Backgrounder : Canada and FATCA

On Monday, January 28th, 2013 in Backgrounder
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IRS Tax Collection: Evasion of the US or Invasion of Canada?

The Green Party of Canada is calling on the government of Canada to stand on guard against the demands of the United States (US) for extraterritorial enforcement of an American law: the Foreign Account Tax Compliance Act (FATCA). The Government of Canada must protect our citizens and residents from FATCA’s invasive violations of individual privacy, and refuse to make Canadian consumers and taxpayers pay the significant costs to enforce a unilateral American mandate that does not benefit Canada in any way.

This US law, whose staggered regime is set to come into effect through 2013 and 2014, demands Canadian financial institutions report to the United States’ Internal Revenue Service (IRS) the confidential account information of a large number of Canadian residents regarded as “US persons” under American regulations, most of whom are Canadian citizens. The Department of Finance gave notice in November that an Inter-Governmental Agreement (IGA) on FATCA was being negotiated, and the proposed terms have not been made public. The IRS has only recently issued the final FATCA regulations on 17 January 2013.

The United States government wishes to ignore the fact of Canadian citizenship in pursuing people who were born in the US or to an American parent but who are Canadian citizens, as well as others with US “indicia” (Canadians with an American spouse or other family member, with whom they may hold assets jointly; Canadians who may have lived or worked in the US and acquired a Social Security Number, and so forth).

For example, the US recently required such Canadians to file with the IRS annual federal income tax returns on their financial accounts in Canada, including TFSAs, RESPs, and RDSPs, which are considered foreign trustsunder US law. They face exorbitant penalties for failing to report the balances of these accounts even if they have no tax owing.

While no one disputes the need to combat international tax evasion, serious concerns have been raised by the Canadian Civil Liberties Association and others about FATCA’s impact on the rights of Canadian citizens and residents. There are also concerns about the costs FATCA would impose on Canadian institutions and consumers, as well as about the bigger question of why a US law should be enforced in Canada at all.

There are major concerns about the legality of changing the terms of the US-Canada tax treaty without legislative amendment and attendant public and parliamentary review, with the potential for major ramifications for Canada’s sovereignty.

The Government must not rush into signing an IGA with the US until public comments have been thoroughly evaluated and Parliament has had a chance to examine and debate whether an IGA and FATCA are in Canada’s interest.

“Clearly, any person with earnings or part-time residence in the US should file tax returns and pay US taxes in keeping with current bilateral agreements. However, our government must stand up for Canadian citizens who are neither working under nor representing any burden to the US governmental system”

“The majority of these people have spent their lives working and paying taxes in Canada, and were unaware that these laws applied to them. Many are faced with the loss of substantial life savings due to statutory fines and cannot even avoid penalties by retroactively filing tax returns. If this weren’t enough, they are now faced with the prospect of further intrusion into their lives under a FATCA IGA.”

–Elizabeth May, Green Party Leader and Member of Parliament for Saanich-Gulf Islands

“This is not acceptable. These US laws intended to combat tax evasion by their residents sheltering wealth abroad, should not penalize Canadians who are complying with tax laws where they live.”

“It would be a clear violation of our Charter of Rights and Freedoms to have Canadian banks, under the direction of the IRS, violate the privacy rights of some Canadian citizens or residents based on their current or former ties to another country, namely the United States.”

–Erich Jacoby-Hawkins, Green Party of Canada’s National Revenue critic

As Finance Minister Jim Flaherty himself noted in 2011 “Frankly, Canada is not a tax haven. People do not flock to Canada to avoid paying taxes.  We have existing ways of addressing these issues with the United States through our Bilateral Tax Information Exchange Agreement. We share the same goal of fighting tax evasion and we already have a system that works.”

The federal government must refuse to sign the Inter-Governmental Agreement to implement FATCA and instead advise their US counterparts that these policies are an unacceptable intrusion into Canadian sovereignty, and work to develop an arrangement that would mitigate the effects of current US tax laws that unjustly target honest Canadian citizens. These measures should be examined by the appropriate House of Commons committees, in consultation with the Privacy Commissioner of Canada.

We must not permit Canadian financial institutions to comply with FATCA in violation of our own privacy laws, and if the US attempts to enforce FATCA against them, we must vigorously respond and seek legal remedy as is our right.

If the US feels the existing Canada-United States Convention with Respect to Taxes is not working, they should provide specific details and suggestions on how to improve it through legislative amendment without sacrificing the rights of Canadians to foreign interests.

