CRA shared information on smaller bank accounts with IRS

Contrary to FATCA, accounts under $50,000 have been disclosed

The Canada Revenue Agency has been transferring information about Canadian bank accounts worth under $50,000 U.S to the U.S Internal Revenue Service but cannot say how many accounts below that threshold have been shared with the Americans.

Under a controversial information-sharing deal negotiated between the two countries, Canadian banks are required to report to the CRA on bank accounts that they determine are associated with someone considered a “U.S person” for tax purposes – often someone who has dual Canadian-American citizenship or was born in the U.S.

The banks are not required to automatically review or report Canadian bank accounts under $50,000, leading many of those who might be subject to the information sharing move to presume that their banking information wasn’t being shared with the United States.

However, documents tabled recently in Parliament and information obtained by iPolitics from the CRA indicate that information on many individual accounts worth less than $50,000 is, in fact, being shared with the IRS.

The information-sharing deal, negotiated in the wake of the U.S’s decision to adopt the Foreign Account Tax Compliance Act (FATCA) to crack down on tax evasion, also provides for the possibility of banking information being shared with the U.S. if the account holder identified as a “U.S. person” holds more than one account that, combined, could total $50,000 or more over the course of the year.

Moreover, if a Canadian bank decides not to apply the $50,000 US threshold, which the law allows, it has to turn over information on all accounts held by people they believe could be “U.S. persons,” “regardless of the dollar amount, explained David Walters, a spokesman for the CRA.

“The CRA, therefore, receives information from financial institutions on accounts with balances below $50,000 USD in both situations above,” said Walters.

Information collected by the CRA under the agreement is forwarded to the IRS.

Testifying before a House of Commons committee in April, Privacy Commissioner Daniel Therrien told MPs he was concerned that information on bank accounts under $50,000 that doesn’t have to be shared with the IRS is being shared.

“There seems to be a discrepancy between the agreement between Canada and the U.S – the IGA – on the one hand and the income tax act on the other as to what happens to accounts under $50,000,” Therrien explained in an interview after the hearing. “The agreement seems to suggest that accounts under $50,000 do not have to be disclosed to the IRS where the Income Tax Act, the Canadian legislation, says under $50,000 is disclosable unless the financial institution decides that it is not.”

“So that gives a lot of discretion to financial institutions to report or not and I think that’s not desirable.”

Valerie Lawton, spokeswoman for Therrien, said the privacy commissioner’s office is continuing to examine the question.

“Since the committee appearance, we’ve followed up with the CRA and recently received information back from them, which we are in the process of analyzing.”

However, in its answers to a series of questions placed on the order paper by NDP Revenue Critic Pierre-Luc Dusseault, the CRA said it transferred 154,667 records to the IRS, including cases where single individuals have more than one record, but maintained that it has no idea how many accounts it represented or how many accounts held less than $50,000 or more than $1 million – thresholds laid out in the information sharing agreement with the U.S.

“A total of 154,667 records were submitted to the IRS, however, the number of accounts this represents is not known given the rules regarding account aggregation and joint accounts,” the CRA wrote.

One thing the CRA answers did reveal was that the majority of the individuals whose banking information was handed over to the IRS, 62 per cent, have addresses in Canada. Only 35 per cent of holders of the accounts in Canadian banks had U.S. addresses and a mere 2.5 per cent had addresses in another country.

In an interview, Dusseault said he is concerned that the CRA maintains it doesn’t know how many accounts under $50,000 had their information transferred to the IRS.

“I think that was the biggest concern of Mr. Therrien – is the CRA looking at this information or is it just transferring it without looking at it? Maybe the CRA has too much confidence in the banks and the information the banks give them so they just take it and send it to the IRS.”

Lynne Swanson, who is part of a group fighting in Federal Court to have the controversial information-sharing deal declared unconstitutional, said she was disappointed by the CRA’s answer that it doesn’t know how many accounts at different levels were shared with the IRS.

“They know what they reported so they can certainly tell us what they reported in terms of that $50,000 limit.”

However, McGill University tax law professor Allison Christians says she’s not surprised the CRA doesn’t know how many accounts fall below the $50,000 threshold. In fact, she said, it would be a problem if it did.

“They had better not be inspecting (the records)…Think about the level of detail they have on all Canadian citizens who have U.S. indicia. They (would be) warrantlessly searching the bank accounts of Canadian citizens in contravention of the income tax act.”

Christians said she is also seeing problems with the way the $50,000 threshold is being calculated, saying the same money can be counted more than once if it is transferred from one account to another.

Compliance with the information-sharing deal between the CRA and the IRS is complicated for Canada’s financial institutions and Christians believes some are just turning over all the information on clients who could be U.S. persons to avoid being found non-compliant and hit with U.S. government sanctions.

“If you’re a bank, what you want to do is if there are U.S. indicia – I’m reporting. I’m not messing around with thresholds and currency fluctuations and money coming in and going out – I am not messing around with any of that because that is more compliance work and it is expensive.”

“Why would I bother to take on any risk when I don’t have to.”