Purpose and summary of this post:

Because Canada’s Underused Housing Tax treats nonresidents of Canada differently, based on their citizenship, the tax may violate the non-discrimination Article in many of Canada’s tax treaties (including the Canada U.S. tax treaty). Nonresidents of Canada are treated differently depending on whether or not they are Canadian citizens. For example a Canadian citizen who is a nonresident of Canada is “excluded” from the tax. But, a U.S. citizen who is a nonresident of Canada is “affected” by the tax. This appears to violate paragraph 1 of Article XXV of the Canada U.S. tax treaty (and other Canadian tax treaties).

Paragraph 1 of Article XXV of the Canada U.S. tax treaty:

1. Nationals of a Contracting State shall not be subjected in the other Contracting State to any taxation or any requirement connected therewith that is more burdensome than the taxation and connected requirements to which nationals of that other State in the same circumstances, particularly with respect to taxation on worldwide income, are or may be subjected. This provision shall also apply to individuals who are not residents of one or both of the Contracting States.

The question is what is meant by “in the same circumstances”. Relevant commentary from the OECD and from U.S. Treasury underscores that the words “particularly with respect to taxation on worldwide income” include whether the individual is taxed as a tax resident of the country or as a nonresident of the country.

Arguably all “nonresidents” of Canada are “in the same circumstances” (in relation to Canada’s tax system). Hence, “nonresidents” should not be treated differently depending on their citizenship.

Discussion and analysis follows.

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