Dual citizenship, with the freedom to live, work and invest in two countries, is a bonus for many people. However, it can also lead to complications when filing and paying taxes, including double taxation. The good news is there could eventually be some relief from a particular cross-border tax issue facing Canadians who are U.S. citizens.
The net investment income tax (NIIT), enacted in the U.S. in 2013, is a 3.8 per cent surtax that applies to U.S. citizens based on certain net investment income. As this tax can result in double taxation, there’s a growing effort to change it. Most recently, a court case involving a U.S. citizen residing in France may offer a glimmer of hope.
The U.S. is one of the few countries that assesses taxes on worldwide income for its citizens no matter where they live. Meanwhile, Canada, which also taxes worldwide income, does so for residents. That means U.S. citizens who live in Canada are required to file a tax return in both Canada and the U.S. that includes their worldwide income on both returns.
Generally, U.S. citizens receive a credit on their U.S. tax return for taxes paid in Canada on their Canadian income. That reduces or eliminates double taxation for income earned in Canada on the U.S. tax return. Most often, Canadian taxes paid would cover the U.S. taxes on that income, as Canada’s tax rate is higher than U.S. taxes payable on that same income.
The controversy related to the NIIT is that foreign (Canadian) taxes paid cannot be applied against this extra U.S. net investment income tax.
The NIIT’s 3.8 per cent surtax is applied in addition to standard income taxes if a person’s total income exceeds a certain threshold: US$200,000 for single or head of household, US$250,000 for a married couple filing jointly, or US$125,000 for a married person filing separately.
If that threshold is met, the NIIT is applied to all income earned in a given year from investments including capital gains, interest, dividends, rental properties and royalties, subtracting related expenses.
For example, a single U.S. citizen living in Canada has total Canadian source income of US$225,000. Part of that is interest income of US$100,000, to which the NIIT applies. The client would pay US$80,000 in Canadian taxes. Her U.S. taxes are approximately US$50,000 and she would receive a credit for the Canadian taxes paid, effectively covering her U.S. taxes. The NIIT of US$3,800 would be added to the US$80,000 taxes paid in Canada to total US$83,800 – effectively a double tax.
Recent court ruling could be a game-changer
A U.S. federal court decision handed down this past October involving a couple with U.S. citizenship living in France is challenging the application of the NIIT. In the case, Christensen v. United States, the couple argued the U.S.-France tax treaty allowed them to use their foreign taxes paid to offset their U.S. NIIT tax liability. The federal court agreed, effectively concurring that a foreign tax credit can be applied against the NIIT. The U.S. is appealing this case, recognizing its far-reaching implications.
The Canada-U.S. tax treaty is worded differently than the U.S.-France tax treaty, so any future court case using Canadian taxpayers may require a different approach to the treaty articles. Should a case involving similar facts but applying the Canada-U.S. treaty be decided in the taxpayer’s favour, that could mean Canadian taxes paid could be applied against the NIIT.
At this point, there is most likely a case working its way through the system, but it could take some time, even years, before it is heard and a decision is reached. That evolving cross-border tax issue with the NIIT will be one for dual citizens to watch.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
