Yes, you read right.
By way of background, Obamacare was financed in part by the 3.8% Net Investment Income Tax (“NIIT”). At the risk of oversimplification, this is a tax on passive income. What those Canadians who are also “U.S. persons” need to know includes:
1. The NIIT is an instance of pure double taxation. It is believed by most practitioners that this tax CANNOT be offset by the usual foreign tax credit rules. (But, then again – maybe the NIIT is really a Social Security Tax and therefore NOT payable under the Canada U.S. Social Security Totalization Agreement.)
2. Assuming that the NIIT is NOT a “Social Security Tax”: As is described in the following article by Toronto tax lawyer Sunita Dooby, distributions from Canadian RRSPs and RRIFs ARE subject to the NIIT. That said, comparable U.S. plans (401K and IRAs) are NOT subject to this tax.
In summary Ms. Doobay notes that:
Qualified pension plans are NIIT exempt under Code section 1411(c) (5), which exempts any distribution from a qualified plan and arrangement set out in Code section 401(a). RRSPs and RRIFs are not qualified plans or arrangements for these purposes.
RRSPs, RRIFs, ARE subject to the 3.8% US Net Investment Income Tax https://t.co/EBn2B9OmoO – No effect on US "qualified plans" – (401K, IRA)
— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) December 4, 2015
Ms. Doobay’s article is referenced in the above tweet.
So, what does this mean? Well, Canadians are required to pay for the Health Care of Americans when similarly situated Americans are not required to pay for their health care.
While I’m at it, here is another interesting article from Ms. Doobay referenced in the following tweet:
Canadians need to be cognizant of the Net Investment Income Tax. Canadians who have US trusts in place should revisi…https://t.co/Dvw3BuTUNB
— Sunita Doobay (@sunitadoobay) September 29, 2015
Talk about freeloading and extracting capital from other nations …