FATCA Revisited

FATCA1I’ve written about FATCA before, here and here, with respect to the privacy law implications of this American tax compliance initiative. However, I was recently presented with a letter on the subject that made me pause.  A noted Canadian constitutional law expert has raised a rather interesting aspect and it seems what may get Canadian banks out of the frying pan may get the Canadian government into the fire.

You may recall that FATCA essentially requires Canadian financial institutions to submit filings about U.S. citizens with “reportable accounts” to the U.S. Internal Revenue Service. There really isn’t a PIPEDA exception that fits the fact scenario and institutions were looking at either obtaining consent (and the problem of what to do if they did not receive it) or some other workaround. According to press and other reports (see this Credit Union Central newsletter for details), the workaround appears to be Canadian reporting requirement and an intergovernmental agreement whereby “[i]nformation will be reported to the CRA, not the American IRS. The CRA will then turn the information over to the IRS.”  Reporting to the government pursuant to a law would eliminate the need for consent since arguably s. 7(3)(i) of PIPEDA would permit disclosure without consent.

What the government does with it is governed by the Privacy Act and given the broad exceptions in that statute, an intergovernmental agreement is likely to suffice to permit disclosure to the American IRS. Another blow to privacy but, in this day and age, the concept of financial privacy from tax authorities may well be going the way of the dodo.

The letter? It came to me via the office of Elizabeth May. I am not affiliated with the Green Party (but was a classmate of Ms. May’s at Dalhousie). Her office staff may have seen the previous posts and thought I’d be interested. I was. Peter Hogg, a well-regarded constitutional law expert, acting in a personal capacity, wrote the letter to the Department of Finance in response to a call for submissions. You can find it here.


CharterWhile my previous posts wrote about the PIPEDA-related privacy aspects of FATCA compliance and were written before an inter-governmental agreement (“IGA”) was a gleam in anyone’s eye, Mr. Hogg addresses the IGA in the context of the Charter of Rights and Freedoms(“Charter”). In doing so, he based his comments on the American model FATCA IGA and how the procedures may result in a violation of the Charter’s equality section (s. 15) and raises the specter of liberty and privacy violations (sections 7 and 8). His view is that discrimination based on citizenship would be a Charter violation and his preferred approach is to limit reporting to US residents, which likely would not violate s. 15. All in all, the letter is an informative read and I recommend readers to have a look at it.

It will be interesting to see if the eventual form of the IGA heeds Mr. Hogg’s advice or plunges the Canadian government into the proverbial constitutional fire.

24 Responses to “FATCA Revisited”

  1. Hi Michael,

    I have been up to my head in politics and infighting regarding FATCA for the past year and a half. A couple of initial thoughts. I was told from pretty good sources that the Federal Privacy Commissioner was very close to ruling informally at least that participation in FATCA was in conflict with PIPEDA. Thus came the move toward an intergovernmental agreement. However, the move towards and IGA has come very slowly which is still leaving the question of whether unilateral compliance so to speak is still in the cards.

    The real political issue with the IGA is it will have to be approved by Parliament in some form. However it is unclear with the Conservatives are going to really want to spend significant political capital to get a one sided agreement through the House simply to help the banks. The type of agreement the US wants is basically one sided. The US(and in particular IRS/Treasury) basically believes the banks control Canadian democracy. I am not so sure about that.

  2. Thank you for this Michael.

    For over a year, many of us have advised the government and politicians we believe FATCA violates Canadian privacy, human rights and banking laws.

    Three of us consulted one of Canada’s leading constitutional lawyers about a year ago (not Peter Hogg).

    He advised if banks violate those laws, we nay have grounds for a lawsuit against the banks. If the government changes those laws, we may have grounds for a Charter challenge against the government. This lawyer and Peter Hogg have often been on opposite sides of court cases. They are, however of like mind on FATCA as it affects Canadian citizens and residents.

    He is prepared to represent us if it should be necessary. I am certain we would have hundreds or even thousands of Canadians join us in legal action if either banks or the government violate our rights as Canadian citizens and residents based simply on where we were born.

