FATCA tax deal forces Canadian banks to send info to IRS
When Canada’s banks reopen for business on July 2, they will begin formally operating as informants for the United States Internal Revenue Service — the IRS.
Financial institutions in Canada will be required to ask all new and existing clients opening a new account questions such as where they were born, and possibly where their parents were born.
Those who indicate they have a connection to the U.S. will have their files sent to the Canada Revenue Agency — which will automatically pass them along to the IRS.
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Canadian citizens who decline to answer the new set of questions could have their personal banking information passed along to Uncle Sam to determine if they are a “U.S. person.” Or, the bank could refuse to open an account for those who refuse to answer the questions.
All U.S. citizens and “resident aliens” (green card holders) are required to file U.S. taxes every year — regardless of where they live. Eritrea is the only other country in the world with a similar law.
In 2010, the U.S. announced the Foreign Account Tax Compliance Act (FATCA), a law billed as an attempt to catch wealthy Americans stashing their money in offshore accounts. Critics quickly pointed out, however, the law makes no distinction between those intentionally engaging in tax avoidance and “accidental Americans.”
It is estimated that one million U.S. citizens call Canada home, and while many are aware of the tax requirements that come with their dual citizenship, others are not.
More of a surprise to some is that the U.S. automatically confers citizenship to the children of U.S. citizens, even if they are born abroad, and with that comes the obligation to file taxes.
Banks fought law and lost
Canada’s major banks and the association that represents them weren’t available to comment on the new rules and the impact customers might expect — but did direct CBC News to their websites for general information concerning the new law.
The banks, and former federal finance minister Jim Flaherty complained bitterly to the U.S. about FATCA in an effort to obtain an exception for Canada — but to no avail.
The U.S. is threatening a 30 per cent withholding tax against any financial institution deemed “non-compliant,” under FATCA. The Canadian government said that “could have significant negative impacts on the Canadian economy.”
After lengthy negotiations, Canada eventually signed an agreement with the U.S. and passed its provisions into law in the most recent Budget Implementation Act.
Law could face challenge
Experts say the requirement for banks to handle the files of Canadians with dual U.S. citizenship differently than other clients could violate the Canadian Charter of Rights and Freedoms, which protects Canadians from discrimination based on, among other things, “national or ethnic origin.”
The Office of Canada’s Privacy Commissioner says questions about the charter fall outside of its jurisdiction — but has expressed concern about FATCA violating privacy rights and laws.
In a written statement, the office noted information sharing for tax purposes between Canada and the U.S. is not new — however it “expects the Canada Revenue Agency to carry out its new responsibilities under FATCA in a way that meets its obligations under the Privacy Act.”