The mother of all loopholes [non-resident tax-free status]
NationalPost.com – Opinion – Non-resident Canadian citizens enjoy tax-free status on their world-wide earnings
Published: Wednesday, March 10, 2010. Rudyard Griffiths
While last week’s federal budget generated the usual grousing by economists about unrealistic deficit projections, the Conservative’s snipping of a raft of erroneous tax loopholes met with near universal applause, and rightly so. It strains credulity to imagine how it was in taxpayers’ interest to subsidize fellow Canadians’ Botox treatments and chin tucks. Similarly it defies logic, in an era of fiscal restraint, to allow corporate mucky-mucks to use generous stock options to take gobs of cash out of their companies tax free.
Closing tax loopholes makes good financial and political sense. This is why the Conservatives should move to close the mother of all loopholes: the tax-free status non-resident citizens enjoy on their world-wide earnings.
Currently, there are some three million Canadian citizens who are deemed non-residents and live abroad — most of them permanently. By virtue of holding a Canadian passport these individuals have the right to extensive consular service (case in point: the 2006 Lebanon War) and can access, after as little as six months residency in Canada, free health care and heavily subsidized education.
The C.D. Howe Institute calculated that the monetary value of citizenship to non-residents can run in the hundreds of thousands dollars annually — all the while they contribute nothing financially, or otherwise, to Canada.
Closing this egregious loophole by taxing all Canadians on the basis of their citizenship, not residency, would generate a number of immediate benefits.
For starters, the federal government could collect potentially hundreds of millions in new taxes each year from non-resident citizens. This would be no tax grab. Rather it is a sensible way to mitigate against a potentially massive charge to the public purse caused by another Lebanon War-type event and the mass return of absentee citizens, all of them clamouring for services.
More important, the new tax could be used to pay for the considerable health-care costs associated with the slow, but inevitable, return of tens of thousands of aging non-residents in years, and decades, to come.
Collecting taxes on all Canadians’ world-wide earnings is also not the Herculean task some make it out to be. The United States and Israel both tax their citizens globally; and we already have tax treaties with scores of nations.
Another big plus of taxing all citizens on their world-wide earnings is the extent to which it would deter people who acquire a Canadian passport for its generous perks but have no attention of settling permanently in Canada.
This is growing problem with our immigration system. One in four skilled or professional male immigrants leaves Canada for good within ten years. These are the very newcomers we need to retain to meet the twin challenges of our aging society: a shrinking workforce and declining tax base.
By attaching a life-long economic cost to maintaining Canadian citizenship, regardless of residency, we could create a financial disincentive for citizens to leave the country permanently. By attaching a life-long economic co
Arguably, some of the Conservatives’ biggest policy successes in the last year have come from their revitalization of Canadian citizenship. They scored big with voters when they ended the practice of allowing citizens born outside Canada to pass on their citizenship indefinitely and when they revamped a stale-dated citizenship study guide to make it take newcomers and Canada seriously.
Closing the tax loophole that allows citizens of convenience to enjoy the incredible benefits of Canadian citizenship without taking on an iota of shared responsibility is right thing to do financially and ethically. Indeed, reforming our tax laws so they strengthen our common citizenship could make the patriotic afterglow of the Olympics into something truly enduring.
– Rudyard Griffiths is author of Who We Are: A Citizen’s Manifesto. Tonight in Ottawa he will vie with five other finalists for the $25,000 Shaughnessy Cohen Prize for political writing at the Politics and the Pen dinner.
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