    In addition, Canadian Civil Liberties Association has made a formal submission to Finance Canada outlining their opposition to FATCA.
    http://ccla.org/wordpress/wp-content/uploads/2012/12/2012-12-04-Letter-to-Dpt-of-Finance.pdf

    I believe FATCA (which I call Foreign Attack To Control All) is far from a done deal in Canada.

  3. Hi Michael,

    Have any of the “privacy experts” considered that every single brokerage firm already performs the same filter and requires the same determination for people who want to trade on US stock exchanges? All IIROC firms already have agreements with the IRS to share US Person determination in order to avoid US withholding taxes for all of their customers.

    The privacy impact is true on US Persons, however that being said, these persons should either file their US taxes or relinquish citizenship, they have a choice! Tax treaties ensure relatively fair treatment.

    Non-US persons in Canada will be slightly inconvenienced with being asked if they are truly non-US. Their information WILL BE PROTECTED and not sent to CRA (except for regular tax reporting).

    It is absolutely astounding how quick groups like the green party are to complain that the top 1% don’t pay their share, however once a critical, world-wide tax evasion tool like FATCA comes in, they are quick to complain about privacy.

    No countries in the world would be able to budge without the US moving first, so YEAH to the US for moving the bar and allowing everyone else to catch up. (Europe already moving to multilateral)

    In the end, FATCA will likely make Canada more money then US by making snowbird report their foreign holdings honestly for fear of recipricol reporting coming in 2 years.
    Should we feel sorry for those tax evaders? I don’t, as they are getting their fair share of health care when nneeded, it is waiting for them!

    I would encourage you to provide a more balanced set of positions on FATCA for your readers.

    Remember — Tax evaded proceeds are criminal proceeds internationally! We have the same obligation in Canada to isolate and not shelter them as any other country does for us.

    Privacy is not a shelter for illegal activity.

  4. John, there’s hardly anything balanced about FATCA. When a Canadian spouse or child shares any account with a dual/American whether or not that dual makes a dime of income the U.S. wants the acct. balances, acct. numbers, and all transactions on those accounts. My spouse refuses to do this because he is not American and happily pays all his taxes here in Canada the country of his birth. Given that I have zero income and would owe no taxes to the U.S. FATCA is a bridge too far for many families. If someone wants to do business with the U.S. in stocks or in any other manner then fine if the broker shares that info as the person has the choice to do that or not. Under FATCA though you’ll be asked to waive privacy and Charter rights. In some cases many non Americans are included in this. It’s extremely damaging to many families here in Canada and not just to dual citizens. I don’t call having a Canadian citizen turning over their private banking on demand to a foreign nation is more than a slight problem like waiving away a fly. These people should not be asked to waive their Charter OR privacy rights at all. To even consider such a thing is ludicrous. I will join any class action.

    You are assuming that all these people affecting are “tax evaders” when in fact the vast majority would owe the U.S. NO taxes given our current treaty. It’s not about “taxes” here. It’s about Charter rights, fines and huge fees on FBAR far out of proportion, and privacy. Given the recent NSA information. I don’t blame Canadian spouses for saying NO to FATCA. It’s not just duals who are affected by a long shot. Canada should NOT consider changing our laws or our Charter to please the less than honest U.S. The same U.S. who bailed out criminal bankers who then took huge bonuses with that money instead of going to jail. Let the U.S. clean up it’s own back yard instead of policing the entire world regarding this issue and many others.

  5. @John: I am Canadian. I am a taxpayer. I am productive. I contribute to my my community and to Canadian charities. I am a friend, lover, daughter, sister, homeowner, retired professional, neighbour and a woman with a disability.

    I am also a saver. All of my assets were fully earned, saved and invested in Canada. All income from my assets has been reported to CRA. My taxes have always been paid in full.

    I am not a tax cheat, tax evader or criminal.

