The US May Finally Stop Taxing Americans in Canada — Here's Exactly What Changes (and What Doesn't)

For decades, Americans living in Canada have dealt with an absurdity that citizens of almost every other country on earth don't face: filing US tax returns and reporting foreign bank accounts to the IRS, even though they live, work, and pay taxes in Canada. The United States is one of only two countries (the other being Eritrea) that taxes citizens on worldwide income regardless of where they reside.

That may finally change. The Residence-Based Taxation for Americans Abroad Act (originally H.R. 10468) has presidential support, bipartisan sponsors, and is expected to be reintroduced in Congress before summer 2026. If passed, it would allow qualifying Americans abroad to opt out of US citizenship-based taxation entirely.

But there are important catches, transition rules, and Canada-specific implications that no one is explaining clearly. Whether you're an American who moved to Canada for work, an "accidental American" who was born in the US but raised in Canada, or a long-term expat who's been dealing with dual filing for decades — this guide covers exactly what the bill does, who qualifies, what happens to your RRSP, TFSA, FBAR and FATCA obligations, and what you should do right now.

Current Status of the RBT Bill (May 2026)

Here's where things stand:

• Original bill: H.R. 10468, introduced December 18, 2024 by Rep. Darin LaHood (R-IL), with Sen. Todd Young (R-IN) as the Senate counterpart.
• 118th Congress: The bill expired when the 118th Congress ended in January 2025. It was never voted on.
• OBBBA exclusion: The One Big Beautiful Bill Act (signed 2025) did NOT include residence-based taxation. It extended TCJA tax rates and set the 2026 FEIE at $132,900, but citizenship-based taxation remains fully intact.
• Reintroduction: LaHood and Young are finalizing updated language addressing technical issues flagged by the Joint Committee on Taxation (JCT). Reintroduction in the 119th Congress is expected before summer 2026 with a new bill number.
• Presidential support: Trump has publicly stated support for ending double taxation of Americans abroad — unprecedented executive backing for RBT.
• Key bottleneck: No official JCT revenue score has been published. Without one, the bill cannot advance through committee. Independent estimates project the cost at roughly revenue-neutral to ~$4.5 billion over 10 years.

History of RBT Legislation: Why This Time Might Be Different

The LaHood bill didn't appear out of nowhere. Congress has debated residence-based taxation for over a decade, with each attempt building momentum — and each failure revealing the political obstacles that remain.

The Byrd Rule: Why RBT Wasn't in the OBBBA

Many expats were furious that the One Big Beautiful Bill Act didn't include RBT. The answer lies in Senate procedure. The OBBBA passed through budget reconciliation — a process that bypasses the filibuster but is constrained by the Byrd Rule. Under the Byrd Rule, any provision that doesn't directly affect the federal budget (or whose budgetary effect is "merely incidental") can be stripped from a reconciliation bill by a single senator's objection.

RBT faces a Byrd Rule problem: without an official JCT revenue score, it's unclear whether RBT is budget-positive, budget-negative, or budget-neutral. Some estimates suggest it could cost ~$4.5 billion over 10 years (due to lost tax revenue on US-source income currently offset by FTC), while others argue increased compliance and reduced enforcement costs make it revenue-neutral. Until the JCT publishes a definitive score, RBT cannot survive a Byrd Rule challenge — which is why it needs to move as standalone legislation or be attached to a tax bill with regular order.

This is also why the JCT score is the single biggest bottleneck. LaHood's office has been working directly with the JCT to resolve technical modeling questions, and a score is expected before reintroduction.

Why This Attempt Has Better Odds

Previous RBT bills had one or two sponsors and no executive support. The current effort has:

• Bipartisan support: Both Republican and Democratic co-sponsors, plus backing from Rep. Don Beyer (D-VA) who has championed expat tax reform in prior sessions
• Executive backing: Trump's public support for ending double taxation is unprecedented — no sitting president has endorsed RBT before
• Senate sponsorship: Sen. Todd Young's involvement gives the bill a realistic Senate path
• Growing advocacy: Organizations like Democrats Abroad, Republicans Overseas, and the Association of Americans Resident Overseas (AARO) have unified behind the LaHood-Young framework
• Section 899 leverage: Rep. Jeff Hurd's "revenge tax" bill creates a complementary argument — if the US threatens other countries for taxing Americans, it undermines the case for the US doing the same thing

What Would the Bill Actually Change?

The core mechanism is an elective nonresident status. Qualifying US citizens living abroad could elect to be treated as nonresident aliens (NRAs) for federal income tax purposes. Here's what that means practically:

What This Means for Your RRSP

Under current law, RRSP contributions and growth are tax-deferred in Canada, but the US doesn't automatically recognize this deferral. You must claim the US-Canada tax treaty benefit to avoid paying US tax on RRSP growth each year. Contributions to an RRSP are not deductible on your US return (unless you have Canadian-source employment income and elect treaty benefits).

