Citizenship-Based Taxation in Canada May Become a Reality

Written by Andrew Henderson
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Dateline: Kuala Lumpur, Malaysia

This may be one of the most important messages you hear from me this year. If you have a passport from a Western country, no matter where your assets are, your money is in danger.

Recently, Chandra Arya, a sitting member of the majority party in the Canadian Parliament, publicly declared that “The case for citizenship-based taxation [in Canada] has been building for years, but with huge budget deficits to come, fairer taxation is all the more needed.”

To clarify, by “fairer taxation” he means taxing even non-residents who no longer live in Canada or use its social services. This will likely become the normal system of taxation in Canada – and sooner rather than later. 

If you think this is an isolated event, think again. Increasingly, politicians in developed countries around the world are considering similar ways that they can expand their tax net and increase revenue.

Already, becoming a non-resident in other countries is getting harder, but it is still possible. In the wake of COVID-19 and governments’ desperate reactions, the days of lower taxes without having to rescind your nationality of birth might be coming to an end. 

For many years, the United States has been virtually the only country that taxes global income based on citizenship instead of residence. But now, other countries like Canada, South Africa, Australia, and certain EU members states are likely to follow suit. 

In this article, we’ll examine why this threat to fundamentally change taxation in Canada and elsewhere is real and why you should consider it a wake-up call. Then, we’ll look at ways you can prepare for when your government raises taxes on the rich and expands its tax net to include non-residents.

Crisis, Debt, and Scapegoats

Owing to the fact that entrepreneurs are increasingly leaving their high-tax home countries and running online businesses overseas, governments are beginning to rethink their taxation policies.

But instead of lowering their tax rates to become more attractive to businesses and investors, these powerful governments would rather keep those entrepreneurs in their tax net no matter where they go.

In Canada, the concern, as Chandra Arya angled it, is that Canadians are going abroad in their youth and coming back when they are old and sick to abuse the healthcare system.

The reality is that the governments of the developed world are in debt and need money to balance their budgets and entrepreneurs are the easiest most politically palatable and tolerable target. 

They’re rich enough to be worth the effort, but not influential enough to have lobbyists in the government; nor do they have enough votes to oust the politicians who are raising taxes on the rich in the first place.

To the average citizen, anyone who wishes to go where they are treated best and live life on their own terms is selfish because they are not contributing to the system that helped raise them. 

It’s easy for the average Joe to see tax-weary entrepreneurs who leave the system to find relief as selfish. It’s harder to realize that it is those very entrepreneurs who have been creating jobs, providing better services and products, and building a stronger economy… 

All to be thanked with a big tax bill from the government for their contributions.

The media and politicians have convinced the average Joe that by being born in and benefiting from the country’s infrastructure and economy, any successful entrepreneur incurs an unpayable debt.

To say anything else – to even think about relocating  to a different country – is taboo, even if a business owner paid more in taxes than they were to ever use in a hundred lifetimes.

So, when crisis hits and governments print their way out of their problems, followed by bigger issues of debt and inflation, entrepreneurs make an easy scapegoat.

The Social Contract

Now, I can already hear the critics: “But it is only fair that the successful pay to better a system that they benefited from so that others may do so in the future!

Arguments like this always find their footing in the rhetoric of the social contract. What do we owe to each other? What people forget about the social contract is that it is built on the foundations of free people choosing to submit to the collective will for a higher good. 

But no one chooses where they were born. And if you had no choice to be born into any given nation, what dictates that you must stay and work there in perpetuity?

On the contrary, the social contract dictates that you have a choice.

We all have a right to choose where we take our talents, our business, our lives, and, yes, even our money. The heart of going where you’re treated best is finding a mutually beneficial social contract you’re willing to enter into. 

There are many countries around the world that value what entrepreneurs and investors have to offer, so they are willing to offer something in return for those contributions: lower taxes, second citizenships, efficient business frameworks, the list goes on.

When you go where you’re treated best, you are leaving behind the chains you were born into and entering into a social contract of your choosing.

