Adjournment Proceedings – Canada US Relations

Elizabeth May: Mr. Speaker, I rise in adjournment proceedings to pursue a matter that I raised in question period on March 3. It is appropriate, although the hour is late or one might say it is early morning of May 29; it is the day on which the subject matter of my question will be going through clause by clause before the finance committee. The subject of my question is a very significant and dangerous piece of legislation buried in the current omnibus bill, Bill C-31.

The question that I asked is somewhat poignant. I will share with members that when I went back and read the text of the question, I realized that this was the last time in question period that I put a question for former minister of finance Jim Flaherty, our late and dear colleague. As much as I was very fond of Jim, as I read the answer I realized that the reason I put in a slip to pursue it in adjournment proceedings was that I did not actually get an answer.

As I say, it is poignant and bittersweet to pursue in adjournment proceedings at 12:15 a.m. the matter of the constitutionality of something that many Canadians have probably never heard of: the Foreign Account Tax Compliance Act, otherwise called FATCA, which is buried in Bill C-31, the current omnibus budget bill.

What this Foreign Account Tax Compliance Act does is this. We know that sometimes we call the United States “Uncle Sam”. In this instance, Canada bent over until we said “uncle”, and that is on the matter of the U.S. doing something quite extraordinary. It has passed a domestic law and insisted that the rest of the world bow down and allow a U.S. law to apply extraterritorially all around the world.

As a former U.S. citizen myself, I find it ironic. When my family first moved to Canada, it was very clear that going to Canada and becoming Canadian citizens was something to which the U.S. government said, “Okay, forget it now; you cannot come back here and pretend you are Americans. We know you are Canadian now; no coming back here”. The laws were very clear that we were not U.S. citizens anymore. That was fine with me, because I was Canadian and that was all I wanted to be.

Now that the U.S. seems to find itself a little short of money, it is almost like people going around and trying to lift up the sofa cushions and reach for loose change under the seats where they had not looked before, in case they might find some money. Maybe a more appropriate visible image is of grabbing people who have any connection to the United States by their ankles and shaking them upside down to see if any loose coins fall out of their pockets.

The reality of this is that we have, under the Foreign Account Tax Compliance Act, acceded to the United States as if we were subject to a binding treaty with it, something called the “intergovernmental agreement”. In point of fact, the U.S. Congress has not ratified this so-called treaty, so it should not be binding on Canada at all. On top of this, we know that no less a constitutional expert than Peter Hogg has advised the Government of Canada in his letter, which I obtained through access to information, that the provisions under this act “…are discriminatory in a way that would not withstand Charter scrutiny”.

In other words, we are being forced through an omnibus procedure and into committee tomorrow at clause by clause, and unless my amendments are accepted, we will once again have passed a piece of legislation that is discriminatory, treating Canadians of different classes in different ways, which offends section 15 of the Charter. We will have done that to accede to something that is not even accepted by the United States as a treaty, because it has not ratified it.

There is a solution to this, and this solution has come from many legal experts. We should remove this from Bill C-31.

Gerald Keddy: Mr. Speaker, I appreciate the intervention by the member for Saanich—Gulf Islands and the fact that she stayed here this evening to pursue this, because the hour is late.

I disagree, of course, with her interpretation of the Foreign Account Tax Compliance Act. The reality is, and the hon. member would know from having American relatives and family members, that Americans have always been taxed based on citizenship. There is nothing new here. An American citizen living outside of the United States is supposed to pay taxes in the States. That is the law and it has always been the law. Enough of my own relatives are American citizens, so I know that for a fact. To say that this changes those rules is simply incorrect.

The unfortunate part of this is that there will be some citizens who, by default or by accident of birth, will be American citizens, such as Canadians, for all intents and purposes, who happen to have been born in the states. They will have to correct their citizenship. However, dual citizens have always had a tax obligation. American citizens living in Canada who have permanent resident status have always had a tax obligation. This is not new.

One key concern was that the reporting obligations with regard to accounts in Canada would force Canadian financial institutions to report information on account holders who were new residents and U.S. citizens, including U.S. citizens who were residents or citizens of Canada, directly to the IRS, thus potentially violating Canadian privacy laws. That was a key concern. Without an agreement in place, obligations to comply with FATCA would have been unilaterally and automatically imposed on Canadian financial institutions and their clients as of July 1, 2014. As I said earlier, this would be based on the fact that they were American citizens living outside of the United States.

To directly address these and other concerns, our government signed a Canada-U.S. intergovernmental agreement, or IGA, in early February of this year. Under the intergovernmental agreement, financial institutions in Canada will not report any information directly to the IRS. Rather, relevant information on accounts held by U.S. residents and U.S. citizens will be reported to the Canada Revenue Agency.

The hon. member talked about Canadian citizens. Canadian citizens are not caught in this loop. Dual citizens will have to pay taxes in the U.S. or, properly speaking, for the hon. member’s benefit, they have to file tax returns. They may not have tax debt, they may not have to pay taxes in the states, but they do have to file returns, which they have always had to file. The CRA will then exchange the information with the IRS through the existing provisions and safeguards of the Canada-U.S. treaty, consistent with our privacy laws.

I would also like to note that under the intergovernmental agreement, the IRS will provide the CRA with information on certain accounts of Canadian residents held at U.S. financial institutions, so we have some reciprocity.

This is an extremely complex intergovernmental agreement and treaty. It covers a lot of issues. However, the bottom line is that no one will be taxed who has not already taxed.

Elizabeth May: Mr. Speaker, I must disagree with my hon. colleague. There are many tax law experts, including Professor Allison Christians, who holds the Stikeman Chair in Tax Law at McGill University. This applies to what is described as U.S. persons. It casts a very wide net. It could well include Canadian citizens who are not dual citizens. It could include the children of former U.S. citizens. It casts a wide net and it reports on the private information of Canadians without their knowledge through to the IRS, and it is not sufficiently reciprocal.

The findings of many legal experts who have testified at the finance committee make it clear that this document is neither reciprocal, nor of advantage to Canada, nor required under international law because the U.S. has not even ratified the IGA. We also know from Professor Peter Hogg, Canada’s leading constitutional law expert, that it will contravene the charter if it ever goes to the Supreme Court of Canada. It must be pulled out of the bill.

Gerald Keddy: Mr. Speaker, again, I respect the hon. member’s passion for this subject, but passion cannot be mistaken for facts.

The facts are that any American citizen living outside the United States has a tax obligation to the IRS. They have always had that, because the United States is one of two countries in the world where tax is based on citizenship. We can argue that that is right or wrong, but that is American tax law and American policy, and it has always been American policy.

We have to find a way to accommodate that without the United States being intrusive in Canada’s laws and tax regime. We have been able to do that, and so have a number of other G7 countries and another 36 countries around the world.

Whether or not we agree with this policy is immaterial. The fact is we have to find a way to comply with it without being overly intrusive to Canadian citizenship.