Tag Archives: Canada Departure Tax

How Canada Pioneered Modern Departure Taxes And The US 877A Exit Tax – A Story Of Taxpionage And Intrigue

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Introduction

Exit/Departure taxes are imposed when an individual severs tax residency with a country. In a system of residency based taxation, the tax is imposed when the individual severs residency with the country. For example, if a Canadian were to move from Canada to the United States and ceases to be a resident of Canada, that person would be subject to Canada’s “Departure Tax”. U.S. citizenship is the world’s only “Taxation-based Citizenship”. When an individual relinquishes U.S. citizenship, that person may be subject to the U.S. 877A Exit Tax rules.

Canada and the United States are examples of the most brutal tax systems the world has ever known. This is largely because they both impose taxation on unrealized income. Examples are exit taxes and their CFC rules. Imagine paying tax on income that you have never received?

In the spirit of taxing income that an individual has never received, the United States Exit Tax imposes on certain Americans abroad, who renounce their U.S. citizenship a tax on “pretend” or “deemed” income. The U.S. 877A tax goes beyond – in its scope – any departure tax the world has ever known. Not only does it force a deemed distribution of pensions. But, 877A taxes the pensions of Americans abroad, accumulated while that American was not resident in the United States. Furthermore, 877A taxes that non-U.S. pension more punitively than it would tax a U.S. based pension.

The following post compares the U.S. 877A Exit Tax imposed on the relinquishment of U.S. citizenship with Canada’s Departure Tax imposed when tax residency is severed with Canada.

Canada’s “residence-based” departure tax vs. the US “citizenship-based” Expatriation Tax – Focus on Canada’s Tax

Both Canada’s Departure Tax and the U.S. Exit Tax were designed to target the super wealthy. They have had their heaviest impact on middle class people. They are examples of the mantra that:

“Sooner or later a class tax becomes a mass tax.”

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Exit Taxes As A Barrier To Emigration And The Need For An International Treaty To Create Uniformity And Certainty Surrounding Emigration

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Exit Taxes As A Barrier To Emigration And The Need For An International Treaty To Create Uniformity And Certainty Surrounding Emigration

This blog post was written for a presentation at the MigrationConference.net on June 12, 2025. Here are the slides that will be used:

A PDF version is here:

Migration Conference 2

Here is a recording of John’s brief presentation at the conference on June 12, 2025:

A more comprehensive blog post follows.

Outline:

Part A – Introduction
Part B – Emigration historically burdened by “exit taxes” (The Nazis and Soviets)
Part C – Modern Exit Taxes And First World Democracies (Canada, the United States, etc.)
Part D – A Tax Treaty Solution That Protects BOTH The Right Of Emigration And the Desire Of Governments To Tax Individuals On Gains Accruing While Living In The Country

Appendix – Human Rights Documents

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Canadian Expats Abroad – The four tax issues you should know about, but didn’t know to ask

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Introduction

The Canadian Expat believes that Canadians abroad represent an incredibly rich and valuable resource for Canada. Canadians living and working abroad are directly and indirectly responsible for billions of dollars in bilateral trade. They are exceptionally well educated, linguistically adept and culturally bilingual. They are cultural and economic ambassadors for Canada. The more we as a country engage them, the more Canada will prosper.
There are an estimated 2.8 million Canadians living and working outside of the country. To put that in perspective it would constitute the 4th largest province in Canada.

http://thecanadianexpat.com/features/values-mission-vision

In the 21st Century the most interesting thing about a person is their “tax residency”

It’s not only Americans abroad who have difficult tax issues. Moving to another country subjects all people to new and difficult tax problems. Canadians are NOT exempt from problems when they move from Canada. It’s important that tax residency in Canada be clearly understood.

These problems include (but are certainly not limited to):

Becoming a non-resident: Severing Tax Residency With Canada

The cost of becoming a non-resident: Canada Departure Tax

Living as a non-resident of Canada: Taxation on Canadian source income while a non-resident of Canada

Taxation and reporting of Canadian assets while living as a tax resident of another country

John Richardson – Follow me on Twitter: @Expatriationlaw

Part 8 – “The U.S. “Exit Tax vs. Canada’s Departure Tax – citizenship taxation vs. residence taxation”

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The above tweet references the following comment:

At least the departure tax has a sliver of logic to it, and an appropriate name. To have to pay a US “exit tax” when I left empty handed over thirty years ago, beggars belief. Perhaps if they called it an escape tax or freedom tax that would make more sense.

Composing this series of posts about the U.S. S. 877A “Exit Tax” made me realize that “Exit Taxes” are a prism through which to view a country’s tax system. Any kind of tax imposed on leaving the “tax jurisdiction” of a country will reveal much about the fairness of a tax system. Yet there has been little discussion of “Exit Taxes”. In theory an “Exit Tax” is imposed when one emigrates from one country and immigrates to another country. This is how “Canada’s Departure Tax” works. It is NOT how the U.S. “Exit Tax” works.
I recently came across an interesting book written by Nancy Green and Francois Weil titled:
Citizenship and Those Who Leave: The Politics of Emigration and Expatriation
citizenshipandthosewholeavegreen
The description includes:

Exit, like entry, has helped define citizenship over the past two centuries, yet little attention has been given to the politics of emigration. How have countries impeded or facilitated people leaving? How have they perceived and regulated those who leave? What relations do they seek to maintain with their citizens abroad and why? Citizenship and Those Who Leave reverses the immigration perspective to examine how nations define themselves not just through entry but through exit as well.

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