    I came to Canada with the grand sum of $200 in 1970 at the age of 19. I became a proud Canadian citizen in 1973. US Consulate told me firmly, directly and clearly I was “permanently and irrevocably” relinquishing US citizenship.

    My Canadian citizenship oath contained an oath renouncing any other citizenship. I have a signed copy, witnessed by a Canadian Citizenship official.

    Forty years later, as I am retired due to disability, US suddenly wants to reclaim me and my money. Those funds were saved specifically for my retirement as encouraged by the Canadian government. I did this to continue to be as responsible a Canadian citizen in my retirement as I was in my working years. Disability forced that retirement on me earlier than I expected, but I remain active, productive and contributing.

    Why in the world should a foreign government have any right to any information about my assets? Even CRA does not have the right to know about the amount in my accounts, transactions, etc. CRA only requires information on the income from those assets or whether they are properly registered vehicles such as RRSP or TFSA.

    There are literally a million stories like mine. Each one is unique. Some were born in US to Canadian parents who were studying there. Many “border babies” were born in US to Canadian parents simply because it was the closest hospital.

    Do you really think these people are “tax evaders?”

    Unless you are native Canadian, your ancestors immigrated to Canada from elsewhere. Their homeland did not stalk them for taxes and details of their financial lives. If they had, they would not have been able to survive financially here and raise their Canadian families.

    That is the “balanced” story about FATCA.

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  7. John,
    I believe there is a great deal of difference between a Canadian person or resident opening a bank account in a Canadian bank being required to provide proof of US citizenship (or not) and a Canadian (or anyone else for that matter) being reguired to do so in order for withholding tax to be applied or not.
    The Tax Treaty does not cover nor protect the situation that is occuring with regard to the FBAR. The FBAR has nothing whatsoever to do with taxes and is another reason the US government is trying to identify US accounts. The US claims that FATCA etc, is about taxes but in fact, it is about serious penalization of unreported foreign accounts. That this is applied to those living outside of the US with “foreign accounts” to live, is a gross and offensive misapplication. Such reporting is meant to apply to Homelanders who have “offshore” accounts in order to evade taxes.
    What do you mean by snowbirds’ foreign holdings? Canadians who are residents for tax purposes are not required to report foreign accounts etc, unless they are more than $100k. If such a holding is a property used for personal enjoyment, it does not require any reporting. If such property is rented, rental income is reportable in Canada but is likely offset by a tax credit in order to avoid double taxation. If a snowbird is a retiree who has paid into the system in Canada, in what way is he/she not eligible or deserving of health care here?
    Privacy is a right which cannot be bypassed by some notion that there MAY be tax evasion. Perhaps you would do well to investigate this a little further before deciding that anyone interested in protecting their privacy is a tax evader.

  8. John,
    I am a dual citizen who has lived in Canada since I was six months old. I have lived, gone to school, worked and voted in Canada. I am married to a Canadian and have a Canadian child. I have never worked or voted in the United States or held an American passport. I have dutifully filed my taxes in the U.S. I make a very small income and have never owed the IRS any money. I share some joint bank accounts with my husband. Under FACTA, our joint transactions will be shared with the American government – Despite the fact that he is not an American citizen. Additionally, his name is required on the FBAR reports of any of the accounts we share and this information is allowed to be shared with any government agency in the U.S. of A.

  9. @Jennifer, my Canadian only spouse has utterly refused to do this. He pays his taxes happily to his country which is Canada and he is NOT giving the U.S. his private banking information, acct. numbers, all transactions and other private information simply because he is married to me. This needs to be re worked. Collecting that kind of data on people who have never even been American is ridiculous, ought to be unlawful too. Even my Canadian only son will be subjected to this since we both share a local checking account with him. Any reasonable person would object to this and only the U.S. would think such a thing reasonable.

  10. @Atticus on June 15th said: “…When a Canadian spouse or child shares an account with a dual/American whether or not that dual makes a dime of income the U.S. wants the acct. balances, acct. numbers and all transactions on those accounts….”

