If you are an American citizen or U.S. tax resident living in Canada, the week of December 16th and Friday the 20th of December could turn out to be early Christmas gifts all care of the U.S. government (IRS and the Social Security Administration).
We recently wrote about The Potential Boost to Social Security Payments with a Repeal of the Windfall Elimination Provision (WEP) and Government Pension Offset (GPO). that could eliminate those Americans in both Canada or the U.S. from the reduction of their U.S. social security benefits through the impact of WEP (The Windfall Elimination Provision)
On December 18, 2024, Representative Darin LaHood introduced a bill in Congress proposing a shift from the current citizenship-based taxation to a residence-based system for U.S. citizens living abroad. This change would mean that Americans residing overseas including those in Canada, would pay income taxes only to their country of residence, exempting their foreign-earned income from U.S. taxation. However, they would still be liable for U.S. taxes on any income sourced from the United States.
To prevent potential tax avoidance by high-net-worth individuals, the proposal includes a “departure tax.” This tax would apply to individuals with a net worth exceeding the estate tax threshold (scheduled to be U$13.99 million in 2025) who opt into the residence-based system, effectively taxing unrealized gains as if their assets were sold upon departure. Certain long-term expatriates and those who have resided abroad for extended periods may be exempt from this tax.
This legislative effort addresses longstanding concerns among the estimated 9 million Americans living abroad including those approximately 1 million Americans that live in Canada, who currently face complex tax filing requirements and the risk of double taxation under the existing system.
The proposal has garnered support from advocacy groups like Tax Fairness for Americans Abroad and aligns with President-elect Donald Trump’s campaign promise to eliminate income taxes for expatriates.
The bill is expected to be considered as part of broader tax reforms anticipated in 2025. While it aims to alleviate the tax burden on middle-income Americans overseas, it includes safeguards to prevent the wealthiest from exploiting the system to evade taxes. The proposal is currently under review, and further developments will depend on legislative deliberations in the upcoming congressional session.
As additional developments occur, Cardinal Point will continue to provide proactive and timely information that you will need to be aware of as you navigate these – what appear to be – very favorable proposals.