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 (June 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.
Reality Check
This bill has more political support than any previous RBT proposal. But it has not been reintroduced yet, has no JCT score, and faces a crowded legislative calendar. It is NOT law. Do not stop filing your US tax returns based on this bill's potential passage.
Section 899A: The "Deemed Sale" Departure Tax — and How It Treats Your Trusts
The single most important mechanic in the RBT Act is the price of admission. To switch from citizenship-based to residence-based taxation, an electing American does not simply opt out — under the bill's new Section 899A, they are treated as having sold all of their property at fair market value on the day before the election takes effect. This "deemed sale" — a mark-to-market departure tax — is designed to settle up any built-in US capital gains before you leave the US tax net for good. (Note this is distinct from the separate, retaliatory "Section 899" revenge-tax proposal; Section 899A is the RBT Act's own election mechanism.)
The practical takeaways for Americans in Canada:
- It mirrors the existing exit tax. Section 899A works much like the Section 877A expatriation regime that already applies when you renounce citizenship — except you keep your passport. We cover the renunciation version in our US exit tax and Form 8854 guide.
- It is aimed at high-net-worth electors. The bill is structured so that long-term Americans abroad below a net-worth threshold are not hit with a punitive deemed-sale bill — the typical salaried worker in Toronto is the intended beneficiary, not the target.
- Unrealized gains drive the decision. If you hold appreciated US stock, a Canadian home, or a business interest, the Section 899A calculation — not the headline "no more double tax" — is what determines whether electing RBT is actually worth it for you.
How the Act treats grantor trusts. Trust interests are among the thorniest parts of the deemed-sale rules, and the treatment of grantor trusts was specifically flagged by the Joint Committee on Taxation for revision. If you are the grantor (owner) of a foreign grantor trust — which, for US purposes, can include a Canadian TFSA or FHSA — the assets inside that trust are generally treated as yours and would be swept into the Section 899A deemed sale on election. The updated 119th-Congress version is expected to clarify exactly how trust assets, beneficiary interests, and previously-taxed amounts are valued and excluded, which makes grantor-trust mechanics the part of the bill most likely to change before it becomes law. If your wealth sits largely inside such accounts, do not model your RBT election on the current draft language — it will move.
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.
| Bill |
Sponsor |
Year |
What Happened |
| H.R. 7358 — Tax Fairness for Americans Abroad Act | Rep. George Holding (R-NC) | 2018 | First serious RBT proposal in Congress. Introduced the concept of elective nonresident status for Americans abroad. Gained attention from expat advocacy groups including Democrats Abroad but died in committee without a hearing. |
| H.R. 5765 — Tax Simplification for Americans Abroad Act | Rep. George Holding (R-NC) | 2020 | Refined the Holding approach with cleaner eligibility criteria and a departure tax for high-net-worth electors. Introduced during COVID but received no floor action. Rep. Holding retired from Congress after 2020, leaving the bill without its champion. |
| H.R. 10468 — Residence-Based Taxation for Americans Abroad Act | Rep. Darin LaHood (R-IL) | Dec 2024 | Most comprehensive RBT proposal to date. Added grandfathering for long-term expats, "accidental American" exemptions, and Certificate of Non-Residence (CNR) provisions. Sen. Todd Young (R-IN) introduced the Senate companion bill. Both expired when the 118th Congress ended January 2025. |
| Senate Companion | Sen. Todd Young (R-IN) | Dec 2024 | Mirror bill in the Senate. Young's involvement was significant — Senate sponsorship is critical for any bill to reach the floor. Young remains committed to reintroduction in the 119th Congress. |
