thread here.

A recent post describes how various Canadian Underused and Vacant property taxes might apply to unsuspecting U.S. residents (Toronto, Vancouver and Ottawa) and U.S. citizens (Canada’s Underused Property Tax).

Taxes that apply to ALL owners of property

The Toronto, Vancouver and Ottawa taxes apply to ALL owners (regardless of citizenship or residence) of residential property. Although these taxes apply to all owners, some U.S. citizen/residents have argued that they are disguised taxes on being American. The broad scope of these taxes makes them difficult to challenge.

Taxes that apply to property owners based on citizenship or immigration status

Interestingly Canada’s Underused Property Tax, by its express terms applies based on “citizenship” and/or “immigration status”. Specifically, it applies to people who are neither citizens nor permanent residents of Canada. In the same way that the United States imposes taxes on people based on and only on the status of being a U.S. citizen or permanent resident of the United States (Green Card holder), Canada’s Underused Vacant Property Tax is based on NOT being a citizen or permanent resident of Canada. Significantly, certain provincial human rights codes (presumptively) prohibit discrimination based on citizenship. The first case decided by the Supreme Court of Canada (Andrews) interpreting S.15 of Canada’s Charter of Rights struck down a British Columbia statute requiring Canadian citizenship to practise law in British Columbia. In 1974 – In Re Griffiths – the U.S. Supreme Court struck down a similar Connecticut provision requiring U.S. citizenship to be admitted to the bar in Connecticut. In the United States, classifications based on citizenship/alienage are “suspect classifications” and presumptively unconstitutional. Canada’s laws and judicial decisions are generally hostile to classifications based on citizenship.

To be clear: classifications based on citizenship clearly attract judicial scrutiny!
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How U.S. Citizenship Tax, The Treaty “Saving Clause” and FATCA Create A Fiscal Prison For Dual Tax Residents

Introduction – The Problem Of Dual Tax Residency For U.S. Citizens

A “Hell greater than the sum of the parts”

There are people in the world who really don’t understand (or say they don’t) what exactly is the problem with U.S. citizenship based taxation. They claim to not understand why defining “tax residency” based on the “circumstances of birth” rather than the “circumstances of life” is a problem. They fail to consider how taxation based on “circumstances of birth”, interacts with U.S. tax treaties and FATCA to create a “hell that is greater than the sum of the parts”.

This is the third post in a series designed to explore and facilitate the understanding of the U.S. “citizenship based” extra-territorial tax regime. The first post explored the practical meaning of U.S. citizenship-based taxation (it’s primary effects are on people who live outside the U.S.). The second post explored the fact that tax residency based on “citizenship” is tax residency based on the “circumstances of one’s birth” rather than the “circumstances of one’s life” (its effects are primarily based on the circumstance of birth in the U.S.). The conclusion drawn from these first two posts was that the U.S. citizenship based extra-territorial tax regime is one in which:

The circumstance of a U.S. birthplace is used as a justification to regulate the lives of people with no connection to the United States and impose U.S. taxation on income that has no connection to the United States and is received by someone who does not live in the United States.

Citizenship taxation has practical and contextual meaning only its application to tax residents of non-US countries. The U.S. uses the circumstance of a “U.S. birthplace” to reach out and “claim” the tax residents of other countries as U.S. “tax residents”.

The purpose of this post is to explain how the interaction of U.S. citizenship taxation (claiming those with a U.S. birth place as U.S. tax residents when they are tax residents of other countries), the “saving clause” (not allowing U.S. citizens with dual tax residency to assign tax residency to the country where they actually live) and FATCA (the tool to hunt, find and enforce the extraterritorial U.S. tax and regulatory regime on the residents of other countries) creates a whole hell greater than the sum of the parts.

Many people understand the three components of “citizenship taxation”, the “saving clause” and “FATCA” as separate entities. Few appear to understand how those three components interact together to destroy the lives of U.S. citizens with dual tax residency. The U.S. has created a “fiscal prison” for its citizens. Seven video accounts of the impact of the U.S. citizenship tax regime are available here.

This problem can be solved ONLY by the United States redefining its rules for “tax residency” so that “citizenship” (the circumstances of one’s birth”) is not relevant to “tax residency” (the circumstances of one’s life).

