Category Archives: U.S. Canada Tax Treaty

Canadian citizenship: When citizenship in one country affords rights of access to another country

Part I – Citizenship in the 21st century

In the 20th century few people thought much about citizenship. Few people thought about the value of multiple citizenships.

In the 21st century people think about citizenships. People are beginning to see the value of having more than one citizenship. They are also (because of the awareness (caused by FATCA) of U.S. citizenship taxation) beginning to see the value of NOT being a U.S. citizen. (Interestingly U.S. Senator Ron Wyden is claiming that dual citizenship provides enhanced opportunities for tax evasion.)

When people renounce U.S. citizenship they will experience the following changes:

1. For U.S. immigration purposes they cease to be U.S. citizens and are treated by the United States like all other citizens of their country of citizenship; and

2. For U.S. tax purposes they cease to be “U.S. Persons” and become “nonresident aliens”. (This loss of U.S. citizenship may or may not be a benefit depending on their individual circumstances). The definitions of “U.S. Person” and “nonresident alien” are found in “26 U.S. Code § 7701 – Definitions“.

When citizenship may afford enhanced rights of access to other countries

Those with more than one citizenship will remember situations where citizenship in one country provided benefits that citizenship in another country did not. Sometimes the benefits are mundane (citizens of one country paying less for an entry visa than citizens of another country). Sometimes citizenship is a condition for various kinds of “enhanced entry programs” (think the U.S. Global Entry programs that include NEXUS.) Sometimes the benefits are more substantive (visa free access for citizens of country A and no visa free access for citizens of country B). Sometimes citizenship in one country gives the right to live in other countries (think citizenship in EU countries). Sometimes citizenship in one country gives the right to seek specific employment in other countries (think Canada-US-Mexico TN visas.) Sometimes there are tax advantages (the France U.S. tax treaty affords interesting tax benefits for U.S. citizens living in France). Sometimes citizenship can protect a person from extradition requests (civil law countries are reluctant to allow their citizens to be extradited). Sometimes citizenship can protect a person from tax enforcement claims from another country (the U.S./Canada tax treaty affords certain protections to individuals based on citizenship status). Sometimes citizenship can protect a person from certain kinds of taxation (Canada’s “Underused Housing Tax” and the BC “Speculation and Vacancy Tax” are recent examples). The point is that citizenship may (and often does) afford benefits that extend beyond the right to live and work in a country. When considering whether to seek various citizenships or renounce various citizenships it is important to think beyond the basic right to live in a country.

Conclusion: ANY change in your citizenship (whether renouncing U.S. citizenship or acquiring an additional citizenship) should consider the issues raised above!!

Part II – What about Canadian citizenship? What do Canadians give up by renouncing U.S. citizenship? What are the reasons (there are many) why Permanent Residents of Canada should naturalize as Canadian citizens?

Because of generous and easy access to the United States, Canadian citizens who renounce U.S. citizenship give up far less than citizens of many other countries. Furthermore, becoming a Canadian citizen affords many privileges vis-a-vis the United States and Canada.

Rather than list the reasons individually I am pleased (with his kind permission) to refer you to a recent post by Los Angeles based immigration lawyer Parviz Malakouti-Fitzgerald, Esq. The post – Six Benefits of Canadian Citizenship for Access to the U.S. Market – is referenced in the following tweet.

The post has its origins in a recent twitter exchange and begins as follows:

Does being a Canadian citizen offer unique benefits of access to the United States market?

This is more-or-less the question I read on twitter from U.S. citizenship renunciation expert John Richardson last week on the last day of 2023.

“Question on @Quora: Is the only real advantage in being a Canadian in accessing the US market, six months visa free stays & a limited range of professions on the TN visa list which also does not lead do a Green Card? No special concessions or fast track ..”

The author provides an excellent, well researched summary. It not only demonstrates why Canadians give up less by renouncing U.S. citizenship but also why Canadian citizenship is valuable to have.

I encourage you to read the complete post here …

https://www.malakoutilaw.com/six-benefits-of-canadian-citizenship-for-access-to-the-u-s-market

John Richardson – Follow me on Twitter @Expatriationlaw

Part 46 – Why Other Countries Should File Amicus Briefs In The Moore MRT Appeal

Why U.S. deemed income events cause problems for U.S. citizens living in other countries and erode the tax based of the countries where they live

All countries in the world have an interest in the Moore MRT appeal and should file Amicus briefs in support of the Moores.

The U.S. citizenship tax AKA extraterritorial tax regime applies to ALL U.S. citizens and residents wherever they live in the world. With its very expansive definition of “tax residency”, the United States claims the tax residents of other countries as U.S. tax residents. Those unlucky dual filers are subject to additional administrative fees, additional taxation and the opportunity cost of the inability to effectively engage in retirement and financial planning.

