Home Economy Possible tax relief looming for U.S. citizens living in Canada

Possible tax relief looming for U.S. citizens living in Canada

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The U.S. is effectively the only country in the world that currently imposes citizenship-based taxation in that it taxes all its citizens regardless of where their income is earned or where they live.Thinkstock/Getty

American citizens living in Canada (and around the world) could face an easier time come tax season if a new U.S. bill comes into law. The Tax Fairness for Americans Abroad Act of 2018, introduced on Dec. 20 by Rep. George Holding of North Carolina, a Republican and member of the House Ways & Means Committee, would be a first step towards ending the country’s citizenship-based taxation by taxing only those individuals who are resident in the U.S. or who have income that is connected to the U.S.

The U.S. is effectively the only country in the world that currently imposes citizenship-based taxation in that it taxes all its citizens regardless of where their income is earned or where they live. Eritrea also has citizenship-based taxation, but the African country imposes a flat tax rate of only two per cent on non-resident Eritreans, whereas the U.S. taxes its non-resident citizens at regular, progressive tax rates, with a top 2019 rate of 37 per cent. Nearly every other country has either a residence-based or territorial tax system that only imposes taxation on its residents.

In recent years, academics and various lobby groups, such as American Citizens Abroad, have argued that the U.S. should abandon its citizenship-based taxation policy. In 2015, University of Virginia School of Law professor Ruth Mason, whose research focuses on international, comparative, and state taxation, wrote a paper that took a critical look at the traditional arguments for taxing non-resident citizens. In it, the Harvard-educated professor raised new arguments against the policy, including that it puts the U.S. at a disadvantage when competing with other countries for skilled employees.

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