Introduction to Javier Milei's tax reforms for dual residents of Canada and Argentina
Thousands of Canadians have family ties, property, or undeclared savings in Argentina, and President Javier Milei's plan to lure hidden money back into the formal economy could soon expose them to Canadian tax on newly disclosed income and realized capital gains. According to the 2021 Canadian Census, the latest comprehensive data available, about 20,000 Canadians have family ties to Argentina.
Argentine President Javier Milei is preparing to roll out a package of tax and financial reforms aimed at bringing billions of undeclared U.S. dollars back into Argentina's economy. With consumption lagging and inflation still weighing on household spending, the libertarian leader sees these so-called "mattress dollars" as a potential economic lifeline.
Over the past two decades, repeated financial crises, capital controls, and erratic tax policy have driven Argentines to withdraw and conceal their savings. An estimated USD $271 billion in cash is held informally in homes, safety deposit boxes, or offshore accounts. Large purchases, including homes, vehicles, and luxury goods, are often made in U.S. dollars and underreported for tax purposes.
Milei has defended those holding undeclared dollars as victims of political and financial mismanagement. "They're not criminals," he told a business forum recently. "They're people who protected themselves from governments that destroyed the peso and seized their savings."
The new reforms are expected to loosen reporting requirements and scale back financial surveillance introduced by previous administrations.
For example, businesses in Argentina must currently report cash purchases over about USD $180 and flag any spending that appears inconsistent with an individual's declared income. Credit card companies, private schools, and even utility providers are part of this monitoring regime.
Impact of President Milei's reform and clampdown on money laundering
Analysts believe Milei's reforms will make it easier for individuals to spend large sums without triggering tax audits or penalties. He may also introduce a formal tax amnesty or regularization program, allowing individuals to bring hidden wealth into the system with reduced or no penalties.
While the details remain uncertain, the reforms are likely to include incentives rather than punishments, with the goal of encouraging economic activity before Argentina's midterm elections in October. Past tax amnesties have had mixed success. However, a 2023 program reportedly helped double U.S. dollar deposits in Argentine banks to over $30 billion.
The government argues that new rules will still comply with international standards on anti-money laundering. Agustín Flah, a compliance specialist in Buenos Aires, said reforms must tread carefully: "Any amnesty comes with risk, but they won't tie the hands of Argentina's financial intelligence unit or violate FATF standards."
The Argentine government has pledged to stay compliant with global anti-money laundering standards, including those set by the Financial Action Task Force. However, participation in any future program may still carry reputational and legal risks if not coordinated with professional cross-border tax advice. Argentina faces another review, following an earlier visit by FATF that spared it from being placed on the watchdog's "grey list."
With structural reform stalled and real incomes still battered by last year's 289% inflation, Milei appears to be betting on a consumption boost. Unlocking "mattress dollars" could inject life into a stagnant economy ahead of the midterms.
Gabriel Caamaño of consultancy Outlier noted the effort might succeed in bringing a few billion dollars back into circulation. He pointed to a recent amnesty that doubled dollar deposits in banks to over $30 billion by mid-2024.
Implications for Canadians with Argentine ties: potentially increased tax liability
For Canadian residents who have financial interests in Argentina, whether through family, property, business, or previously undeclared accounts, Milei's initiative raises important tax planning questions.
If Argentina introduces a tax regularization process, Canadians who participate may trigger Canadian tax reporting obligations, such as foreign income disclosures or Form T1135, the Foreign Income Verification Statement. Regularizing funds in Argentina could lead to scrutiny from CRA if funds were not previously reported in Canada. An experienced Canadian tax lawyer can help you understand any disclosure obligations you have.
Additionally, any funds repatriated or transferred could be treated as taxable income in Canada if not properly disclosed. Canadians with dual citizenship or close family in Argentina should speak to a Canadian tax lawyer and carefully assess the legal and tax risks before acting.
Pro Tax Tip - Use voluntary disclosure before it is too late
The Voluntary Disclosures Program (VDP) is a CRA program that allows taxpayers to come forward voluntarily to correct past tax errors or omissions before the CRA finds them first.
If accepted, you may avoid penalties and criminal prosecution, and in some cases, reduce the interest owed. Canadians with previously undeclared Argentine income or assets may want to consider using the CRA's VDP. If done before CRA inquiries begin, it may allow individuals to correct filings and reduce penalties.
The VDP may allow you to come clean safely, especially relevant if you are considering participating in Argentina's upcoming asset regularization plan. However, you must apply before CRA contacts you about it. A top Canadian tax lawyer can help you understand more about the VDP application and prepare it on your behalf.
FAQ
If I declare hidden assets in Argentina, am I protected from Canadian tax consequences?
No. If you declare previously unreported assets in Argentina, you may still owe Canadian tax on income earned by those assets, plus penalties and interest. You may also have to amend prior tax filings and potentially use the VDP to avoid penalties and fines.
What are my reporting obligations in Canada?
Canadian residents must report their worldwide income, including rental income, dividends, or capital gains. Canada and Argentina do have a tax treaty to avoid double taxation; however, it is not as comprehensive as the Canada-US tax treaty, so taxpayers are more likely to face double taxation. Consider reaching out to an expert Canadian tax lawyer for more guidance.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
