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Proposed legislation could help prevent double taxation exposure for US citizens

Tuesday, 8 January, 2019

A Bill tabled in the House of Representatives in December has proposed to exempt non-resident US citizens from the worldwide citizenship-based US tax.

The Tax Fairness for Americans Abroad Act of 2018, introduced by Republican Party congressional representatives, would exempt many American citizens living abroad from being taxed on foreign-source income.

To qualify for non-resident citizenship status under the Bill, the US individual must elect to be taxed as such, and meet certain foreign residency requirements. These are that a non-resident citizen:

  • is a citizen of the US;
  • has a tax home in a foreign country;
  • is in full compliance with US income tax laws for the previous three taxable years, and
  • either establishes that they have been a bona fide resident of a foreign country or countries for an uninterrupted period including an entire taxable year; or are present in a foreign country or countries during at least 330 full days during such taxable year.

North Carolina Republican Congressman George Holding, who tabled the Bill, called the current citizenship-based tax system “archaic,” and said that it imposes “a costly burden on Americans living abroad.”

Holding stated, “This common-sense bill takes a huge step towards ending the outdated, backwards policy of double-taxation of American citizens living abroad.”

If passed, the Bill would have particular implications for hundreds of thousands of Canadian residents who also hold US citizenship: including many “accidental Americans” who only realised in the wake of the Tax Cuts and Jobs Act 2017 (the Act) that they should be filing US tax returns as well as Canadian ones.

The Act’s repatriation tax, a one-off payment backdated to 1986, and the global intangible low-taxed income (GILTI) tax, which starts from the 2018 tax year, have both added extra tax burdens to US citizens residing abroad.

As the House of Representatives became Democrat-controlled as of last week (January 3, 2019), it is now unclear whether the tabled Bill will be prioritised under their legislative agenda.