| H.R. 4501 — Holy Sovereignty Protection Act | Rep. Jeff Hurd (R-CO) | 2025 | Not an RBT bill per se, but directly related. Proposes Section 899 — a retaliatory "revenge tax" on citizens and businesses of countries that impose discriminatory taxes on US nationals. This creates political leverage for RBT: if Congress can threaten other countries for taxing US citizens, the argument for not taxing Americans abroad grows stronger. |
| H.R. 4501 — Pope Leo XIV Exemption Amendment (Proposed) | Multiple sponsors (bipartisan) | 2025 | Following the election of Pope Leo XIV (Robert Francis Prevost) — the first American-born pope — a bipartisan amendment was proposed to H.R. 4501 that would exempt US citizens holding foreign head-of-state positions from citizenship-based taxation. While narrow in scope, this bill injected RBT into mainstream political conversation and created unexpected bipartisan momentum. The Vatican exemption debate highlighted the absurdity of citizenship-based taxation: the US would technically require the pope to file Form 1040 and report Vatican bank accounts on FBAR. |
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
- Pope Leo XIV effect: The election of an American-born pope created an unexpected political catalyst — the spectacle of the Vatican's head of state theoretically owing FBAR filings made citizenship-based taxation a mainstream media story for the first time
Why Some Lawmakers Oppose RBT
Despite growing support, the RBT bill faces real opposition. Understanding these arguments is important for realistic expectations about passage timing:
- Revenue loss concerns: The Joint Committee on Taxation (JCT) must score the bill before it can advance. Some analysts estimate RBT could cost the Treasury $4.5 billion over 10 years in lost tax revenue from US-source income currently collected from Americans abroad. Critics argue this is a tax cut primarily benefiting high-income expatriates, though supporters counter that most expats owe zero US tax after FEIE/FTC credits and the real savings come from reduced IRS enforcement costs.
- Perceived benefit to the wealthy: Sen. Elizabeth Warren (D-MA) and others have raised concerns that RBT could enable wealthy Americans to establish nominal tax residency in low-tax jurisdictions (Cayman Islands, UAE, Monaco) while maintaining substantial US business interests. The bill's substantial presence test and 5-year compliance requirement are designed to address this, but critics argue these safeguards are insufficient.
- JCT scoring challenges: The JCT has struggled to model RBT's revenue impact because the current system generates almost no net revenue from most expats (FEIE and FTC eliminate most liability). The real cost is enforcement-related — the IRS spends significant resources processing returns that yield zero tax. But "reduced enforcement costs" are harder to score than direct revenue changes, creating a modeling impasse.
- Anti-abuse concerns: Some Treasury officials worry about "tax residency shopping" — Americans strategically establishing residence in countries with lower tax rates to reduce combined US-foreign tax burden. The bill's requirement for bona fide tax residency in a country with an income tax addresses this partially, but Congress may add additional anti-abuse provisions.
- FATCA enforcement gap: FATCA was designed to catch offshore tax evasion. Some enforcement hawks argue that exempting RBT electors from FATCA reporting creates a potential blind spot. The Certificate of Non-Residence (CNR) is meant to address this by formally removing compliant expats from the FATCA reporting pipeline, but critics want stronger verification mechanisms.
These objections are serious but not necessarily fatal. The LaHood-Young team is working with the JCT to address scoring methodology, and the updated bill language is expected to include stronger anti-abuse provisions. The political calculus remains favorable: 9 million Americans abroad represent a growing constituency, and bipartisan support makes this less vulnerable to partisan obstruction than purely Democratic or Republican initiatives.
