What Are the Tax Implications of Dual Citizenship?

Does your citizenship status impact your taxes?

The term dual citizen can be a little misleading when it comes to your taxes. That’s because in Canada taxes are based on your residency status and not whether you’re a citizen. 

So what does this mean? You’re taxed in Canada based on your individual residency and where you conduct your regular day-to-day activities. The Canada Revenue Agency (CRA) has a set of guidelines on how your residency status is determined. This is done by the CRA reviewing your residential ties to Canada, including how long you have been in the country, where you normally reside, and a number of other factors to determine whether you could be taxed or not taxed. 

In short, for Canadian residents it doesn’t matter so much that you’re a citizen, but what other country you are a citizen of at the same time usually determines the final outcome of your taxation. To get a better understanding, here’s a tutorial on what dual citizenship is and its pros and cons.

What is dual citizenship?

Dual citizenship means that a person is a citizen of more than one country at the same time. Most countries have a different definition of what it means to be a citizen. The approach in which citizenship is achieved and the implications it has on your taxes also vary from country to country.

One way Canada is unique is that it does not require you to fill out an application or take any formal steps to become a dual citizen. It allows you to simultaneously be a citizen of another country without requiring formal documentation or declaration.

What are the advantages of dual citizenship?

If you’re the type of person who likes to be on the move, you are allowed to keep your Canadian citizenship even if you no longer live in the country full time; allowing you to continue to have Canadian benefits while abroad.

While different countries have different citizenship laws, these benefits pretty much apply across the board for those who are dual citizens: 

• Voting rights in both countries
• Holding two passports
• Owning property in both places
• Having access to social services in both countries
• Being allowed to work and travel freely in either location

If you are deemed a resident of Canada by the CRA due to your residential ties, you will be liable for tax. So you must report your worldwide income on your tax return, which means income earned both inside and outside the country. This could include employment income, investment income, rental income, etc… (You will also need to convert the amounts to Canadian dollars using Canada’s current foreign exchange rate on your return.)

The bright side is, you can avoid some of that taxation burden on foreign income by claiming a foreign tax credit on your tax return for taxes paid in a different country. More information can be found on claiming foreign tax credits on the CRA website.

Are there disadvantages of dual citizenship?

It’s clear that things can get sticky if you’re a citizen of another country while still classified as Canadian. If you’re a dual citizen, you’ll have more tax implications due to factors like your salary, investments, pensions, and properties. But most of these concerns pertain to our neighbour to the south. One of the most thorny (and, of course, closest) dual citizenship tax situations is with the United States. The US is one of only two countries that taxes its citizens based on citizenship versus residency (the other country is Eritrea).

For example, a US citizen who has dual status, or resides in Canada has the possibility of being “double taxed,” since the US taxes its citizens on their worldwide income regardless of where they live. 

So if you hold dual citizenship in the US and Canada or you’re a US citizen, if you are living in Canada and deemed resident for tax purposes, the rub is you’ll have to file tax returns for both countries—even if you don’t earn income in the US.

But, thankfully Canada and the US have tax treaties to help ensure you’re not paying the same taxes twice. You are able to pay in one country and receive credit in the other for the taxes you paid.

Could dual citizens have to pay taxes in other countries?

As with the US, Canada has tax treaties with a number of countries, but not all. Many of these treaties are agreed to, signed, and enforced; others are signed but not yet enforced; while still others are under negotiation.

This means that if you are a citizen of Canada and another country that it holds treaties with, you don’t need to pay taxes in both countries. Usually you pay taxes in one of them, and the other gives you credit for those that you paid, like in the US.

Whether you pay Canadian taxes or taxes in your second country depends on the specific country’s agreement with Canada. If you hold dual citizenship with the Philippines, for instance, you may need to pay Canadian taxes if you fall under certain criteria.

If a professional services individual—say, a doctor, accountant, or lawyer—provides their services in Canada, they must pay Canadian taxes on that income.

You’ll find the current list of countries and their tax treaty status on the Canada Revenue Agency (CRA) website.

Which countries allow dual citizenship with Canada?

The Canadian Citizenship & Immigration Resource Center (CCIRC) states that 49 countries allow dual citizenship with Canada, and more than 24 do not. 

Dual citizenship countries include:

• Philippines
• Ireland
• UK
• US

And some of those that do not allow dual citizenship with Canada include:

• China
• India
• Saudi Arabia
• Japan

There are clearly a variety of if, ands, or buts when it comes to dual citizenship and taxes—and it can get super complex!—so it’s easiest to talk to a professional.