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Taxing Citizens
FROM:
MAY-JUN 2007 | BY
VERN KRISHNA
Citizenship implies duties and responsibilities that require a balancing of the costs and benefits of national belonging. Countries generally tax individuals based on one or both of two primary factors – residence and citizenship.
Taxable residence is essentially a mixed question of fact and law. We determine an individual’s residence by her economic and social ties with the country. For tax purposes, residence is more than mere physical presence in the country.
There is, however, no uniformity between countries in the manner that they apply the facts to specific cases. For example, a person is usually resident in a country if he sojourns a certain minimum number of days (the most common number is 183 days) in the country. There is, however, no unanimity between countries on the meaning of a “day” for tax purposes.
In contrast, citizenship-based taxation focuses on political affiliation. A person becomes a citizen after taking or inheriting allegiance to the country in which she claims citizenship. The underlying theory is that the citizens of a country are entitled to its protection, regardless of where they reside. Hence, they should share in the financial burden of the benefits.
Canada has an inconsistent history in its treatment of individuals for tax and benefit purposes. We are generous when it comes to granting citizen status and providing related services, but stringent in providing benefits to residents who visit abroad for extended periods. Although the federal and provincial governments tax absentee Canadian residents on their worldwide income, they do not extend medical coverage to them during extended absences from the country.
We need a coherent tax link between the cost and benefits of being Canadian. In order to be fair, non-resident citizens should contribute toward the financial benefits of holding Canadian passports. The price of citizenship is a balance between costs and benefits.
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Vern Krishna
is counsel, Borden Ladner Gervais, LLP and executive director, CGA Ontario Tax Research Centre, Ottawa.