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:
| Category |
Current Law |
Under RBT Bill |
| Canadian salary/wages | Reported to IRS, excluded via FEIE ($132,900 max) or offset with FTC | Not reported to IRS at all |
| Canadian business income | Reported on Schedule C/1120, offset with FTC | Not reported to IRS |
| RRSP growth | Must elect treaty deferral (was Form 8891, now on Form 1040) | No US reporting required |
| TFSA income | Taxed as a foreign trust — Forms 3520/3520-A required, income taxed annually | No US reporting required |
| FBAR (FinCEN 114) | Required if foreign accounts exceed $10,000 | Exempt |
| FATCA (Form 8938) | Required if foreign assets exceed thresholds | Exempt — can obtain certificate of nonresidency |
| Form 5471 (foreign corp) | Required for US shareholders of CFCs | Exempt |
| US dividends/interest | Reported on 1040 | Still taxable as US-source income |
| US rental income | Reported on Schedule E | Still taxable as US-source income |
| Social Security | Reported on 1040 | Still taxable as US-source income |
| US tax return filing | Form 1040 required annually | Only required if you have US-source income |
FEIE and FTC vs RBT: How Current Relief Mechanisms Compare
Americans in Canada currently use two main tools to reduce double taxation: the Foreign Earned Income Exclusion (FEIE, IRC Section 911) and the Foreign Tax Credit (FTC, IRC Sections 901-909). Under RBT, these mechanisms become largely irrelevant for qualifying expats. Here's a direct comparison:
| Feature |
FEIE (Section 911) |
FTC (Sections 901-909) |
RBT (Proposed) |
| What it excludes/credits | Foreign earned income up to $132,900 (2026) | Dollar-for-dollar credit for foreign taxes paid | All foreign-source income removed from US tax system entirely |
| Investment income covered? | No — only earned income (salary, wages, self-employment) | Yes — but must be categorized by income basket (general, passive, etc.) | Yes — all foreign-source investment income excluded |
| Income cap | $132,900 for 2026 — income above this is still taxable | No cap — but carryforward/carryback rules apply | No cap — all foreign-source income excluded regardless of amount |
| Filing complexity | Form 2555 required, bona fide residence or physical presence test | Form 1116 required, separate baskets, AMT credit calculations | No US return required if no US-source income; Form 1040-NR if US-source income exists |
| FBAR/FATCA still required? | Yes — full reporting obligations remain | Yes — full reporting obligations remain | No — exempt with Certificate of Non-Residence |
| TFSA/RRSP reporting | Still required — FEIE does not affect trust/account reporting | Still required — FTC does not affect trust/account reporting | No reporting required |
| Can be combined? | Yes — can use FEIE + FTC together (but FTC limited to non-excluded income) | Yes — but complex interaction with FEIE stacking | Replaces both — neither needed once election is made |
| Self-employment tax | FEIE does NOT exclude SE tax — still owe 15.3% on first $168,600 (2026) | Canada-US treaty Totalization Agreement may exempt SE tax if paying CPP | Foreign-source SE income fully excluded — no US SE tax |
| Net Investment Income Tax (NIIT) | FEIE does not reduce MAGI — may still trigger 3.8% NIIT | FTC can offset NIIT but only partially (complex calculation) | Not applicable — foreign investment income excluded entirely |
| Best for | Employees earning under $132,900 in Canadian salary | Higher earners, those with diverse income types, or those in high-tax jurisdictions like Canada | All qualifying Americans abroad — eliminates the need to choose between FEIE and FTC |
The key takeaway: FEIE and FTC are band-aids that reduce double taxation but don't eliminate the underlying filing burden. Under FEIE, you still file a full 1040, still file FBAR, still report your TFSA as a foreign trust. Under FTC, you get a more complete tax offset but face even more complex calculations (income baskets, AMT credits, carryforward tracking). RBT eliminates the entire framework — no 1040, no FBAR, no FATCA, no information returns for Canadian accounts. It's the difference between treating symptoms and curing the disease.
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.
The Certificate of Non-Residence (CNR)
The CNR is a new concept introduced in the LaHood bill. Once you elect nonresident status, you can apply for a CNR from the IRS. This document tells your Canadian bank, brokerage, and any other foreign financial institution that you are not a "specified United States person" under FATCA. Without a CNR, your Canadian bank may still report your accounts to the IRS under the Canada-US Intergovernmental Agreement (IGA) — even after you've elected RBT. The CNR stops that reporting at the source.
Who Would Qualify?
Not every American abroad would automatically qualify. The bill includes eligibility requirements:
- 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.
- Foreign tax residency: You must be a tax resident of a foreign country (Canada, in this case).
- Not substantially present in the US: If you meet the substantial presence test (183+ days over 3 years), your election would be revoked.
Grandfathering Exception
If you have lived outside the US continuously since age 25, or since FATCA's enactment (March 28, 2010), you may be exempt from the 5-year compliance catch-up requirement. This is significant for long-term expats who may have fallen behind on US filings.
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 RBT bill's residency requirement is modeled on the existing bona fide residence test used for the FEIE (IRC Section 911), but with additional safeguards. Under the bona fide residence test, you must demonstrate:
- Established domicile: You must have a permanent home or principal place of abode in a foreign country. A hotel room or Airbnb does not qualify.
