Question

6) Canadian citizens tax liability depends on where they live in the world (residency basis), while the United States citizens tax liability is roughly independent of where they live in the world (citizenship basis). How does this influence the decision on where to live? Which system is more efficient? [4 marks]

Answer 1

If your tax liability depends on where you live than you may change your place of living to a country where you have to pay tax liability. So it will be like a loophole where people try to cheat the government by living in a place where they need to pay low tax amount.

In my opinion US tax liability is more efficient than Canadian tax liability as US citizen have to pay the same tax amount irrespective of the place they live. Where as Canadian tax liability is dependent on which country which makes the people of Canada to shift to place where they have to pay tax liability which is a loss of tax revenue to the government. Hence US tax liability is more efficient.