Dual Citizens, U.S. and Tax

The article below was written by my colleague, Sébastien Desmarais, an Ottawa tax and estate practitioner, and shared with his permission.

Since most countries, except the U.S., tax based on residence and not citizenship, giving up the non-U.S. citizenship will almost aways be preferable to giving up the U.S. citizenship. However, it is important for all dual citizens to get professional advice in the next year.

-Chuck

Dual U.S.-Canadian citizens residing in Canada may want to pay particular attention to the Exclusive Citizenship Act of 2025 (the "Act"); a proposed bill establishing that "citizens of the United States shall owe sole and exclusive allegiance to the United States […]".[1]

Under the proposed bill, dual citizens have one (1) year from the date of the enactment of the Act to submit a written renunciation of their foreign (e.g. Canadian) citizenship, failing which they shall be deemed to have voluntarily relinquished their U.S. citizenship.[2] 

What Could be the Tax Implications?

If one is deemed to have relinquished their U.S. citizenship, the U.S. expatriation tax regime may be triggered (commonly referred to as the "exit tax"). The expatriation tax regime applies to a "covered expatriate", namely, to any U.S. citizen relinquishing their citizenship and meeting any of the following criteria:

• The individual's average annual net income tax liability over the five (5) years ending before the date of expatriation in 2026 is greater than $206,000 USD (indexed annually for inflation);

• The individual has a net worth of $2 million USD or more on the date of expatriation; or

• The individual failed to certify on Form 8854 their compliance with the U.S. tax laws for the five (5) preceding tax years of the date of expatriation.

A covered expatriate is deemed to have sold their worldwide property for an amount equal to fair market value on the day before the date of expatriation (with an exclusion amount available). This process is complex and will require professional advice. Nonetheless, the deemed relinquishment of their U.S. citizenship under the proposed bill may result in substantial U.S. tax implications.

Covered Expatriates & U.S. Estate and U.S. Gift Tax

As of January 2025, a U.S. citizen or U.S. resident receiving a gift or an inheritance from covered expatriates may be subject to a forty per cent (40%) tax. What is even more problematic is that the annual gift exclusion ($19,000 USD in 2026) or the basic U.S. estate tax exclusion amount ($15 million USD in 2026) are not available for gift or inheritance received from a covered expatriate.

In other words, while the dual citizen who is deemed to relinquish their U.S. citizenship under the proposed bill would no longer be subject to the U.S. estate tax or U.S. gift tax. The recipient/beneficiary, if they are a U.S. citizen or U.S. resident, would then become subject to tax, thereby shifting the burden of U.S. estate tax and U.S. gift tax to the U.S. recipient/beneficiary.

Other Considerations

Relinquishing U.S. citizenship will result in the individual being deemed a nonresident alien ("NRAs") of the U.S. This is relevant because U.S. Social Security benefits paid to NRAs are subject to a withholding tax. Individuals will need to seek guidance as to the implications for their Social Security benefits.

Conclusion



The Exclusive Citizenship Act of 2025 is at its early stages and far from becoming law. Nonetheless, dual U.S.-Canadian citizens may wish to keep an eye on any future developments about this proposed bill as the repercussions may be significant.

[1] https://www.moreno.senate.gov/wp-content/uploads/2025/12/Exclusive-Citizenship-Act-of-2025.pdf

[2] See §4(c) of the Bill. 

The Exclusive Citizenship Act of 2025 is at its early stages and far from becoming law. Nonetheless, dual U.S.-Canadian citizens may wish to keep an eye on any future developments about this proposed bill as the repercussions may be significant.