That is one reason why I’m not entirely against taxes as a concept. It’s a bit childish to say that the government has no role whatsoever. If it didn’t have a strong competitive benefit, it wouldn’t have become the dominant strategy for organizing society throughout history.

By all means, if I use the roads, then charge me a fair rate for their use. But if I haven’t lived in the country in years and haven’t seen, let alone used one? Absolutely not. 

If countries like Canada had an insurance policy that ensured that taxes would go to the services that an individual might use later in life, then I wouldn’t have a major issue. After all, I have medical, life, accident, and homeowners insurance. Fair is fair.

The issue is when governments misconstrue the social contract to justify using wealthier people as an ATM. 

No self-respecting person should tolerate such treatment unless they have no other choice. But you have a choice. There are plenty of other countries that will appreciate what you have to offer to society. 

When They Raise Taxes, You Have a Choice

Toronto City Canada - You Have a Choice

Toronto, Canada: When governments raise taxes, give yourself the choice to go elsewhere by creating a Plan B.

Over a decade ago, I left the US to travel and invest overseas. I was angry and frustrated with the US government at the time, but leaving gave me the space I needed to begin seeing things from a different perspective.

Not only did I realize that it’s counterproductive to operate from a place of anger, but when I finally did renounce my US citizenship years later, it was for totally different reasons than the ones that had pushed me out the door.

Over time, I came to the conclusion that going offshore and renouncing my US citizenship was simply better for my personal life, my finances, my banking freedom, my businesses, my investments, and my peace of mind.

You have a choice. You can sit around and get angry about how western countries are raising taxes on the rich and making it more difficult to live abroad, or you can go where you’re treated best. 

If the government introduces citizenship-based taxation in Canada, you do not have to take it lying down. You can give yourself options and a way out.

We have already seen many of you taking precautionary measures in light of the recent coronavirus pandemic because you know that governments are creating budgetary nightmares and will certainly raise taxes or expand their reach with citizenship-based taxation policies.

Savvy entrepreneurs want the freedom to leave if they so desire; before the government comes knocking on their door with more taxes to pay and more reports to file.

They know that the money used to fund all the social programs, stimulus packages, and bailouts comes from the future economic productivity of taxpayers and their children. 

But you don’t have to stick around. You have a choice. You can go where you’re treated best.

You Need a Plan B

People from developed economies with a strong rule of law, property rights, and residence-based tax systems take it as a given that things will always remain the way they are.

Unlike my US clients, my Canadian and Australian clients have a hard time grasping the idea that their government could be so aggressive as to institute something as exacting as citizenship-based taxation.

Nobody plans on getting into a car crash, or racking up expensive hospital bills, or having their house burned down. These are all low probability events, but they have the potential to be catastrophic.

We prepare for these disasters in the form of insurance, not because we want or believe that any of those events will happen, but because living in a world where we have to face these problems unprepared would be terrifying. 

My clients from Eastern Europe, Latin America, and Asia understand the need for a Plan B better than anyone else. Rather than saying, “It could never happen here!” they have already seen firsthand what it’s like to be in the crosshairs of a temperamental government with funding issues.

They see the value of a second passport. Every injustice visited on their friends, family, businesses, and themselves is a reason to leave or at least have options to do so on their own terms. 

Some have even outright told me that they’re attempting to get their hands on as many passports as they can because each one represents the ability to live life on their own terms, rather than being a victim of circumstances. 

So, if you see the writing on the wall – members of the government outright saying they intend for people like you to be taxed “fairly” – it certainly makes sense to prepare your options.

If you plan to move yourself or your business overseas now because of the impending changes to taxation in Canada and elsewhere, you’ll be one step ahead when the hammer finally falls. 

But you have to act now.

Citizenship by investment programs are sometimes canceled and the price to buy a passport is increasing year by year. 

The best time to have gotten a second passport was a few years ago, but the second-best time to get options on how you live your life is now.

