What concessions does your country make, (as a Treaty Partner of the United States of America), that causes your life to be miserable?

What Canada Allows by Signing the 'Savings Clause' in the US-CDN Tax Treaty https://t.co/k4bOjkmavK You have to read it to believe it!

— U.S. Expat Canada (@USExpatCanada) May 28, 2016

 
From the Cook v Tait Book , our much-missed friend , Roger Conklin references a timely paper by Reuven Avi-Yonah , “The Case Against Taxing Citizens”:
 

Finally, we could give up on the “savings clause” in our tax treaties, which we insist upon to enable us to tax nonresident citizens but which we may well have to pay a price for in treaty negotiations.  

 
“..may well have to pay a price for in treaty negotiations…” – USCitizenAbroad explains WHY:

This is one of those comments that just has to be a post on its own. Bravo USCitizenAbroad!
 
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@All

Great comments to this post.

I think it’s worth being very specific about what the Savings Clause means for Canadian citizens/residents, who are subject to the full force of Canada’s “low tax” (I am kidding) system. By agreeing to the “Savings Clause” the Government of Canada has:

agreed to allow the United States to impose U.S. taxation, according to the rules of the U.S. Internal Revenue Code (which treats all Canadian assets as foreign and subject to special rules of taxation, reporting and penalties), on:

– those Canadians, which the U.S., in it’s sole discretion defines as U.S. citizens. (You will note that “citizen” is not defined in the Treaty anywhere. You will also note that under the FATCA IGA , “U.S. Person is defined under the terms of the Internal Revenue Code which allows the U.S. to define a U.S. person anyway that it chooses to do so)

What this means practically is that, THE GOVERNMENT OF CANADA HAS AGREED TO ALLOW THE UNITED STATES, to subject the following (and these are just examples) activities of some Canadian citizens/residents to the full force of the U.S. Internal Revenue Code:

– All Canadian bank accounts and financial assets must be disclosed to the U.S. Government (in some cases the Financial Crimes Division – FINCEN)

Looking for Mr. FBAR in search of FBAR fullfillment and consciousness

FATCA Form 8938 – Where it came from, how it came about and what it means for US Citizens Abroad

– All Canadian mutual funds are treated are subjected special rules of punitive taxation (this is so absurd that if a Canadian funds holds the same stocks as the U.S. fund, the Canadian fund is subject to tax rates that can come close to 100& of the gains)

PFICs

– Impose punitive taxation the Canadian shareholders of Canadian Controlled Private Corporations (including on “pretend income” that the Canadian has never received)

Investments Effectively Prohibited to Canada-US Dual Citizens

– impose an Excise Tax when a Canadian citizen buys a Canadian life insurance policy

– impose taxation on the RDSPs (when they are not taxed in Canada) and on the contributions made by the Government of Canada

Why US Citizens in Canada Should not Invest in TFSAs or any other Foreign Trust – RRSPs excepted

– impose taxation on RESPs which are NOT taxable in Canada (in the event that the RESP is created by a Canadian grandparent for a U.S citizen kid, there will be special taxation if it is treated as a “Foreign Non-Grantor Trust” and the punitive throwback rules apply

– impose U.S. capital gains taxation on the sale of the principal residence which is not taxed in Canada

Capital Gains Tax Principal Residence

– impose taxation on “pretend gains – treated as income and not capital gain” if because of exchange rate fluctuations the U.S. dollar amount to discharge a mortgage is less than the principal amount of the loan

How Fluctuating FX Rates Generate Capital Gains Taxes on the Discharge of Debt US Citizens Abroad

– impose taxation on the TFSA which is tax free in Canada

TFSA

Why US Citizens in Canada Should not Invest in TFSAs or any other Foreign Trust – RRSPs excepted

– impose taxation when a U.S. citizen spouse transfers property to an “alien” (non-U.S. spouse) including in the circumstances of a divorce

FBAR Marriage

– threaten Canadian citizens with life altering penalties

The Taxpayer, the IRS and the Professionals Where to go from here

– in the event that the poor Canadian attempts to relinquish their deemed U.S. citizenship, the Government of Canada has agreed to allow the United States to impose it’s draconian Exit Taxes (which are most punitive in relation to assets outside the United States) on Canadians

877A & the Exit Tax

– and certainly more

Now, I want to make it crystal clear that this is what the Savings Clause means. This is what the Government of Canada has agreed to do. For what purpose? Do these morons even know what they did? Furthermore, I want to emphasize again and again that:

(1) the Government of Canada has agreed to

(2) allow the U.S. to impose these rules of taxation on any Canadian citizen/resident

(3) who happened to have been born in the USA and

(4) has not specifically relinquished U.S. citizenship.

Even if you don’t care about the individuals and even if you regard them as the Canadian Government does as “U.S. Taxable Property in Canada”, the Government of Canada is agreeing to “after tax paid Canadian capital being stolen from the Canadian Economy and transferred to the United States!

Furthermore, I want to point out that this is nothing like FATCA (which the Government of Canada pretends is nothing but an information exchange). This is a clear agreement on the part of the Government of Canada (and other countries that have signed this form of agreement) to allow the United States to impose these taxes, penalties and obligations on Canadian citizens. Sure, the treaty states that Canada won’t assist Obama’s IRS in collecting these U.S. taxes on Canadian citizens. But, the fact remains that the Government of Canada (and other Governments in the world have agreed) has allowed the U.S. to impose these taxes on Canadian citizens/residents. This is NOT the same thing as agreeing to an information exchange (even that is not justifiable). I will say it again:

this is an agreement to allow the United States to impose direct taxation:

A. On Canadian citizens/residents

B. According to the rules of the Internal Revenue Code which have been designed to punish “Foreign financial products” (not like the gentle nation of Eritrea which only wants a small excise tax)

It’s time to wake up. It’s time to bring pressure on these people. It’s time to rally people in every country against the U.S. Tax Treaty.

Oh and by the way:

This post ALSO makes reference to the new U.S. Model Tax Treaty. The current savings clause (as offensive as it is) is at least based on existing U.S. tax laws. The Model Tax Treaty has a savings clause that is so broad, that it can be used to enforce taxation on people long after they have ceased to be U.S. citizens and based on laws that do NOT exist today.

Really, it is time to get an organized educational campaign against this going. Maybe there was a reason that Justin Trudeau appointed a Minister of National Revenue who doesn’t understand taxes. Nevertheless, the education and activism must begin.

Sleep tight and don’t let the Obama bugs bite!

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Here’s my question: Where does the Tax Division of Ministry of Finance get the authority to sign “on our behalf?” Does anyone know? Maybe it’s time for all “US Persons” to begin pummelling (and I mean pummel) their politicians and tax agencies about this….well before this nasty piece of garbage is signed in the future……….