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  • Concerned Canadian

    Thank you for making this submission regarding FATCA (Foreign Account Tax Compliance Act) which has the potential to cause harm to a million Canadian residents who have the misfortune of having a US connection. FATCA has been described as “the worst law most Americans have never heard of” and I dare say there are hundreds of thousands of unsuspecting Canadian residents who have not heard of it either. If our Canadian government agrees to enforce FATCA by way of an IGA (Inter-Governmental Agreement) then a new sub-class of Canadian residents will watch as the IRS virtually gains total informational access to their Canadian banking accounts. These accounts hold Canadian dollars which were legally earned, taxed and saved in Canada. The expense of collecting this information and transferring it to the IRS will be born by ALL Canadians in the form of increased banking costs (estimated at a trillion dollars worldwide). FATCA came into existence because the USA is the only country in the world (except for Eritrea) which clings to the hegemonic system of citizenship-based taxation rather than resident-based taxation. Again, thank you for recognizing that FATCA is wrong and lending your voice to the opposition.

  • nobledreamer

    Thank you for taking a stand on this issue. It has been virtually impossible to get anyone, whether politician, MSM or even fellow citizens (both US and CDN), to understand the enormous potential damage that FATCA (& IGA) is capable of. After feeling reassured by Minister Flaherty’s comments in 2011, it was totally unnerving to hear not only that Finance Canada was in negotiations with the US regarding an IGA, but that a decision was close, likely at the end of 2012.

    For many, who like myself, renounced US citizenship primarily to protect my family, the ongoing tirades from US Senators (particularly Sen Schumer, from NY) promote the possibility that one will never be free of the “punishment,” (enforcement of Reed Amendment, a new ExPatriot Act, retroactive laws that can tax renunciants, etc). The big crime: marrying a “foreigner” and not having known to file tax returns and FBARs. We are too close to retirement to take the kind of “hit” we have heard about when others have entered the OVDI. I hold no hope that the Americans will come to their senses and acknowledge there is a difference between having foreign bank accounts in order to live abroad and homelanders having foreign accounts abroad to evade taxes.

    Your strong statements give us hope that we will not face the same treatment from our Canadian government. I have been here 31 years and am a Canadian.I have done all that I can do to protect myself and my family. I hope that our government recognizes there are actions that can be taken that will protect not only duals, their families but also our financial institutions. FATCA/IGA amounts to tax treaty override and there’s no reason any nation should cowtow to this bully. I wonder if anyone considered some multi-lateral response instead of just presuming nothing could be done?

  • Elizabeth

    Thank you for taking a stand on this. It has certainly been keeping me awake at night. I have been in Canada since 1965, have been paying Canadian taxes since 1969, and became a citizen in 1983.
    When I was growing up in the U.S., we were all taught that if you voted in a foreign election, you forfeited your citizenship. A friend of mine who voted in a Canadian election before the law changed (I think in 1979?) was told that she’d have to go to the Supreme Court to get her citizenship back.
    When I became Canadian, I assumed that I had forfeited my U.S. citizenship, and since my son was needy at that time, I could barely get to City Hall for the citizenship ceremony, let alone to a major centre to renounce my citizenship, even if I’d had an idea that I was supposed to do it formally.
    Now it would cost 48% of my assets, as well as 7 years of U.S. tax returns, to expatriate. It’s hard not to feel like a pocketful of change being shaken out of a coat.
    Thanks again for speaking out on this!

    • Concerned Canadian

      Elizabeth — It’s good to know we have at least one sitting MP, Ms. May, willing to speak up on this issue and hopefully there are others too but if you are searching for additional information regarding relinquishment and renunciation (there’s a difference) then please do some reading at isaacbrocksociety.ca (if you haven’t already found it) and join in the conversation there. It’s your story and millions more which make a repeal of FATCA something worth fighting for.

  • Pjkoko

    Elizabeth. We are behind you all the way. Please keep pushing our concerns about this ridiculous arrangement.

  • calgary411

    Thank you so much, Elizabeth May, for the Green Party, you and Erich Jacoby-Hawkins taking leadership on this very critical issue. I have passed it on to many, including Kevin Shoom to add to my submission regarding Canada’s potential signing of an intergovernmental agreement with the US. Will this have any discussion that is not behind doors before Canada is able to sign such a document?

    As I’ve commented before:

    Regarding the other Canadian REGISTERED savings plan that is considered a “foreign trust” by the US:

    I feel that I am being gagged on talking about my son’s situation and me losing the ability to maintain an RDSP (Canadian Registered Disability Savings Plan) for him. Every parent with a family member who is “disabled” in some way fears the day they will be gone and their child, whatever age, will then be on their own.

    …you may break those affected by FATCA down into three classes of Canadians:

    1) First-Class Canadians (shouldn’t we all be such?)

