Canada should tax the worldwide income of every Canadian citizen

Ten Ideas for 2025 - post #1

A laundry list of ten ideas would have been a mistake, as many of these topics deserve a blog post or Star column in their own right. Hopefully one of you will run (or stand again) for public office and tackle the list head-on!

With each passing day, our country gets more expensive to run.

The next government isn’t going to be able find enough waste in year one to balance the budget overnight. Add to that the reality that ~40 per cent of Canadians don’t pay any net income tax, and we must acknowledge that another cohort work as much in the unreported “cash economy” as they can (when a restaurant offers me ten per cent off my takeout bill if I pay cash, given the credit card swipe fee is just two or three per cent, I worry.) All of which puts tremendous pressure on the honest taxpayers among us.

I don’t know how many dual citizens live abroad “permanently” (from a tax residency standpoint), but it’s something that millions of citizens can and do elect to do today. Does this category of Canadian citizens represent an opportunity for the Federal Treasury?

Our American cousins approach personal income tax reporting in this manner, and aren’t ashamed of doing so. In their eyes, taxation is based on citizenship, not residency. Portugal also sees it this way, for example, and even a non-resident in that non-G20 nation is taxed at a flat rate of 25% on their taxable remuneration.

Successive Canadian governments have gone to great lengths to ensure that we aren’t taxed on the same income in two different countries. We have existing tax treaties with 94 nations, providing each of us with specific guidance about where we should pay tax each year. Having to come clean to CRA about your worldwide income is different than paying tax in Canada. This isn’t about penalizing any particular dual-Citizen nation, and the flummoxing around the cost of repatriating tens of thousands of Canadian citizens who happened to be permanently living in war-torn Lebanon in 2006 will have been forgotten by many:

There were as many as 50,000 Canadians in Lebanon at the time and Canada moved to get as many of its citizens it could reach – and who wanted to be evacuated – out to Cyprus or Turkey and on to Canada. Some 14,000 were evacuated by air or by sea at a cost that was later reported to be $94 million.

Almost no one asked in 2006 what were the obligations of the Canadian government to citizens living abroad. Many of these citizens had lived in Lebanon for decades, their only link to Canada being their passport. Consider Rasha Solti, who wrote in the Globe and Mail on July 22, 2006: “I hold a Canadian passport, I was born in Toronto when my parents were students there. I have never gone back. I left at age 2.” Solti’s passport was her escape route to Canada if she ever needed it. Did Canada owe her and others like her anything? And while there are no hard numbers, as many as 7,000 of the evacuees reportedly returned to Lebanon after the cessation of fighting.

Oddly, although Jean Chretien’s government signed a tax treaty with Lebanon in 1998, it never went into force according to the Department of Finance website. Oh, how I would love to know why that is. Extradition issues?

Anyway, if the U.S. government can go to the effort of requiring foreign students (who are in that country legally on a F-1 Visa, which prohibits earning local income) to submit tax filings merely because they attend school on American soil, Canada can send a signal around the world that holding a Canadian passport comes at a price — even if that’s merely some modest paperwork each April. Whether you’re a billionaire who recently departed our shores (see prior post “Some Canadian Billionaires aren't waiting for sanity to return” Dec 28-24), or a dual citizen who hasn’t set foot in Canada for 40 years.

As is the law south of the border, Canadian citizens who permanently live abroad get to vote in our general elections. The difference is that America might tax those voters on their worldwide income, depending on the form that it takes. (Unrelated but indicative: Certain U.S. cities even track how many days foreigners work in their backyards, and tax accordingly where possible.)

If this change forces a few foreign resident folks to ditch their Canadian passport because they fear that we’ll tax them, do we care? If these individuals are huge investors in Canadian-based companies, they’re likely doing so through a Canadian holding company in any event — meaning they’re already a reporting taxpayer, so to speak.

We might winnow some folks who keep Canada in their lives as a “flag of convenience,” but I’m not sure what the downside of that is — they’re not paying tax here right now, nor are they volunteering at a local hospital, or raising a family of future Canadian residents cum nation builders. As much as there are rules around showing-up in Ontario after being permanently abroad for twenty years, declaring residency, and seeking a heart bypass operation — how is Canada served by treating these folks differently than Portugal or America does, for example?

If this simple change reduces the risk of money-laundering by Dual Citizens who live in nations that still deal with Russian banks, such as Cyprus, the integrity of Canada’s financial system will be better protected. Something that matters to every Canadian that holds shares in a domestic bank, and would only improve that industry’s standing in the eyes of foreign regulators. (Globe & Mail journalist Rita Trichur deserves applause for drawing constant attention to a range of challenges/opportunities around financial crime.)

Much energy went into exposing offshore bank accounts held by rich Westerners, but this worldwide income topic seems like a different potential loophole.

Not every choice in legislative life comes with no obvious downside, but this idea appears to fit that category. If we wind up raising additional revenue by avoiding ongoing tax leakage, all the better.

MRM

(this post, like all blogs, is an Opinion Piece)

(photo credit: Vehicle Watcher, London, 1950 by Irving Penn)