Under the RBT bill, your RRSP would simply fall outside the US tax system entirely. No reporting. No treaty election. No annual tracking of cost basis for US purposes. Your RRSP would be treated exactly as it is for any other Canadian resident — a straightforward retirement account.

One important caveat: if you later withdraw from your RRSP while still a US citizen (even under RBT), and the withdrawal is considered Canadian-source income, it should not be taxable to the US. However, if you later return to the US and revoke your nonresident election, your RRSP would re-enter the US tax system at that point, and future withdrawals would be taxable. Plan accordingly with your cross-border advisor.

What This Means for Your TFSA

The TFSA is the single biggest pain point for Americans in Canada. The IRS treats the TFSA as a foreign grantor trust, requiring:

• Annual filing of Forms 3520 and 3520-A (penalties for late filing: $10,000+ per form)
• All TFSA income (interest, dividends, capital gains) taxed by the US in the year earned
• No US tax benefit from the TFSA's "tax-free" status

Under RBT, the TFSA nightmare ends. No Forms 3520/3520-A, no US tax on TFSA income, and your TFSA would actually be tax-free — as Canada intended it to be.

For context, many Americans in Canada have avoided the TFSA entirely because of these reporting requirements — losing out on years of tax-free compound growth. If RBT passes, those who have been contributing despite the US headaches will be in an excellent position, while those who avoided the TFSA can begin contributing immediately. The 2026 TFSA contribution limit is $7,000, with total cumulative room potentially exceeding $95,000 for long-term residents who have never contributed.

Will FBAR and FATCA Requirements Change Under RBT?

For many Americans in Canada, the reporting burden is worse than the tax itself. Even when you owe zero US tax (because FEIE or FTC offsets everything), you still face a gauntlet of information returns — each carrying severe penalties for late or incorrect filing. Here's what happens to each form under the RBT bill:

• FinCEN 114 (FBAR): Currently required if the aggregate value of your foreign financial accounts exceeds $10,000 at any point during the year. Penalties for non-willful violations: up to $16,117 per account per year. Willful violations: up to $161,170 or 50% of the account balance. Under RBT, individuals who elect nonresident status would be completely exempt from FBAR filing.
• Form 8938 (FATCA — Statement of Specified Foreign Financial Assets): Required if foreign assets exceed $200,000 (end of year) or $300,000 (at any point) for filers living abroad. Penalty: $10,000 for failure to file, plus $10,000 for each 30 days of non-compliance after IRS notice, up to $60,000. Under RBT, individuals who elect nonresident status would be exempt and could apply for a Certificate of Non-Residence (CNR) — a formal IRS document confirming they are not a "specified United States person" under FATCA. This is significant because it also relieves foreign financial institutions from reporting your accounts to the IRS under FATCA's intergovernmental agreements.
• Form 5471 (Information Return of US Persons With Respect to Certain Foreign Corporations): Required if you are a US shareholder of a controlled foreign corporation (CFC). Common for Americans in Canada who incorporate their business as a Canadian corporation. Penalty: $10,000 per return, per year. Under RBT, exempt for nonresident electors.
• Form 3520 / 3520-A (Foreign Trust Reporting): Required for TFSAs, RESPs, and certain other Canadian registered plans the IRS classifies as foreign trusts. Penalty: the greater of $10,000 or 35% of the gross reportable amount. Under RBT, exempt — your TFSA, RESP, and other Canadian registered plans would no longer trigger trust reporting.

Who Would Qualify?

Not every American abroad would automatically qualify. The bill includes eligibility requirements:

1. 5-year tax compliance: You must certify under penalty of perjury that you've met all US tax obligations for the preceding 5 tax years and submit supporting evidence.
2. Foreign tax residency: You must be a tax resident of a foreign country (Canada, in this case).
3. Not substantially present in the US: If you meet the substantial presence test (183+ days over 3 years), your election would be revoked.

Accidental Americans: A Special Case

"Accidental Americans" are individuals who acquired US citizenship at birth — often born in the US to non-American parents during a temporary stay, or born abroad to a US citizen parent — but who have never lived in the US as adults and may not even know they have US tax obligations. There are an estimated 300,000+ accidental Americans in Canada alone, many of whom discovered their US filing obligations only after FATCA forced Canadian banks to identify US persons in 2014.

The LaHood bill specifically addresses accidental Americans:

• Grandfathering exemption: Accidental Americans who have never been US-resident since age 25 (or since FATCA's enactment in March 2010) can elect RBT without the 5-year compliance catch-up requirement
• No departure tax: Accidental Americans are explicitly exempt from the departure tax, regardless of net worth
• Simplified election: Those who have never filed a US return may qualify for a streamlined election process rather than needing to file 5 years of back returns first

This is a major improvement over the only current alternative — renouncing US citizenship, which costs $2,350 in State Department fees, requires filing 5 years of back returns, and triggers an exit tax for those with net worth above $2 million or average annual net income tax above ~$201,000.