In the Moore MRT appeal the U.S. Supreme Court will consider whether “income” requires the actual receipt of income or whether “deemed income” meets the 16th Amendment test for income. Does the 16th Amendment require objective tests that must be satisfied before “income” can exist? The answer to this question will have profound implications for both the “U.S. citizen” residents of other countries and (2) the countries where they live. As previously discussed, if income does NOT have to be actually received, this opens the door for the U.S. tax the residents of other countries on income they have never received. Often the taxable event in the U.S. will take place before the taxable event in that other country.

The following post describes some examples where the United States is already deeming income to have been received for U.S. tax purposes before income has been received in the other country.

The following post describes how the U.S. deeming income to have been received for U.S. tax purposes prior to income having been received in the other country may result in (1) double taxation to the individual and (2) erosion of the tax base of the other country.

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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 US Tax Treaties And The “Saving Clause” Prevent Countries From Establishing Retirement Programs For US Citizen Residents

Prologue – The Circumstances Of Your Birth Should Not Determine The Outcome Of Your Life …

The above tweet references a “human interest” story where US citizen children are denied benefits in their country of residence that are available to all people who are NOT US citizens.

The description includes:

New Zealand children born to parents’ who are citizens of the United States face a difficult KiwiSaver choice: Give up your US citizenship, or face a KiwiSaver tax compliance bill of $750​ or more a year courtesy of the US taxman.

A petition has been started at Parliament asking MPs to change the KiwiSaver Act to allow people with KiwiSaver accounts facing the unreasonable demands from US tax authorities to close their KiwiSaver accounts.

The issue surfaced as a result of the plight of Auckland dual national Kira Bacal and her four New Zealand-born children, Harper, 13, Rowan, 10 and twins Malachi and Elias, 8.

It appears that the poor (New Zealand born) Bacal children are finding that the US (or at least US tax preparers in New Zealand) consider their KiwiSaver to be a possible vehicle for US tax evasion! Not only is the KiwiSaver a “trust”, but it’s a “foreign trust” which comes with all kinds of penalty laden reporting obligations and no tax advantages. An excellent analysis of the US tax implications of the New Zealand KiwiSaver is here. The story is somewhat comical in that one gets the feeling that the blame should be placed on New Zealand (and not the United States) for New Zealand’s failure to legislate special exceptions for US citizens living in New Zealand.

So what! They’re Americans and therefore they deserve it (you say)!

A previous post explained that for Americans abroad, changes in the laws of their country of residence can change their tax relationship with the United States. The purpose of this post is to expand on that theme by demonstrating that:

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The Competent Authorities Should Agree That the Canadian TFSA Has The Same Treaty Status As The US Roth IRA

2018 Prologue

In 2018 I wrote a post arguing that it is reasonable to conclude that the text of the Canada US Tax Treaty should be interpreted to mean that a Canadian TFSA is – like a US ROTH IRA – a pension within the meaning of the Canada US Tax Treaty. The 2018 post was arguing for equal treatment without the intervention of the respective Canadian and American Competent Authorities.

The Punitive Taxation Of US Citizens Living Outside The United States Continues

I have previously and repeatedly made the point that:

The United States imposes a separate and more punitive system of taxation on US citizens living outside the United States than on US citizens living in the United States.

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Raymond James: A Permanent Investing Solution For Cross Border Individuals

Raymond James Crossing Borders Wealth Management Solutions

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Mr. LJ Eiben is a Financial Advisor at Raymond James.

The information in this podcast was obtained from sources RJA and believed to be reliable; however, we cannot represent that it is accurate or complete. It is provided as a general source of information and should not be considered personal investment advice or solicitation to buy or sell securities. The views expressed are not necessarily those of Raymond James (USA) Ltd. Raymond James (USA) Ltd. (RJLU) advisors may only conduct business with residents of the states and/or jurisdictions for which they are properly registered.

Raymond James (USA) Ltd. is a member of FINRA / SIPC

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Airline and cruise ship employees: how income earned in international waters may lead to double taxation for (only) Americans abroad

Oliver Wagner, CPA and John Richardson – January 16, 2022

Americans abroad and the presumption of double taxation

Prologue: For whom the bell tolls …

Whether a US citizen lives in (and is a tax resident of) Mexico and works on a ship in international waters

Or Whether A US citizen lives in (and is a tax resident of) Holland and is an airline pilot …

That US citizen, because and only because of the combination of US citizenship-based taxation coupled with living outside the United States, is likely to be subject to double taxation. The following discussion explains why.