    I want to allay your fears and clear up a misconception. The Dept. of Treasury is NOT looking for transactions. No report is required if the aggregate value of the accounts did not exceed US$10,000. If you have a joint account with your non-U.S. spouse and it was greater than the equivalent of US$10,000 at any point during the year (even if it was for only one day then you as a U.S. citizen must report that maximum balance on Form TD F 90-22.1 and send the completed form to the U.S. Dept of Treasury in Detroit MI. It must be received on or before June 30th for the previous calendar year. This has been U.S. law for quite a long time…this is NOT NEW.

    Under “Part III – Information on Financial Account(s) Owned Jointly” on the TD F 90-22.1 you would have to disclose your spouse’s name and address and that the spouse is a Non-Resident Alien.

    In addition to disclosing maximum value during the calendar year (report the U.S.$ equivalent), the type of account, the name of the financial institution, the account number, the mailing address of the FI and the number of joint owners for the account must be disclosed.

    Many U.S. persons have not been making the requisite filings… they didn’t know, they didn’t understand…they didn’t want to, etc.

    Whatever route FATCA compliance takes in Canada in 2014, it becomes the ‘hammer’…unfortunately.

  11. @Blaze on June 15th said: “US Consulate told me firmly, directly and clearly I was permanently and irrevocably relinquishing my US citizenship.”

    Sounds to me you are no longer a U.S. citizen. In the eyes of the U.S. government you are non-resident alien. You are no longer a U.S. person.
    I presume you have not filed Form 1040s or TD F 90-22.1s since after 1974.

    FATCA will require Canadian and other foreign financial institutions to provide information about their U.S. person customers to the IRS. I do not believe it applies to you.

  12. @Jennifer on June 19th said: “…I share some joint accounts with my husband. Under FATCA, our joint transactions will be shared with the American government – Despite the fact that he is not an American citizen…”

    See my reply to @Atticus earlier today.

    The U.S. Dept of Treasury is NOT seeking transactions. They require balances to be disclosed on Form TD F 90-22.1 when the aggregate value of the accounts exceeds the equivalent of US$ 10,000.

    In addition to the 1040s that you have been dutifully filing over the years, you may need to file the aforementioned form. You should seek advice from a qualified tax professional experienced in preparing U.S. tax filings.

  13. @Atticus. It is not your husband’s responsibility. He is not a U.S. person. It is your responsibility as a U.S. citizen to file the Form TD F 90-22.1s along with the Form 1040.

    Once again, it is NOT transactions that the Dept of Treasury is seeking. See my replies sent earlier this evening.

    If the aggregate value of the joint accounts with your son exceed the equivalent of US$10,000 then you will need to disclose him as a joint account holder. (see my earlier reply to you)

    You should seek advice from a qualified tax professional experienced in preparing U.S. tax filings.

  14. Oh my goodness! For the person who wrote
    “Tax treaties ensure relatively fair treatment”, this situation is anything but fair.

    1. I have to file and pay taxes to a country that I left as a young child.
    2. I’ve never worked in the US, held assets there, received any benefits from, or have any sort of financial interest there whatsoever.
    3. ALL of my uniquely Canadian investments are considered off shore trusts by the US Gov and some could be subjected to confiscatory fines.
    4. My Canadian husband, who earns all of the money in our accounts and pays all of the Canadian taxes on it, must have all of his private info given to the US Gov.
    5. The cost of hiring a qualified cross border tax experts exceeds what I earned last year working as a Stay-at-Home-Mom.
    6. As a Canadian resident and citizen, I have the right to invest in and reap the tax benefits of, RRSP’s, RESP’s TFSA’s Canadian mutual funds, and all the rest, just like any other citizen.

    All of this would be a non-issue if the US taxed on the basis or residence live every other country in the world.

  15. @Marie. The fact of the matter is that the U.S. does tax on the basis of citizenship. As a U.S. citizen you have certain obligations. There is also the option of renouncing your U.S. citizenship.