If you have deep enough pockets, you can outright just buy your citizenship, but if you don’t have that amount, you can prepare everything to receive a second citizenship in as little as a year

Ultimately, you are not in control of whether the country you grew up in will raise taxes or charge you for services you’ve never received. What you can control is the plan you put in place to deal with these situations.

How You Can GWYTB

How to GWYTB When They Change Taxation in Canada

The EU recently bullied the tiny European country of Andorra into giving up its tax-free status.

Now, imagine that this citizenship-based taxation policy as suggested by Chandra Arya actually comes into effect and irreversibly changes taxation in Canada. 

Where would you go? 

Perhaps a better question is where should you go?

I have been saying for years that the new offshore is onshore. The traditional offshore havens have come under fire and face increasing pressure to change their policies and raise taxes.

Just ask Andorra, one of the EU’s former tax havens nestled between France and Spain. Sevens year ago, it got bullied by the EU into introducing an income tax. 

So, rather than heading to the traditional offshore tax havens, find regular jurisdictions with beneficial tax and regulatory systems that you can proudly and transparently call home.

The UAE, for example, despite having a 0% income tax, is unlikely to be bullied by the likes of Europe because they have a lot of geopolitical power. It also offers fantastic amenities and high quality of living for high-net-worth individuals because the country truly respects the value of the entrepreneur. 

But the UAE is not your only option. We have numerous blogs and YouTube videos that cover dozens of countries, programs, benefits, and strategies that you can use to go where you’re treated best.

But the bottom line is to find onshore jurisdictions that can hold their own.

In the medium to longer-term, the weaker states that depended on offshore banking will be bullied to raise taxes, much in the same way they were bullied into divulging customer information to governments from around the world.

So, if you want a Plan B and are looking for countries that will “treat you best”, onshore is the new offshore.

Future Taxation in Canada and The West

The West has lost its competitive edge. It’s not that the wealthy are taking all the money with them when they leave but that the rest of the world is getting comparatively richer and more capable.

The world is increasingly on equal footing. 

This, along with recent crises and growing national debts, has left western governments grasping at straws.

The cash cow is dry and they don’t have any immediate means of replacing it. They’ve managed to coast for several decades, but they’ll eventually go broke. 

As governments get increasingly desperate, they will do everything except facing the fact that they’ve jeopardized the national budget. 

Instead, as we are seeing now in Canada, they will start pointing fingers. And chances are high that they will be pointing at folks like you who have built thriving businesses and grown their wealth through years of hard work.

Why? Because you’re an easy target.

I don’t say this to be alarmist, but a realist. I’ve seen this play out over and over again in other countries. 

If you don’t have options, then you are a victim of whatever destiny wants to throw your way. It might be good, it might be bad, but you ultimately have no control over the direction of your life.

Just know this, governments will not waste any crisis, both present or future. They already know where you are and what you own, so it’s a fairly straightforward path towards taxing citizens, no matter where they happen to live.

If you are reading this, you probably like to have control over your life, and that’s what dual citizenship offers you. 

Instead of having the state enforce a social contract on you that you had no say in accepting, you can pick and choose the jurisdiction which actually has your best interests at heart. 

Governments are necessary, that much I can agree. But so are mosquitoes for the health of an ecosystem. It doesn’t mean you should stand by a swamp and offer your bare arm to them.

You should see having a second passport as an insurance policy. And with the way things are going in developed countries, you may have to make use of it sooner rather than later. 

Hopefully, you never have to use it, if you’re happy where you are and don’t intend on moving.

But do you really want to leave it to chance?

I want to be a citizen of countries that value the contributions I make as an entrepreneur and investor, not ones devolving into self-destructive nationalistic rhetoric and mountains of debt.

Can you see the writing on the wall? Or are you still convinced that “it could never happen here”?

At the end of the day, you can choose to accept the risk that your government will take advantage of you and raise taxes. Or, you can go where you’re treated best. 

The choice is yours.

Andrew Henderson
Last updated: May 9, 2020 at 10:33PM

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