Category Archives: U.S. Canada Tax Treaty

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

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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

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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

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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

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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

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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

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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

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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

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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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The United States imposes a separate and more punitive tax system on US dual citizens who live in their country of second citizenship

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Prologue

Do you recognise yourself?

You are unable to properly plan for your retirement. Many of you with retirement assets are having them confiscated (at this very moment) courtesy of the Sec. 965 transition tax. You are subjected to reporting requirements that presume you are a criminal. Yet your only crime was having been born in America (something you didn’t even choose) and attempting to live as a U.S. tax compliant American outside the United States. Your comments to my recent article at Tax Connections reflect and register your conviction that you should not be subjected to the extra-territorial application of the Internal Revenue Code – when you don’t live in the United States.

The Internal Revenue Code: You can’t leave home without it!

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How Americans moving to Canada can maximize the use of their existing Roth IRA

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I have previously explained how the Canada U.S. Tax Treaty allows a U.S. citizen to move to Canada and continue the deferral of taxation (in both Canada and the United States) on his existing Roth.The treaty allows for deferral with respect to the existing balance in the Roth. It does NOT allow for deferral with respect to contributions made after the person becomes a tax resident of Canada.

That post concluded with:

Conclusions:

1. The owner of a ROTH who moves to Canada can will continue to not pay tax on the income earned by the ROTH and will not pay tax on distributions from the ROTH. We will see that this can prevent a tremendous investing opportunity; and

2. Contributions made to the ROTH after moving to Canada will cease to be “pensions” within the meaning of of Article XVIII of the Treaty! This means that post “resident in Canada” contributions will NOT be subject tax “tax deferral” (as per paragraph 7) and will be subject to taxation (as per paragraph 1).

Possible Additional Conclusion:

3. Because a Canadian TFSA is the same kind of retirement vehicle as a U.S. ROTH IRA, and the ROTH IRA is treated as a “pension” under Article XVIII of the treaty:

A TFSA should be treated as a pension under Article XVIII of the Canada U.S. Tax Treaty.

But, moving back to the U.S. citizen who moves to Canada with a Roth IRA.

How a U.S. citizen who moves to Canada can maximize use of the Roth and the Canada U.S. Tax Treaty

Q. How does this work? A. It takes advantage of the “stretch” principle
The general “stretch” principle is described at Phil Hogan as follows:

How US plans can “stretch” to Future Generations

Chris discusses the often overlooked benefits of US plans for Canadian residents. Under US tax laws IRA (and sometimes 401k) plans can be “stretched” or transferred to future generations tax free. Pursuant to Canada-US treaty provisions the same treatment can be had for Canadian tax purposes.

Unlike RRSP accounts, US IRA accounts can be transferred to a second generation (non-spouse) tax free under the Canada-US tax treaty. The impact of the tax free transfer and compounding investment over the lifetime of the beneficiary can be significant. This is outlined in detail in Chris’ new white paper report Roth IRAs in Canada – The gift that keeps on giving. How $250,000 can turn into $35 million TAX FREE to an heir.

Here is the full video …

And the written explanation …

See the link in the above tweet here …

roth_IRA_in_Canada_compliance_approved-1 (1)

Bottom line:

The features of a Roth IRA coupled with certain provisions of the Canada U.S. tax treaty may provide for better financial planning options for U.S. citizens who move to Canada than are available to Canadian residents who have not lived in the United States.

John Richardson Follow me on Twitter @ExpatriationLaw