  16. @George,

    Citizenship based taxation is immoral, regardless if it is US law. Someday, maybe sooner than later, USA will officially recognize its backwards policy of taxing those who do not live there and do not earn income there, and will adopt residence based taxation as practiced by all other countries in the world (except Eritrea).

    Marie owes the US nothing, and has no ‘obligation’ to appease a bully state. In fact , one could argue that she has an obligation to resist it.

  17. @George,

    If it was easy for Marie to renounce, I bet she would have already.

  18. @George,

    Who cares whether the IRS wants only account balances and not transactions? Do you think it’s somehow less of a deal if only the balances are sent?

    USA has no business knowing the account balances(or transactions) of Canadians who live in Canada earning income only in Canada, period. USA has no business knowing the balances of RRSPs, RESPs, RDSPs (which are all Canadian government registered savings vehicles) or any other accounts held legitimately in the country where one lives and earns their income.

    Do homeland Americans have the account balances of their homeland bank accounts sent to the IRS? No. What makes those who live outside of USA subject to privacy infringements that Homelanders are not subject to?

  19. @WhiteKat, Marie can do as she wishes. Most people in societies respect the rule of law.

    “The Revenue Act of 1913, the first income tax enacted after the passage of the Sixteenth Amendment, imposed a tax on “every citizen of the United States, whether residing at home or abroad” and on the individual’s “entire net income arising or accruing from all sources.” Worldwide taxation has remained a feature of every subsequent income tax act…

    It is settled law that the United States has the power to impose an income tax on the basis of citizenship alone, regardless of residence. Whether it is justified in doing so and whether it is wise to do so are different questions.”
    Excerpted from THE END OF TAXATION WITHOUT END: A NEW TAX REGIME FOR U.S. EXPATRIATES
    by Bernard Schneider J.D. and LL.M. in Taxation, New York University School of Law; Ph.D. Candidate, Queen Mary, University of London, School of Law, Centre for Commercial Law Studies.

    If a Canadian living in Canada and earning income in Canada also happens to be a U.S. person then I would disagree with you.

    Homeland Americans do not have account balances of their homeland bank sent to the Dept of the Treasury, but if a homeland American has (a) bank account(s) outside of the U.S. then he/she is obliged to file FBAR(s).

  20. @ John………

    Forgive me, but I cannot believe that anybody could have his head stuck so far up his ass to say the things that you have said.

    Are you on Obama’s payroll? Or are you one of those 800 new IRS agents that he wants to hire?

    @ George J.

    Based on your cock-eyed logic, if you were alive during pre-civil war times, you would have defended the Fugitive Slave Law too. After all, it was the law, and as a US citizen of the day it would have been your duty to uphold it………..right????

    What Hitler did to the Jews was lawful (according to German law at the time) too.

    Congratulations on laying bare for all to see your debating skills, or more precisely, the lack thereof.

    Are you going to continue to make a fool of yourself?

  21. You guys that are saying the threshold for reporting on form 8938 (FATCA) is $10,000 for a non-resident US Citizen (a US person living abroad) are mistaken. The thresholds are as follows:

    FROM Do I need to file Form 8938, “Statement of Specified Foreign Financial Assets” at IRS.GOV.

    Link:

    http://www.irs.gov/Businesses/Corporations/Do-I-need-to-file-Form-8938,-%E2%80%9CStatement-of-Specified-Foreign-Financial-Assets%E2%80%9D%3F

    If you are a taxpayer living abroad you must file if:
    You are filing a return other than a joint return and the total value of your specified foreign assets is more than $200,000 on the last day of the tax year or more than $300,000 at any time during the year; or
    You are filing a joint return and the value of your specified foreign asset is more than $400,000 on the last day of the tax year or more than $600,000 at any time during the year.

    So, unless you have that much in your accounts (GOOD FOR YOU IF YOU DO!) then you need not worry about filing the 8938.

    –Chris B.

  22. EDIT: Note that “specified foreign assets” DO NOT include your principal residence. :)

    Chris B.

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