There was a time when the United States had high regard for its own rules of citizenship. If a US citizen moved to another country, took up citizenship in that other country and lived there for more than five years, Uncle Sam didn’t welcome the returning former American with open arms. There was no re-enactment of the parable of the prodigal son; no fatted calf was slain; no welcome mat laid out. In fact, former Americans were told they were no longer citizens.
But now that Uncle Sam is a bit short on cash, it’s time to change the rules. In fact, the rules are pretty murky. When trying to get clear advice for my constituents as to what steps are necessary for renunciation of US citizenship, the answer from the US consulate is ‘it depends.’ It is, apparently, determined on a case-by-case basis.
As a former US citizen myself and as a MP representing any number of constituents who had parents born in the US, or who were born there or who through some accident of family or work history acquired some characteristic of interest to the IRS, I have tried to stay up to speed with the US’s newfound interest in its former residents and former citizens. As most people will now know, the US has started claiming that former residents, even those with no income from the US, need to file income tax returns or pay tax in the US.
Of course, as they say this, they also know that no one in their right mind moves to Canada to avoid paying taxes. Canada is definitively not a tax haven. When I met back in 2012 with the then US Ambassador to Canada, David Jacobson, he admitted as much and said I should try to urge my constituents to ‘stay calm.’ The gist of his advice was that the US government wasn’t interested in shaking down law-abiding, tax-paying Canadians who once had some relationship to the US.
In 2010, the US passed something called the Foreign Accounts Tax Compliance Act (FATCA). The law is to take effect globally on July 1, 2014. It casts a wide net, applies extraterritorially to any country where a potentially tax-withholding former (or current American) may be hiding out to cheat Uncle Sam. No one has a problem with ferreting out tax cheats. I think Canada needs to do more to track down off-shore tax havens for money that should be taxed here. But FATCA creates problems for people who have no income to be paid to the US, but who may end up in a costly ordeal to prove that is the case.
Initially, Finance Minister Jim Flaherty resisted US demands for information on Canadian bank accounts held by people with possible US ties. Since 1996, Canada and the US have very workable rules that allow for reciprocal sharing of tax information. The notion that more invasive, lop-sided rules to benefit the US were needed was resisted. The US made serious threats against Canadian financial institutions, and finally Canada cried ‘uncle’.
The concessions won by Canada amount to only exempting certain kinds of accounts the US thought it might like to tax—so RRSPs and RESPs and other accounts have been carved out of the agreement. Canada negotiated an Intergovernmental Agreement (IGA) and said we would sort out providing all the information the IRS wants. The new IGA is to be implemented by a ‘Canada–United States Enhanced Tax Information Exchange’ (Implementation Act).
I made an Access to Information request last year on FATCA and uncovered a very interesting piece of legal advice to Finance Canada. On December 12, 2012, Canada’s leading constitutional law scholar, Professor Peter Hogg, had warned that, in his view, any law that purported to treat some citizens differently from other citizens will violate the section 15 Charter protections for equal treatment under the law.
Legal advice has also been submitted in a powerful brief from Professor Allison Christians, H Heward Stikeman Chair in Tax Law, McGill University and Professor Arthur Cockfield, Queens University Law School. Their advice, like Hogg’s finds numerous ways in which the impact of the IGA and Implementation Act will violate privacy and Charter rights, but beyond that, they raise concerns that it will cost the Canadian economy, well beyond the one million people and their families potentially impacted by the extended reach of the long arm of Uncle Sam. The estimated $100 million cost per financial institution in searching all records for all customers to seek out anyone to whom US IRS rules might apply is a new cost to the banking industry. There is, as Professors Christians and Cockfield point out, no reciprocal benefit to Canada. They urge, as I have, that the new Implementation Act not be rushed. There is much to study.
The Christians-Cockfield brief points out ‘…the IGA involves Canada’s explicit assistance with a foreign sovereign’s extraterritorial tax jurisdiction in a way that is unprecedented in history, out of step with international practice, and unjustified as a matter of international tax norms.’
In response, two Canadians concerned about the new law retained Vancouver constitutional lawyer, Joseph Arvay, to provide a legal opinion. Dr Stephen Kish of Toronto and Lynne Swanson of London Ontario are also fundraising for a potential court challenge. (Anyone wishing to contact them can email: firstname.lastname@example.org)
It may seem a matter of no interest to those who have no US nationality by birth or accident. Still, imagine how we would feel if a law was brought forward to help a different government look for private information about its former citizens. Say Iran or China. The reality is that every Canadian should be concerned about rolling over to the US in ways that violate our own laws.