    2) Second-Class Canadians (Canadian citizens and permanent residents who are also US Persons, thereby losing rights with FATCA, compared to any other Canadian)

    3) Third-Class Canadians (FATCA in fact creates three classes of Canadians, the third being a class of Canadian citizen or permanent resident who are US persons but have no indicia of US personhood and thus are able to fly under the radar with impunity — unless turned in through a “Whistleblower” program. These will include “Accidental Americans” as my adult son who happens to have a developmental disability (born and raised in Canada, never registered with the US, never lived in or had any benefit from the US). The US Consulates in Canada advise that a Parent, Guardian or Trustee of such person or any other with a mental incapacity (such as dementia) does not have the RIGHT to renounce citizenship on behalf of that person they make other life, death, financial and legal decisions for, even with a court order, unless there is a “compelling reason” (like life or death, which of course there isn’t for those in Canada).

    Maybe my adult son with a developmental disability falls into some further fourth category; I don’t know. Should he and others like him not be protected in every way by Canada? If not, why not?

    … and what I guess it boils down to:

    I have caused this for my son who I am supposed to somehow protect. It is absolutely no fault of my son that he was born to a US citizen parent(s). Can I hurt my son any more than I already have?

    The wasted human energy in all of this is also profound.

    PS – How I hope this will be a hot topic in 2013 as it was certainly hushed in 2012. I for the life of me don’t know why it hasn’t been out there. And, still the media hasn’t picked up on the Green Party announcement and backgrounder.

    Why is this not urgent — the likely surrender of Canada’s sovereignty with FATCA, the fact that the media has ignored this history-changing issue, and that Canadians don’t seem to care?
    If the media does not adequately highlight this important story to the Canadian public, it is complicit. It will be a huge part of this problem. Continuation of Canadian media’s ignoring or hushing this issue is, in my view, obstructionist.
    Thanks once again for your brave stand!

    • calgary411

      Within the 544 pages of the Regulations released, the RDSP meets MOST of the definition for the exemption below (although proceeds from the RDSP are not limited to use for medical benefits; it can be used for housing for the disabled person):

      (B) Non-retirement savings accounts. An account (other than an insurance or annuity contract) that satisfies the following conditions under the laws of the jurisdiction where the account is maintained: CHECK

      (1) The account is subject to regulation as a savings vehicle for purposes other than for retirement; CHECK

      (2) The account is tax-favored (as described in paragraph (b)(2)(i)(E) of this section); CHECK

      (3) Withdrawals are conditioned on meeting specific criteria related to the purpose of the savings account (for example, the provision of educational or medical benefits), or penalties apply to withdrawals made before such criteria are met; MOSTLY CHECK as proceeds of RDSP are not just for medical benefits — so more clarification needed, in my mind.

      and

      (4) Annual contributions are limited to $50,000 or less; CHECK

      Based on this, for which I thank the Canadian government and Finance Minister Flahterty as it is likely they played some part in this and other registered savings accounts considered to be exempted by the US and stated in these announced FATCA Regulations.
      However, this is not reason and much more, including Canada’s sovereignty / autonomy, for Canada to sign an IGA with the US, thus allowing the law of the US and the IRS to be more important than Canada’s own existing law.

  • Janeb

    Thank you so much. I have supported the Green Party in a riding where doing so was, in effect, a vote thrown to the Tories, and I was criticized for my choices by many of my politically like-minded friends. But I now feel vindicated. I’m the child of an American parent who found out last year that, despite my having been born, lived almost all my life, and earned and paid full taxes on every penny I own in Canada, the U.S thinks it has a claim on my bank accounts. I’m shocked and disappointed that the NDP has not made a major issue out of this. Ms. May seems to be the only national party leader willing to make an unequivocal stand for Canadian sovereignty. I wish I could say that she has gained a new Green Party member because of that, but I can say at least that she now has a wavering NDP / Green supporter firmly on the Green side.

  • http://1389blog.com/ 1389AD
  • AtticusinCanada

    Those of you fortunate enough to have Ms. May as your MP should appreciate her willingness to take on these issues in such a forthright manner. Many of us have MP’s who do not speak up about this on our behalf even when privately they have expressed some concern to outright opposition to FATCA. I am truly concerned that we need a much, much stronger response. There is no reason for Canada to cave in to this when even the U.S. cannot figure out the right way to implement it. Furthermore, they have said they “MAY” reciprocate. They won’t. Many states will be up in arms over it and there is no way anyone told there will be reciprocity will get it. Florida and Texas are totally against the idea and law suits have been threatened. This thing is a house of cards that will fall under its own weight but, not before millions of innocent families are threatened and harmed by it. In Canada this disaster does violate our Charter. I too urge people to consider reading and commenting at the Isaac Brock Society dot Ca. We are planning more protests and other actions to fight this awful over reach into Canada of the U.S.

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