- Tax filing in the foreign country: You must be filing tax returns as a resident of your foreign country. For Canada, this means filing a T1 General return and being assessed by the CRA as a factual or deemed resident.
- Intent to remain: Your foreign residence must be for an indefinite or extended period. A one-year work assignment with a fixed return date may not satisfy the test.
- Tax home in the foreign country: Your "tax home" (the general area of your main place of business or employment) must be outside the US. If your employer is a US company and your work is primarily performed remotely for US clients, your tax home may still be considered the US even if you physically live abroad.
The bill also adds a substantial presence revocation trigger: if you are present in the US for more than 183 days in any rolling 3-year period (using the weighted formula from IRC Section 7701(b)), your RBT election is automatically revoked. This is more strict than the FEIE's bona fide residence test, which allows temporary visits to the US without disqualification.
For Americans in Canada specifically, the residency test is straightforward: if you have a home in Canada, file Canadian T1 returns, hold a valid SIN, and pay into CPP/EI, you clearly meet the bona fide residence requirement. The digital nomad exclusion primarily targets Americans who hop between countries without establishing genuine tax residency anywhere.
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.
Self-Employment Tax Under RBT: What Changes for Business Owners in Canada
Self-employment tax is one of the most painful aspects of the current system for Americans running businesses in Canada. Under current law, even if you use the FEIE to exclude your foreign earned income from US income tax, you still owe US self-employment (SE) tax — 15.3% (12.4% Social Security + 2.9% Medicare) on net self-employment income up to $168,600 for 2026, plus the 2.9% Medicare tax on amounts above that threshold, plus the 0.9% Additional Medicare Tax on SE income above $200,000 ($250,000 if married filing jointly).
There is one existing relief mechanism: the Canada-US Totalization Agreement. Under this bilateral agreement, self-employed Americans in Canada who are paying into the Canada Pension Plan (CPP) can obtain a Certificate of Coverage from Service Canada. This certificate exempts you from US SE tax on the theory that you should not be paying into two social security systems simultaneously. However, the Totalization Agreement has important limitations:
- It only covers CPP/Social Security — not Medicare. Some practitioners argue Medicare tax is still owed even with a Certificate of Coverage, creating a gray area that the IRS has not definitively resolved.
- It requires active CPP contributions. If your Canadian income is structured as corporate dividends (common for Canadian corporations owned by Americans), you may not be making CPP contributions, leaving the Totalization Agreement inapplicable.
- The certificate must be obtained proactively. Many Americans in Canada are unaware of the Totalization Agreement and pay both CPP and US SE tax for years before discovering they have a choice.
Under the RBT bill, self-employment tax on foreign-source income would be eliminated entirely for qualifying electors. If you elect nonresident status, your Canadian business income is foreign-source income — it falls outside the US tax system completely. No Schedule SE, no self-employment tax, no need for a Totalization Agreement certificate. Your only obligation to the Canadian system would be CPP contributions through your T1 return, exactly as any other Canadian business owner.
This is a significant change for several common scenarios:
| Scenario |
Current Law |
Under RBT |
| Sole proprietor in Canada (T1 filer) | Report on Schedule C + Schedule SE. FEIE excludes income tax but NOT SE tax. Totalization may help but requires certificate. | No US reporting. Pay CPP through Canadian T1 only. |
| Owner of Canadian corporation (CCPC) | Salary: reported as employment income. Dividends: reported on 1040. Corporation may be CFC requiring Form 5471 ($10,000 penalty per year if missed). | No US reporting for salary or dividends. No Form 5471 required. Corporation is purely Canadian entity. |
| Freelancer/contractor billing Canadian clients | Full Schedule C, SE tax applies. FEIE helps with income tax only. Must track all expenses in USD. | No US reporting. File only in Canada. |
| US-Canada cross-border business (clients in both countries) | Must allocate income by source. Canadian income: FEIE/FTC. US income: fully taxable. SE tax on all net income. | Canadian-source income excluded. US-source income reported on 1040-NR as ECI. SE tax only on US-source portion. |
One important caveat for cross-border businesses: if you elect RBT but continue to have US clients, your US-source business income remains "effectively connected income" (ECI) and is taxable on Form 1040-NR. The SE tax question for ECI earned by a nonresident alien is complex — NRAs generally do not owe SE tax on ECI unless it falls under a specific Totalization Agreement or treaty provision. Consult a cross-border tax specialist to model this correctly for your specific business structure.
