This is a continuation of the first post discussing the applicability of Canada’s vacant home taxes to U.S. residents. The first post is here.
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!
Croatia Agrees To Allow The U.S. To Impose Tax, Forms And Penalties On It’s U.S. Citizen Residents
On December 7, 2022 a US Treasury Press Release included:
December 7, 2022
WASHINGTON — In a ceremony held at the U.S. Department of State today, Under Secretary of State for Economic Growth, Energy and the Environment Jose W. Fernandez and Croatia’s Minister of Finance Dr. Marko Primorac signed a comprehensive income tax treaty between the United States and Croatia. The new tax treaty is the first of its kind between the United States and Croatia.
Purpose Of This Post – The “Readers Digest” Version
FATCA is administered through the FATCA IGAs (international agreements) and not through the U.S. Internal Revenue Code (domestic law of the United States). the FATCA IGAs do NOT include a provision to change the meaning of “U.S. Person”. Rather the meaning of “U.S. Person” is permanently defined as a “U.S. citizen or resident”. There is no provision in the IGA to change this definition. Therefore, the IGAs are written so that they will ALWAYS apply to U.S. citizens regardless of whether the U.S. continues citizenship taxation.
In effect, implementing FATCA through the IGAs has had the practical impact that:
This purpose of this post is to continue the general theme of focusing on the difference between what a law says and what the law means in application and effect. Yesterday’s post (The Pandora Papers, FATCA, CRS And How They Have Combined To Create Tax Haven USA) focused on the role that the 2010 US FACTCA law played in in facilitating the rise of Tax Haven USA. (To be clear, I am not saying that FATCA was the sole cause.) That said, the unwillingness of the USA to sign the CRS (“Common Reporting Standard”) has also played a role in the growth of the US as a tax haven.
(One Of The Top Blog Posts We Are Reposting Today)
On February 28, 2019 TaxConnections kindly posted my first post comparing the way that 19th Century Britain and 21st Century America Treated Its Citizens/Subjects. The post received a great deal of interest resulting in more than 120 comments (largely reflecting the frustration of Americans abroad and accidental Americans).
The purpose of that post focused largely on citizenship and the fact that the United States imposes worldwide taxation on U.S. citizens who are tax residents of other countries and do NOT live in the United States. What that post did NOT do was to focus on HOW the Internal Revenue Code applies to U.S. citizens who do NOT live in the United States.
The Bottom Line Is:
The United States is in effect imposing a separate and more punitive tax system on its citizens abroad. Strange but true. The purpose of this post is to explain how that works and to provide specific examples.
Do you recognize 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 TaxConnections Post 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.
In 2016 I first made the suggestion that citizenship-based taxation could be changed through Treasury regulation. In October of 2020 John Richardson, Dr. Karen Alpert and Dr. Laura Snyder completed a paper titled “A Simple Regulatory Fix For Citizenship Taxation”. The idea advanced is that:
An article we posted recently by Professor Edward Zelinsky had the impact of a lightening rod and sparked considerable discussion and commentary. You can view the post by going to this posted link on Defining Residency For Income Tax Purposes. The post was a catalyst for a debate we have now scheduled on Citizenship Taxation.
On Friday, May 17th starting at 11:00 AM PST/2:00 PM EST
TaxConnections is hosting a live stream YouTube Event having invited legal scholar Professor Zelinsky to present his views for Citizenship Taxation. We have also invited John Richardson to present his views and opposition to Citizenship Taxation.
The education these gentlemen will provide on the issues surrounding Citizenship Taxation and FATCA are important to bring to light to the public. We want taxpayers to have the answers they need; we want the tax professional community to have accurate information; and we want to understand the issues that need to be resolved by the US government.
We invite you all to join us during this very lively and educational debate. Register to receive a complimentary invitation to view the debate online live stream through YOUTUBE.
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.) Read More
The S. 877A “Exit Tax” and possible treaty relief under the Canada US Tax Treaty
Introduction – The Canada U.S. Tax Treaty Does Not Always Prevent Double Taxation
See: Part 9 – Understanding “Exit Taxes” – For #Americansabroad: US “citizenship taxation” is “death by a thousand cuts”, but the S. 877A Exit Tax is “death by the guillotine”.
When countries independently make major changes in tax law, double taxation can occur.
The following comment from 5thSwiss on the Isaac Brock Society site explains why and how double taxation can be a reality. It also underscores the dangers of a U.S. citizen leaving the United States. Read More
“The U.S. “Exit Tax vs. Canada’s Departure Tax – citizenship taxation vs. residence taxation”
Cdn Departure Tax has a logic to it. To have to pay a US “exit tax” when I left > 30 years ago, beggars belief. https://www.facebook.com/groups/AmericanExpatriates/permalink/448847051948039/?comment_id=450160951816649& …
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.” Read More
“You are a “covered expatriate” – How the “Exit Tax” is actually calculated”
How the Exit Tax is calculated in general – what is subject to the “Exit Tax”?
Remember that a person who relinquishes U.S. citizenship does not actually sell his assets or realize income from his assets. The Exit Tax is designed to ensure that the U.S. collects tax on assets as if they were sold OR as if generated an income stream (even though there is no sale). This means that one is forced to pay a massive tax when has not realized income to pay that tax!
The General Theory: Read More
Part 2 – Understanding “Exit Taxes” in a system of residence based taxation vs. Exit Taxes in a system of “citizenship (place of birth) taxation
Let’s begin with some politics …
In an interesting post Robert Wood writes:
Both Mayor Johnson and Senator Cruz are U.S. citizens. Both Mayor Johnson and Senator Cruz either have or are renouncing the citizenships of the countries where they were born. There will no tax consequences to Senator Cruz for renouncing Canadian citizenship. Mayor Johnson will probably be spared America’s draconian “Exit Tax” (assuming he was born a dual citizen) for renouncing U.S. citizenship. The “Exit Tax” Read More