Uncle Sam makes Canadians an offer we can’t refuse
Uncle Sam is poised to poke his pointy nose into the financial affairs of millions of Canadians who have no connection to his country, and — no matter how distasteful you find this — pushing back will only make it worse.
This is the gloomy — but credible — conclusion of Warren Dueck, a Richmond accountant who specializes in cross-border tax issues.
In a paper he wrote for clients and in a subsequent interview, Dueck spelled out implications of provisions of the American’s Foreign Account Tax Compliance Act, or FATCA, that kick in July 1.
This isn’t just an issue for “U.S. persons” as defined by the act — Americans or dual citizens living in Canada, for example, or Canadians who spend a lot of time in the United States. The intrusive law can snare anyone in Canada or in any other country who has investments in the U.S.
Given the huge amounts of money — including many people’s mutual funds and/or retirement savings — that flow back and forth across the border every day in this globalized world, that’s a lot of people.
FATCA’s impact on hundreds of thousands of “U.S. persons” living in Canada — many with no lingering ties to the U.S., and even some who don’t realize they have U.S. citizenship as an accident of their birth — has been widely reported and frequently deplored in Canada. Even if they’ve had no U.S. income ever, or for years, and even if they owe no U.S. tax, they must file annual returns or face potentially huge penalties.
Dueck said the American Internal Revenue Service seems to be reasonably understanding with those who belatedly but voluntarily step forward to make up for previous lapses, but people caught up in the issue say it’s horribly stressful, time-consuming and expensive.
But it’s also advisable for those affected to comply with this law ASAP — regardless of what they think of it — because the provision coming into force in just over six weeks will dramatically increase the odds they’ll be caught and treated less gently. And this same provision will intrude on the rest of us who lead normal financial lives and have no U.S. ties.
The provision requires “foreign” financial institutions (this means ours, among thousands globally) to report to the IRS whether customers who earn money from American investments are “U.S. persons.” If they don’t, the IRS will withhold 30 per cent of these earnings. It will take a lot of time and red tape, and the procedure will be even more intrusive, to get the money back.
Our federal government signed an agreement with the U.S. in February to have Canadian financial institutions obtain the information and give it to the Canada Revenue Agency, which will then pass on what is relevant to the IRS.
This means our bankers must ask all of us to attest, under penalty of perjury if we lie, that we are or are not “U.S. persons.”
If you think a policy requiring our government to give such personal information to a foreign taxman won’t withstand a Charter challenge, Dueck concedes you may be right. But if you think this would be a good thing, he disagrees.
The problem is that if our institutions won’t — or can’t because of privacy laws — give the IRS what it wants, 30 per cent will be withheld from all U.S. transactions.