Written by Nathan Gehring
A recent article on the AdvisorOne blog titled “More U.S. Citizens Jumping Ship to Avoid Taxes” continues a recent trend in articles claiming exactly what the title implies: people are giving up US citizenship in order to avoid taxes. Interestingly, there is a common theme in these articles… there is no data to support the claim! Further, immigration into the United States has also been increasing.
These articles generally site two items to support their claims. First, they point to the headlines made when it was learned Facebook co-founder Eduardo Saverin had renounced US citizenship in September 2011. It was speculated he had done so to reduce the potential taxation of his equity in Facebook once it held its IPO. This may be an accurate speculation, but trying to determine another person’s intentions is a dangerous proposition. Second, articles point to the number of U.S. expats who have given up US citizenship, a number which has been increasing since 2008. Again, it’s possible these people are motivated for tax reasons. However, it is also possible they watched as the U.S. government entered a period of hyper-partisanship and grew fearful of the future prospects of the United States. Or they watched as the U.S. financial system nearly collapsed and economy dove into a deep recession and decided they wanted no part of it. Point is, there is no way of knowing these people’s intentions. The claims being made are based on speculation, not fact. The past four years have been full of chaos and uncertainty and emotions. Any number of reasons may have caused people to renounce U.S. citizenship.
More importantly, is fleeing the U.S. or giving up plans to immigrate to the U.S. a good idea? And if it is, why do wealthy individuals continue to immigrate to the United States? As is discussed at length in Bob Keats new book “A Canadian’s Best Tax Haven: The US”, for Canadians the United States may represent the best tax haven both from a tax savings perspective and from a quality of life perspective. The US/Canada Tax Treaty provides many tax benefits to Canadians immigrating to the United States that they simply cannot replicate in traditional tax havens. Combine that with the ease of travel between Canada and the United States to visit family, the ability to continue running a business in Canada and maintain some assets such as a summer home, lower language barriers, quality health care availability and other benefits; and the U.S. becomes a very compelling destination for Canadians looking for a better climate, a great lifestyle and potentially significant tax savings.
The headlines sound sensational and are written with absolute certainty. This kind of decision is much more personal, however. This kind of decision is not nearly as clear-cut as the writers make it seem. Consider what is best for you. Despite the United States reputation as a tax hog, for Canadians (and many other people) the opposite just might prove true.