I'm not sure I understand what point you're getting at, but the basic principle is that the US and most countries tax all residents. The US also taxes all citizens....But the US still taxes citizens who have left the country (or indeed who have never lived there!) based on basically the same rules as residents, which include a whole pile of terrible rules around "foreign" accounts and holdings.
It probably wasn't clear because I was figuring out as I went along:
In my first post, I was wondering what the basis in the US - Canada tax treaty was for the US being "able" to tax US citizens living in Canada as residents was, because:
1) IRS says if you can be claimed as a resident of another country due to tax treaty, you can be treated as a non-resident for US taxes
2) the Canada US tax treaty does have sections which would allow a US citizen living in Canada to be treated as a Canadian resident.
So in my first post, I was wondering based on the above two, why a US citizen living in Canada couldn't elect to be treated as non US resident (loose wording), which would avoid some of this problem with foreign (ie Canadian) income, etc.
Then later, I realized there is a further clause in the US Canada tax treaty, called the "savings clause", and that more or less lets the US get it's claws back into US citizens, even if Canada claims them as residents. The understanding of that clause was what I was missing in my first post, and what I mentioned in the second post.
The only other possibly relevant part, is that the "savings clause" applies to US citizens but it might have an "out" for US permanent residents (ie green card holders) living in Canada. But choosing that election, to be treated as non US residents by virtue of treaty, can have a whole lot of other implications, tax and not.
So essentially ignore me, but I learned a bit more about the Canada US tax treaty in the process.
And it seems, a lot of people (essentially US citizens living in other countries), think the savings clause is a bad deal, and their resident government (ie. Canada), should do a better job of negotiating tax treaties that protect their interest better... but the US probably throws it's weight around a lot to get the treaties it wants :)