This post is to identify the component “Part”(s) of the problem. It is organized in “Sections” and “Parts” as follows:

Section I – How The Problem Was Created

Part A – Tax, Residency and Tax Residency
Part B – The general problem of dual tax residency
Part C – Introducing the treaty tie break and how it can be used to end “dual tax residency” under a relevant Canadian tax treaty”
Part D – The general principles of the U.S. Canada “tax treaty tie break – How “circumstances of life” are used to assign tax residency
Part E – Food for thought – Citizenship the least important factor for the treaty tie break
Part F – Two possible examples of assigning residence to one country by using the “treaty tie break” – Green Card Edition
Part G – U.S. Citizens CANNOT Benefit From The “Tax Treaty Tie Break” – Hello “Saving Clause”
Part H – The “Saving Clause” And The Inability For U.S. Citizens To Use The “Treaty Tie Break” Is How The United States Captures The Residents Of The Treaty Partner Country And Claims Them As U.S. Tax Residents
Part I – The Tax Treaty Tie Break And Implications For U.S. Tax Compliance And For FATCA And The CRS Reporting

Section II – How Dual Tax Residents Experience The Extraterritorial Tax Regime

Part J – The U.S. exports a more punitive from of taxation to tax residents of other countries
Part K – The Problem Of Investing, Retirement planning and Retirement Planning – The Punitive Taxation And Reporting Requirements of PFICs and Foreign Trusts
Part L – The Problem Of Non-U.S. Pensions – How Are They Treated Under The Internal Revenue Code? – Different Rules For Different Countries
Part M – Discouraging U.S. Small Business Abroad – The Treatment Of Small Business Corporations Generally And On A Country By Country Basis
Part N – The “FBAR Marriage”: How Marriage To An Alien Results In Higher Taxation, More Reporting, Difficulties With Asset Transfers, Higher Divorce Costs And Possibly A Requirement To File A Tax Return With As Little As $5 Of Income

Section III – How The U.S. Extraterritorial Tax Regime Attacks The Sovereignty Of Other Countries

Part O – The U.S. taxation of residents of other countries attacks and erodes the tax base of those other countries

Section IV – Solving The Problem: Regulatory And Legislative Solutions

Part P – Regulatory Solution: “A Regulatory Fix For Citizenship Taxation
Part Q – Regulatory Solution: Amending The “Saving Clause” In U.S. Tax Treaties
Part R – Territorial Taxation For U.S. Citizen Individuals
Part S – Redefining U.S. Tax Residency To Move To Residence-based Taxation”

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US Residents Who Own Residential Property In Canada May Be Subject To Various Vacant And Underused Property Taxes

Introduction And Purpose

Many Canadian cities are experiencing the combined effects of a shortage of affordable housing and a rise in housing prices. In short housing (whether to own or to rent) has become less available and more expensive. Factors contributing to this include: Investors preferring to “rent” their investment properties on short term rental platforms rather them releasing them into the rental market, Provincial Landlord and Tenant laws which impose laws on small landlords which are perceived as unfair, increases in property values (caused by low interest rates) which have caused an imbalance between the cost of buying residential real estate and the amount it can be rented for. (It makes no sense for a person to purchase a property for one million dollars and rent it for $2000 per month.)

Canadian Cities – Clear Laws And Easy To Understand And Significant Discontent From U.S. Owners

The above tweet references a fascinating article Wall Street Journal article written in 2017 by a U.S. owner of a Vancouver, BC condominium claiming that the tax was directed at Americans. It’s a fascinating read.

A reply to the above tweet pointed out that:

Interesting! At the current rate of Vancouver’s vacancy tax (5%), and given BC’s vacancy tax (2%) and the federal underused housing tax (1%), the author’s condo (valued in 2017 at $3.3 million) could trigger additional annual tax of $264,000 for 2023 alone (if valued the same)

As the $264,000 figure demonstrates, these “Vacant Property Taxes” are serious business which can create significant tax and penalty liability. In some cases, the taxes may force people to sell their properties!

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Bonjour: Different US Tax Treaties Provide Different US Taxation For Different Groups Of Americans Abroad

Introduction, purpose And summary

It is clear that US citizens, who are tax resident of countries outside the United States are generally subjected to a more punitive system of taxation than US residents. That said, the U.S. has different tax treaties with different countries. Some treaties (example Australia) make living outside the United States very difficult. Other tax treaties (Canada and the UK) make living outside the United States easier in a relative sense. The relative difficulty is somewhat dependent on the extent to which the treaty contains provisions for U.S. citizens who are “resident” in the treaty partner country. These treaties are an additional recognition of U.S. citizenship taxation.

If a U.S citizen contemplating a move abroad asked the following question:

Q. How will I be taxed if I move outside the United States and live as a tax resident of another country?

The answer will be:

A. I don’t really know. It depends what country you are considering moving to.

Not only are US citizens living outside the United States taxed more punitively than U.S. citizens living inside the United States, but their taxation by the United States depends on the country they move to! (In addition, both income tax treaties and estate tax treaties may contain provisions that affect the way U.S. citizens may be taxed by the treaty partner country!)

The curious case of the U.S. France Tax Treaty and U.S. Citizens resident in France

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