According to MP @ChandraNepean, following the teaching of Michael Kirsch, It's time for Canada to adopt @citizenshiptax (CBT) presumably based on a US model. He writes: "Canada needs to start taxing Canadians who live abroad". He doesn't understand CBT! https://t.co/VGmPLIhEmU

— U.S. Citizen Abroad (@USCitizenAbroad) April 20, 2020

Yes. It’s true. While Americans abroad (the world over) contemplate how to get their $1200 Corona Virus related payment from the U.S. Government, Nepean MP Chandra Arya has publicly made the case for citizenship-based taxation in Canada. His article reflects an admiration for the “1924 US Supreme Court decision in the case of Cook v. Tait“. His proposal is bolstered by his reliance on the thinking of Notre Dame Law Professor Michael Kirsch. Generally Professor Kirsch’s arguments for CBT are based on the assumption that there is really no such as an Accidental American and that all Americans are members of the polity (as he calls it). (You may be able to take a Homelander out of America, but you can’t the Homeland out of an American.) These arguments were on full display in May of 2014, when ACA hosted a “Citizenship-Based Taxation Debate” between Professor Kirsch and Queen Mary Law Professor Bernard Schneider.

Professors Michael Kirsch and Bernard Schneider – May 2, 2014: "21st Century Taxation of Americans Abroad: Citizenship-based taxation vs residence-based taxation" https://t.co/YhZz2sQPWg via @YouTube

— U.S. Citizen Abroad (@USCitizenAbroad) April 20, 2020

MP Arya begins his discussion with:

While we don’t have complete information on where Canadians have taken up long-term residence abroad, there are reports of about 300,000 Canadian citizens in Hong Kong and tens of thousands in each of several countries in the Middle East. From Asia to Africa, from Europe to the Caribbean and South America and, of course, the US, significant numbers of Canadians have made their permanent home away from Canada. There were about 3 million Canadians abroad, including tourists, at the start of the COVID-19 crisis, according to the Prime Minister.

Currently, Canadian income tax obligations are based on residency status and not on citizenship or immigration status, so non-resident Canadians do not pay taxes. However, expatriate Canadians enjoy the same rights as Canadians who are resident here. They should face the same obligations as resident Canadians, including paying taxes, so that they share the responsibility of contributing, at least financially, to our country.

The United States is the only developed country that taxes its citizens on their global income irrespective of where they live or how long they have lived outside of the US. The constitutional validity of CBT has not been tested in Canada, but the 1924 US Supreme Court decision in the case of Cook v. Tait offers cogent reasoning about CBT that shows its validity under the US constitution. The decision relied on the inherent benefits received by US citizens and their property from the US government, regardless of where the citizens made their home or where their property was located.

Michael S. Kirsch of the University of Notre Dame, in his seminal 2007 article “Taxing Citizens in a Global Economy,” argues for the same principle. Kirsch suggests that recent globalization trends strengthen, rather than weaken, the case for taxing US citizens living abroad. He concludes that modern advances in transportation and communication weaken the case for giving preferential treatment to income earned by citizens working abroad, in that these developments afford the expatriate US citizen virtually the same rights as that of a resident US citizen, such as personal protection, property protection, the right to vote and the right to enter.

The same can be said of expatriate Canadians. They are assured of guaranteed access to a safe, secure and stable society, virtually free world-class health care and education systems and, depending on income levels, affordable housing, irrespective of their length of stay (or lack thereof) in Canada. In addition, depending on the time spent in Canada, financial supports like Old Age Security and the Guaranteed Income Supplement are available to them. Anecdotal evidence suggests citizens are returning to Canada to enjoy these benefits after spending their productive lives elsewhere. This is a significant contingent liability for Canada, because citizenship — not contribution (or lack thereof) to our society — is the criterion for benefits and support.

Kirsch also discusses the need to maintain the cohesion of a society. In the absence of citizenship-based taxation, there is a strong tax-driven incentive for a not insignificant number of high-income and high-net-worth individuals to establish tax residence abroad in order to avoid income taxes. The creation of a separate class of citizens could have corrosive effects on broader society, just as it has done in other countries that rely only on residence-based taxation.

Note that MP Arya’s analysis reflects a misunderstanding Cook v. Tait.

Concerned Canadians should address MP Arya’s in a public way!