Old Press Release from former FM (and PM) Paul Martin over US Canada tax issues

I have been looking for this for a long time but there was a series of meeting back in 2000 between official in then Canadian Finance Minister’s Paul Martin’s Office and US Treasury Secretary Larry Summers over US Canada cross border migration. I was led to believe there was a joint statement by both the US and Canada at the time but most of the statement is quoted from Paul Martin.  (The press release is rather interesting fodder as to whether the current government of Canada is any better on these issues than the previous).

Interesting Passage:

For individuals, the changes will ensure the appropriate tax treatment of an emigrant’s gains. Specifically, where one country’s tax rules treat an individual as having disposed of a property immediately before the individual emigrates to the other country, the individual will be able to choose to be treated under the other country’s rules as also having disposed of and reacquired the property at its fair market value.

In most cases, this will mean that no tax is payable in the destination country on any pre-emigration gain. Where tax is payable in the destination country – for example, where the property in question is real estate situated in that country – the new rule will ensure appropriate tax crediting.

What I understand this to be is there is no negative effects as a matter a Canadian tax policy for a someone resident in Canada who renounces there US citizenship and has to pay exit tax.(The US Treasury going all the way back to 1995 had been pushing the “HEART” style exit tax as a preferred policy). My biggest disappointment is there seems to be no remarks or specific commitments from anyone in the US government at the time.



5 thoughts on “Old Press Release from former FM (and PM) Paul Martin over US Canada tax issues

  1. Quote from Paul Martin:

    “If approved by the legislatures of the two countries, these changes will make the tax system fairer by limiting the potential for double taxation of individuals who move from one country to another, and by clarifying a rule that some have argued allows corporations to avoid paying tax,” said the Minister.

    Minister Martin added that the announced measures will, if ratified, apply as of today’s date. “We expect the current negotiations to produce other important changes to the tax treaty as well,” he noted. “But we and the United States have agreed that these particular initiatives are important for international mobility, and should take effect right away.”

  2. Taxpayer migration – protection against double taxation

    Who it affects: Individuals who cease to be resident in one country and become resident in the other.

    Current rule: The tax treaty allows each country to tax its residents on all of their capital gains. No provision is made for the possibility that a country may tax emigrants on any pre-departure gain (as Canada does, by treating them as having disposed of most kinds of property for fair market value proceeds).

    New rule: If, on ceasing to be resident of one country and becoming resident of the other, an individual is treated by the first country as having disposed of a property, the individual can choose to be treated also in the second country (the new home country) as having disposed of and reacquired the property at the time of changing residence.

    Example: An emigrant from Canada to the U.S. owns shares that cost $100 and are worth $1,000. Canada treats the emigrant as having sold the shares for $1,000, realizing a $900 capital gain ($450 taxable capital gain). The emigrant can choose to be treated for U.S. tax purposes as having realized that $900 gain before becoming resident in the U.S. The U.S. may tax any future gain over the $1,000 value of the shares, but will not tax any of the gain that accrued while the individual was resident in Canada.

    Significance: Prevents double taxation of pre-migration gains.

    Application: Applies to dispositions (i.e. emigrations) that took place after September 17, 2000 (the date on which the U.S. Treasury and Canada’s Department of Finance announced agreement on this issue).

  3. The other thing I’ll add which at this point I don’t know if it has any relevance(but is an area I am currently researching is that the Fifth Protocol of the US Canada Double Taxation Treaty was ratified by the US Senate in September of 2008 thus “overriding” if there are any conflicts the HEART Act signed by former President Bush in June of 2008.

  4. @Tim, do you think there may be something here to protect people whose primary dwelling in Canada is subject to capital gains tax in the United States?

  5. Unfortunately, not that I can see. I was looking to see if the US at the time made any future commitments that have never been kept.

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