Canadian Sovereignty Redux or, The Dual National Blues

Last month I wrote a piece arguing against the long arm of U.S. law and the potential consequences of the proposed SOPA/PIPA legislation. And it was mere days later when my local Member of Parliament directed my attention to the proposed U.S. legislation allowing the IRS to demand foreign financial institutions to report on any financial transactions of U.S. citizens living abroad. Ostensibly, this is the U.S. solution for catching tax cheats using foreign banks to hide assets.

But first, a bit of background information is required on this alarming new development. The U.S. is the only developed nation on the planet that taxes based on citizenship. There are other nations that tax its citizens no matter where they live: Eritrea and, supposedly, North Korea (but as pointed out in a recent New York Times article, how does North Korea tax its people abroad when they aren't really allowed to leave in the first place?). Law-abiding U.S. citizens abroad (some of whom are "accidental" U.S. Citizens through any number of connections to the U.S. as outlined by citizenship and immigration services) are now being caught up in onerous tax and penalty schemes for failing to abide by and keep up with constant changes to an already burdensome U.S. tax code.

As U.S./Canadian dual nationals we are being unfairly taxed twice and without representation. We pay taxes to the country in which we live, work, and call home. We are required to pay Uncle Sam its share as well. This is a similar catch-22 for any U.S. citizen living abroad. Coincidentally, it is becoming ever more difficult to vote as a U.S. citizen abroad. Therefore we are left without any voice in the country in which we used to work, live, and call home. (In all honesty, I find it difficult to justify voting in a country I no longer consider my home.) I think what bothers me the most is how most of my fellow U.S. citizens fail to see the irony of my situation. For those requiring a U.S. history refresher course: There's that whole bit about the U.S. going to war with England over "taxation without representation" in 1776.

When I lived in the U.S., I dutifully paid my taxes even though I don't like them any more than the next person. Taxes are not pleasant, but it is necessary for life in a civilized society. I understand that I must pay taxes if I expect someone to answer when dialling 9-1-1 in an emergency, have decent roads to ride and drive on, or have schools, national parks, hospitals, healthcare, etc. I met and married a Canadian, and I followed him to Canada out of love, respect, and the adventure of living somewhere different. We settled in one of the most expensive cities in the Western Hemisphere in terms of cost of living because it suited all our needs. We struggle, but we love our Canadian life.

I find it particularly difficult to admit to my dual-national heritage when I know of a number of U.S. lawmakers who have publicly stated that all U.S. citizens abroad are technically traitors and tax cheats. It never occurred to me I would be considered a secretive and nefarious tax cheat by the U.S. I, for one, try to be a law abiding Canadian citizen. I am not planning the downfall of the U.S. by hiding millions in foreign banks (oh, how I wish we had millions stashed somewhere so I could stop worrying about money, our future and our families). We simply want to get on with the business of living, working, raising our family, and saving for retirement. Ah, but I failed to mention that Canada has a very different tax structure than that of the U.S. Horror stories abound of U.S. nationals living in Canada “coming clean” on their taxes or filing for the first time, only to have their non-U.S. citizen spouse's retirement/savings/inheritance garnished by IRS penalties. Little wonder there is no willingness to comply.

Canada will be hit particularly hard by the latest FBAR (Report of Foreign Bank and Financial Accounts)/FATCA (Foreign Account Tax Compliance Act) laws. These laws have the potential to permanently damage jobs and relations on BOTH sides of the U.S./ Canada border due to the demands of the IRS. Once again Canadian privacy and sovereignty issues are at stake as a result of over-reaching U.S. policy. These tax reporting burdens have the potential to ruin trade and employment between nations--why trade with the U.S. when tax treaties and structures in other countries are far simpler and more business-friendly? Why hire an American when the the tax reporting requirements are simpler for someone of similar skills and education of another nation?

U.S. tax laws are so complicated even IRS Commissioner Douglas Shulman recently admitted he hires a professional to file his taxes. How are U.S. citizens abroad meant to find and afford the kind of tax expertise needed to avoid IRS penalties? Just hiring an expert on U.S. tax law in Canada or any other foreign country is burdensome, and on top of comparable tax preparation expenses, expertise, and taxes paid in the resident country.

The U.S. is in dire financial straits. With forty cents of every American dollar going to the deficit, I understand the frantic drive to find a solution. But why should the IRS spend even more of hard-working American money chasing down what amounts to small potatoes? As recently pointed out by a U.S. expat blog, the U.S. brings in five billion dollars annually from U.S. citizens living abroad. However, the IRS program to bring in this five billion dollars actually costs one-hundred sixteen billion dollars a year.* I'm no financial wizard, but even I can see this benefits no one.

The draconian practice of citizenship-based taxation by the IRS has placed me in the uncomfortable position of examining what it means to be an American. This means I am considered U.S. property by the sheer, dumb accident of birth. I find myself wholly decrying the punitive practices of the IRS and, by extension, the very structure of the country of my birth. Regardless of my dual-national ambivalence, there is still a faint spark of fealty to the U.S. But that spark is in danger of being extinguished outright through short-sighted, over-reaching, and poorly designed laws like FBAR, FATCA, and citizenship-based taxation.

* From