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Why Is The U.S. Imposing Full Taxation On Canadians?



Why is the United States imposing full U.S. taxation on the Canadian incomes of Canadian citizens living in Canada?

The Internal Revenue Code mandates that ALL “individuals”, EXCEPT “non-resident aliens”, are subject to full taxation, on their WORLDWIDE income, under the Internal Revenue Code. The word “individuals” includes U.S. citizens regardless of where they live and regardless of whether they are citizens and residents of other countries where they also pay tax. This means that, by its plain terms, the United States imposes full taxation on the citizens and residents of other nations, because they are also (according to U.S. definitions) U.S. citizens. The United States is the only country in the world that has a definition of “tax residency that mandates full taxation based ONLY on citizenship.

How “U.S. citizenship” and U.S. “taxation” interact

Principle 1: The United States is one of the few countries in the world that confers citizenship based SOLELY on birth on its soil.

Principle 2: The United States is the ONLY country in the world that imposes full taxation ON THE WORLD INCOME of its citizens, regardless of where the U.S. citizen lives in the world.

Bottom line: The United States is the ONLY country in the world that imposes full taxation, on WORLDWIDE income, based ONLY on the “place of birth”!

A practical example: A person whose only connection to the United States is that he was born in the United States, who lives in Canada (and may have never lived in the United States and whose only income is earned in Canada), is required to pay U.S. tax on that income. This resident of Canada is treated AS THOUGH HE WAS A U.S. RESIDENT. NOTE ALSO THAT THIS INDIVIDUAL IS REQUIRED TO PAY TAX TO CANADA! He is subject to “double taxation”. (This “double taxation” is only partially mitigated through “foreign tax credits”, tax treaties and the “foreign earned income exclusion”.)

Therefore: What academics and government officials refer to as “citizenship-based taxation” (they really don’t understand its practical effects) is PRIMARILY  “place of birth taxation” and therefore a convenient way to impose U.S. taxation on the citizens and residents of other countries. As a blog devoted to “citizenship taxation” (noting the difference between the theory and reality) points out:

A supporter of citizenship taxation is someone who THINKS about citizenship taxation. An opponent of citizenship taxation is anybody who has tried to LIVE under citizenship taxation.

How did this happen? It certainly didn’t start this way!

The evolution of “U.S. citizenship”

The result of legislative change and various U.S. Supreme Court decisions (primarily Afroyim) has meant that “U.S. citizenship” is far easier to obtain and far harder to lose.

Furthermore, as people become more and more mobile, it is not unusual for somebody to have been born in the U.S. but live outside the U.S. Global mobility is now the rule, rather than the exception.

The evolution of U.S. taxation and the Internal Revenue Code

The Internal Revenue Code has become more and more complex and impacts more and more activities of daily life. Because “U.S. citizens” (even though they are citizen/residents of other countries) are subject to U.S. taxation, they have been tremendously impacted by the “creeping complexity” of the Internal Revenue Code (which applies equally to ALL Americans wherever they may live).

This “creeping complexity” has evolved slowly through the years. The problems have been exacerbated because Congress does NOT consider that when amending the Internal Revenue Code they are impacting the lives of tax paying residents of other nations (who happen to be U.S. citizens). Congress is “indifferent” to the plight of Americans abroad (indifference being one of the worst forms of abuse).

Through the years, slowly and consistently…

The evolution of the Internal Revenue Code combined with ease of retaining U.S. citizenship has built a “fiscal prison” (legislative brick by legislative brick), in which  to keep the tax paying residents of “OTHER NATIONS”, who just happen to have been born in the United States.

 

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The Reality of U.S. Citizenship Abroad

My name is John Richardson. I am a dual citizen. I am a lawyer – member of the Bar of Ontario. This means that, any counselling session you have with me will be governed by the rules of “lawyer client” privilege. This means that:

“What’s said in my office, stays in my office.”

I am also a member of the American Citizens Abroad Professional Tax Advisory Council (PTAC). This is an advisory panel focused on assisting American Citizens Abroad in an FBAR and FATCA world.

The U.S. imposes complex rules and life restrictions on its citizens wherever they live. These restrictions are becoming more and more difficult for those U.S. citizens who choose to live outside the United States.

FATCA is the mechanism to enforce those “complex rules and life restrictions” on Americans abroad. As a result, many U.S. citizens abroad are renouncing their U.S. citizenship. Although this is very sad. It is also the reality.

3 thoughts on “Why Is The U.S. Imposing Full Taxation On Canadians?

  1. Avatar Patrick says:

    I understand Eritre also taxes its citizens on a world-wide basis. Their emigrants must send part of their earnings to the Eritean government or never be allowed back to Eritrea on pain of being arrested.

  2. @Patrick

    Many countries tax their residents on their worldwide income.
    Being taxed on worldwide income is not the entire picture when dealing with the United States. Eritrea taxes its citizens outside the country; it is a 2% annual tax which has been condemned by the U.N., including the United States.
    The taxation of citizens outside the U.S. is much more insidious and pervasive and it is not really comparable to what Eritrea does.

  3. Avatar Tony says:

    Not just “place of birth”. I’m naturalized (not by choice) because my mother is
    American and lived in the US for minimum 5 years before her 18th birthday. I am American not by choice.

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