A Summary Podcast …

Part A: Introduction – About Citizenship-based Taxation
Part B: How the Internal Revenue Code is designed to mitigate the effects of double taxation in certain circumstances
Part C: Determining what is “foreign source” income
Part D: The problem of international waters …
Part E: The effect of sourcing to the US income earned in international waters by dual tax residents
Part F: Deducting “foreign taxes” paid – although income from international waters may not be foreign, it is still subject to the payment of “foreign taxes”
Part G: Can a US citizen living abroad be saved by a tax treaty? Maybe if he/she lives in Canada****
Part H: Conclusion and the need for “Pure Residence-Based Taxation”

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Eroding the tax base of other countries by imposing direct US taxation on the residents of those countries

This is the fourth of a series of posts about international tax reform generally and how FATCA, CRS, citizenship-based taxation, GILTI, etc. work together.

The first three posts were:

US Tax Treaties Should Reflect The 21st Century And Not The World Of 100 Years Ago

The Pandora Papers, FATCA, CRS And How They Have Combined To Create Tax Haven USA

How The World Should Respond To The US FATCA Driven Attack On The Tax Base Of Other Countries

This fourth post continues where the third post – How The World Should Respond To The US FATCA Driven Attack On The Tax Base Of Other Countries – left off. That post described in a general way that FATCA facilitated the US taxation of residents of other countries. The purpose of this post is to give a small number of important examples. To repeat:

The imposition of FATCA on other countries means that …

The United States has effectively expanded its tax base into other countries by claiming residents of other countries as US tax residents. This is a direct attack on and the erosion of the tax base of those other countries.

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US Tax Treaties Should Reflect The 21st Century And Not The World Of 100 Years Ago

Prologue

The rules of taxation should follow changes in society. The ordering of society should NOT be hampered by the rules of taxation!

As the world has become more digital, companies can carry on business from any location. Individuals have become more mobile. Multiple citizenships, factual residences and legal tax residencies are not unusual. It has become clear that the rules of international tax as reflected in tax treaties (as they apply to both corporations and individuals) are in need of reform.

The purpose of this post is to identify two specific areas where US tax treaties are rooted in the world as it was one hundred years ago and NOT as it is today.

First: The “Permanent Establishment” clause found in US and OECD tax treaties

Second: US Citizenship-based taxation which the US exports to other countries through the “saving clause” found in almost all US tax treaties

Each of these will be considered.

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Part 1: #FATCA is: Maloney "Overseas Americans Financial Access Act" is the wrong answer to the right question

Introduction and purpose …


On March 18, 2010, President Obama signed FATCA (“Foreign Account Tax Compliance Act”) into law. FATCA was:
– a revenue offset provision to the HIRE Act
– a series of conforming amendments to the Internal Revenue Code that:
(a) imposed requirements on Foreign Banks (Internal Revenue Code Sections 1471 – 1474); and
(b) imposed reporting requirements on individuals (Internal Revenue Code 6038D). Those reporting requirements are expressed in Form 8938.
On September 17, 2019 Representative Maloney introduced H.R. 4362 – “Overseas Americans Financial Access Act” – which introduced changes to BOTH the FATCA requirements imposed on Foreign Banks and requirements imposed on Individuals.
This post discusses ONLY the aspect to the Maloney bill that “relaxes” the requirements on Foreign Banks. I have writen a separate post discussing how the Maloney bill would impact individuals.
(Those interested in learning more about FATCA may be interested in my “Little Red FATCA Book)“.
The Maloney Bill is NOT The Same As SCE Previously Drafted!
The Good News:
The Maloney bill appears to apply to ALL Americans abroad – without regard to whether they are compliant with their U.S. tax filing requirements. (A previous version of SCE applied ONLY to Americans abroad who were compliant with their U.S. tax filing requirements.) Interestingly, the Bill (like Internal Revenue Code 911) would NOT apply to “permanent residents (Green Card Holders) in exactly the same way.
The Bad News:
The bill as drafted gives the banks the option to either continue to report on the depository accounts of Americans abroad or not. This is an option available to the bank. I (along with many others) suggest that banks will NOT be willing to engage with individuals with respect to whether they meet the requirements of the Maloney bill. The exact language of the bill includes:

(i) IN GENERAL.—Unless the foreign financial institution elects to not have this subparagraph apply, such term shall not include any depository account maintained by such financial institution if each holder of such account is—

The Maloney bill is too narrow in application
The bill as drafted applies ONLY to “depository accounts”. This means that the bill applies only to day-to-day bank accounts. It specifically does NOT apply to “custodial accounts”. This means that it excludes investment accounts, brokerage accounts, etc.
Verdict: The Maloney bill is clearly far too narrow. There is no reason why the Maloney proposal should not extend to ALL accounts (depository, custodial or any other kind of account) held by an American living outside the United States.
The technical analysis (which will NOT be of interest to the average reader) follows. It consists of Part A to Part D.
Thoughts and Suggestion
The Maloney bill is symbolic. It is not a serious attempt to alleviate the problems of Americans abroad. Representative Maloney should – as a Democrat – support Representative Holding’s “Tax Fairness For Americans Abroad Act of 2018”.
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