American expats living in Canada fighting U.S. tax law

FATCA, or the Foreign Account Tax Compliance Act, has been in effect for several months. The global tax law is aimed at rooting out Americans living outside of the United States who are not paying their U.S. taxes. But many expatriate Americans in Canada are fighting back.

There are more than one million Americans, or those considered by U.S. tax authorities to be Americans, living in Canada. Some have never set foot in the U.S, but are considered U.S. citizens by tax authorities and, under FATCA, they must file tax returns.

For most ex-pats, FATCA goes too far. It is in effect in 80 countries, including Canada, and forces financial institutions in those countries to collect information about people considered by Washington to be Americans or be penalized. If a bank wants to do business in the U.S., it will comply.

But many Americans in Canada are resisting. An extreme step is to renounce your U.S. citizenship, but even that has become more difficult since FATCA went into force. The process used to take weeks, but now it’s taking up to six months, and Washington, too, is turning up the pressure. The plan is to hike renunciation fees from $450 to $2,350, an increase of 422 percent.

Others in Canada are taking the issue to court because they say FATCA runs afoul of Canada’s charter of rights and freedoms. The agreement between Ottawa and Washington has Canadian tax authorities collecting the information from financial institutions, then passing it on to the U.S.

A lawsuit has now been filed by two women who argue that the agreement between the two countries violates the Canadian charter of rights and freedoms.  The two were born in the U.S., but left at the age of five to live in Canada. They have never had American passports or any meaningful ties, but say they are considered tax cheats by authorities in the U.S. for not being IRS compliant.

The case is expected to go to the Supreme Court of Canada.