RBT vs Citizenship Renunciation: Why RBT Is the Better Path
Many Americans in Canada have seriously considered — or already begun — the process of renouncing US citizenship to escape citizenship-based taxation. Before RBT, renunciation was the only permanent way to end US tax obligations. But renunciation carries severe consequences that RBT would avoid entirely:
| Factor |
Citizenship Renunciation |
RBT Election |
| Cost | $2,350 State Department fee (highest in the world — was $450 before 2015) | No fee to elect |
| Exit/departure tax | Covered expatriate rules apply: deemed sale of all assets at FMV. Applies if net worth > $2 million OR average annual net income tax liability > ~$201,000 (2026 threshold) for the 5 years preceding renunciation. No exemptions for retirement accounts. | Departure tax only if net worth > $13.99 million. First $890,000 in gains exempt. Retirement accounts (RRSPs, 401(k)s) and real property excluded from calculation. Accidental Americans fully exempt. |
| Filing requirement before | Must file 5 years of US tax returns + Form 8854 (Initial and Annual Expatriation Statement) | Must certify 5 years of compliance (grandfathering exceptions available for long-term expats and accidental Americans) |
| Social Security | You retain earned benefits, but payment rules change. As a non-citizen non-resident, you may face 30% withholding (or treaty-reduced 15%) instead of normal taxation. Some future benefits may be restricted depending on citizenship of residence country. | Social Security benefits remain US-source income, taxed at NRA rates with treaty-reduced withholding (15% under US-Canada treaty). No loss of future benefit eligibility. You remain a US citizen. |
| Permanence | Irreversible. You can never reclaim US citizenship. Re-entry requires a visa. May trigger Reed Amendment (potential inadmissibility to US if IRS determines renunciation was tax-motivated). | Revocable. You can revoke your nonresident election and return to the US tax system at any time. You remain a full US citizen with passport, voting rights, and right to live/work in the US. |
| US re-entry | Need visa to visit. Subject to immigration controls. May be denied entry. | Full right to enter, live, and work in the US at any time. No immigration implications. |
| Voting rights | Lost permanently | Retained in full |
| Inheritance implications | As a non-citizen, you lose the unlimited marital deduction for US estate tax purposes. Transfers to a non-citizen surviving spouse are limited to $185,000 annual exclusion (2026). | You remain a US citizen. Full marital deduction preserved. No estate tax complications from the election itself. |
| Timeline | 6-12 months for appointment. Significant backlog at Canadian consulates. | Effective upon election and IRS processing. Expected to be faster than renunciation. |
The bottom line: renunciation is a nuclear option. It solves the tax problem but creates a cascade of other issues — loss of citizenship rights, potential re-entry problems, estate planning complications, and the psychological permanence of giving up your nationality. RBT offers essentially the same tax benefit (no US tax on foreign-source income, no FBAR/FATCA, no information returns) while preserving every right and privilege of US citizenship.
If you are currently in the renunciation process, consider pausing until the RBT bill's fate becomes clearer. If the bill passes, you can achieve the same tax result without losing your citizenship. If the bill fails, renunciation remains available as a last resort — but at least you'll have waited for the better option.
