Every Canadian with an investment account knows that you used to lose 30% tax withholding on various investment-dividends from US stocks.
This 30% withholding tax was the IRS way of saying: ‘We are deeming you to be a US taxpayer until you prove otherwise’. This is one example of the true relationship between Canada and the United States. We can pretend to independence, but in reality, our wealth, down to the smallest pensioner (who pension invariably includes US stocks), is tied to the United States.
You will say, ‘not my problem, I’m not a US taxpayer’. Firstly, the IRS withholds your dividends regardless. Secondly, the factors that the IRS uses to determine whether they want to call you a US taxpayer are, for example: ‘having a current American phone number and a non-American phone number.’ (para 23).
The point is that your US dividends are withheld regardless. You spend a few weeks in Florida. Maybe you have a rental. You never thought your phone number would be a thing.
Canada taxes its citizens on only in-country income. The US taxes its citizens on world-wide income regardless whether they do or do not live in the US or made their money in the US. The price of US citizenship is to pay taxes whether or not you ever set foot in the United States.
All this led to Canada and the US entering into an information-sharing agreement which permits your financial institution to share your information with CRA and the IRA.
Naturally, there was a Charter attack under s.8 (unreasonable search and seizure) and s.15 (equality in the basis of citizenship). Both attacks failed. The agreement was upheld. Your information flows to the IRS, your dividends flow into your RRSP.
Deegan v. Canada (Attorney General), [2019] F.C.J. No. 848