Digital Nomads: Who Doesn't Qualify

Not everyone working abroad would benefit from RBT. The bill requires you to be a bona fide tax resident of a foreign country — not merely living outside the US. This distinction matters for digital nomads, remote workers, and other Americans who move frequently between countries without establishing fixed tax residency anywhere.

If you don't have:

• A permanent home in a foreign country
• Tax residency status in that country (e.g., filing Canadian T1 returns as a resident)
• A tax identification number in your country of residence (Canadian SIN, for example)

...you would not qualify for the RBT election. The bill is designed for Americans who have genuinely relocated abroad and pay taxes in their country of residence — not for US-based individuals who travel internationally or work remotely from various locations to avoid US taxes.

The Departure Tax: Who Pays It?

The bill includes a deemed-sale "departure tax" — but it only applies to high-net-worth individuals:

• Threshold: Only individuals with net worth above approximately $13.99 million (the estate/gift tax basic exclusion amount) would face the departure tax.
• Mechanism: Treated as a deemed sale of all property at fair market value on the day before the election. The first $890,000 in net gains is exempt from the departure tax, providing a significant buffer for most individuals who do exceed the net worth threshold.
• Exempt assets: Retirement accounts (RRSPs, 401(k)s), tax-deferred savings vehicles, and real property (both domestic and foreign) are excluded from the departure tax calculation.
• Exempt individuals: Those who are tax residents of their foreign country where they've lived for 3 of the past 5 years (with compliance certification), those who haven't been US-resident since age 25 or since March 2010, and "accidental Americans."

For the vast majority of Americans in Canada, the departure tax would not apply.

What You'd Still Owe the US

RBT does not mean zero US tax obligations. If you elect nonresident status, you would still owe US tax on US-source income. This is the same framework that applies to any nonresident alien (NRA) with US income — you would file Form 1040-NR instead of Form 1040, and only report income that originates from within the United States:

• US dividends and interest: Income from US stocks, bonds, and bank accounts — typically subject to 30% withholding (or 15% under the US-Canada treaty)
• US rental income: If you own property in the US, net rental income is taxed at graduated rates if you file a Section 871(d) election
• Social Security benefits: Taxed as US-source income, though the US-Canada tax treaty limits US withholding to 15% and allows Canada to tax the remainder
• US business income: If you're a partner in or own a US business, income effectively connected to a US trade or business remains fully taxable
• US pension distributions: 401(k), IRA, and other US retirement account withdrawals — subject to mandatory 30% withholding (or treaty-reduced rate)
• US capital gains: Gains from selling US real property (FIRPTA applies, typically 15% withholding at closing)

Here is the key practical difference: under current law, you file a full Form 1040 reporting worldwide income and then use FEIE or FTC credits to offset most of the tax. Under RBT, you would file the simpler Form 1040-NR only if you have US-source income. If you have no US-source income at all — no US stocks, no US rental property, no US pension — you would not need to file any US tax return.

For Americans in Canada who hold US brokerage accounts or US real estate, the treaty-reduced withholding rates make a significant difference. The US-Canada treaty generally reduces the standard 30% NRA withholding to 15% on dividends and interest, and eliminates double taxation by allowing foreign tax credits on the Canadian side. If you are considering the RBT election, a cross-border tax advisor should model your specific situation to determine whether your US-source income would be taxed more favorably under NRA status or under the current FEIE/FTC framework.

What the OBBBA Did (and Didn't Do) for Expats

The One Big Beautiful Bill Act was a disappointment for Americans abroad. It:

What Should You Do Right Now?

1. Keep filing. Do not stop filing US tax returns. The bill is not law. If it passes, you'll need 5 years of compliant returns to qualify for the election.
2. Get caught up if you're behind. If you haven't been filing US returns from Canada, consider the Streamlined Filing Compliance Procedures. Getting compliant now positions you to elect RBT immediately if it passes.
3. Keep your TFSA records. If RBT passes, you may be able to stop filing Forms 3520/3520-A going forward — but you'll still need records for any open tax years.
4. Don't close your RRSP. Some Americans in Canada have avoided RRSPs due to US reporting complexity. If RBT passes, that complexity disappears. There's no reason to limit your RRSP contributions in anticipation.
5. Watch for reintroduction. The bill is expected to be reintroduced with a new number in the 119th Congress. We'll update this article when it happens.
6. Organize your US-source income. If RBT passes, you'll need to separate your US-source income (dividends, rental, Social Security, pension) from your Canadian income. Start tracking this now so the transition is seamless.
7. Consider your TFSA strategy. If you've been avoiding the TFSA because of US reporting headaches, RBT's passage would remove those obstacles entirely. Some advisors suggest maximizing TFSA contributions now (2026 limit: $7,000) since you'll benefit either way — and if RBT passes, the TFSA becomes genuinely tax-free on both sides of the border.
8. Don't renounce yet. If you've been considering renouncing US citizenship to escape the tax burden ($2,350 fee, exit tax risk, and loss of all US citizenship rights), wait. The RBT bill offers the same tax relief without giving up your passport, voting rights, or ability to live and work in the US in the future.