What the OBBBA Did (and Didn't Do) for Expats
The One Big Beautiful Bill Act was a disappointment for Americans abroad. It:
What OBBBA Included
- • Permanent extension of TCJA tax rates (10%-37%)
- • FEIE set at $132,900 for 2026
- • Child Tax Credit increased to $2,200/child
- • 1099-K threshold restored to $20,000/200 transactions
- • SALT cap raised to $40,000
What OBBBA Did NOT Include
- • Residence-based taxation
- • Any changes to FEIE or FTC structure
- • Any FBAR/FATCA relief
- • Any changes to citizenship-based taxation
- • Any expat-specific provisions at all
Trust Taxation Under RBT: Implications for High-Net-Worth Expats
Trust taxation is one of the most complex areas of US-Canada cross-border planning, and the RBT bill would significantly simplify it for qualifying electors. Under current law, Americans in Canada who are grantors, beneficiaries, or trustees of trusts face overlapping US and Canadian reporting obligations that can generate enormous compliance costs — often $5,000-$15,000+ in annual professional fees for trust-related filings alone.
Current Trust Reporting Requirements for Americans in Canada
- US grantor trusts: If you are the grantor (creator) of a trust that has a non-US trustee or holds non-US assets, you must file Form 3520-A annually. All trust income flows through to your Form 1040 regardless of whether you receive distributions. Penalty for late filing: 5% of trust assets per year.
- Foreign trust beneficiaries: If you receive distributions from a Canadian trust (common in estate planning and family wealth transfers), you file Form 3520 reporting the distribution. The distribution may be taxed as ordinary income even if it represents capital or corpus. Penalty: 35% of the gross reportable amount.
- Canadian bare trusts: Canada's new bare trust reporting rules (effective 2024) add a T3 filing requirement on the Canadian side. Combined with US Forms 3520/3520-A, a simple bare trust used for estate planning now generates 3-4 additional tax filings per year across both countries.
- Inter vivos trusts: Canadian alter ego trusts and joint partner trusts — commonly used for estate planning by residents of Canada — are treated as foreign trusts by the IRS. Americans who create these trusts face Form 3520-A obligations plus potential transfer tax issues under IRC Section 679 (transfers to foreign trusts).
- Testamentary trusts: If you inherit from a Canadian testamentary trust, distributions are reported on Form 3520. The character of income (capital gain, ordinary income, return of capital) may differ between US and Canadian treatment, creating matching and carryforward complications.
How RBT Changes Trust Taxation
Under the RBT bill, individuals who elect nonresident status would be treated as nonresident aliens for all US income tax purposes. This means:
- No Form 3520 or 3520-A: These forms apply to "United States persons" as defined in IRC Section 7701(a)(30). NRAs are not United States persons. Your Canadian trust reporting obligations disappear from the US side entirely.
- No IRC Section 679 issues: Transfers to foreign trusts by NRAs do not trigger Section 679's punitive rules (which treat the transfer as if the US person remains the owner of trust assets for US tax purposes).
- No PFIC complications for trust-held investments: If your Canadian trust holds non-US mutual funds (classified as PFICs under IRC Section 1291), you currently face the "excess distribution" regime or must make QEF/mark-to-market elections. Under RBT, the trust's investment income is entirely outside the US tax system.
- US-source trust income still taxable: If a trust you benefit from holds US assets (US real estate, US stocks), income from those assets remains US-source and would be taxed under NRA withholding rules. Treaty Article XII (Royalties) and Article X (Dividends) of the US-Canada treaty would apply to reduce withholding rates.
For high-net-worth Americans in Canada, the trust simplification alone could save $10,000-$25,000 per year in compliance costs — and eliminate the risk of draconian penalties (35% of trust assets) that currently hang over every filing deadline. If you have existing Canadian trust structures, consult your cross-border estate planner about how RBT would affect your specific arrangements. In many cases, trusts that were structured to minimize US reporting complexity could be simplified or restructured once the US reporting obligation disappears.
What Should You Do Right Now?
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
Don't Wait for RBT — Get Compliant Now
Whether or not the RBT bill passes, Americans in Canada need to be filing US tax returns. If you're behind, the Streamlined Filing Procedures offer a penalty-free way to catch up — and being current is a prerequisite for electing RBT if it becomes law.
Our IRS Enrolled Agents specialize in US-Canada cross-border tax filing. We can help you:
- File current-year and catch-up US returns from Canada
- Handle TFSA, RRSP, and RESP reporting correctly
- Determine whether FEIE or FTC is better for your situation
- Position you to elect RBT as soon as it becomes available
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