Canada became the latest nation this week to ink a deal with the United States Treasury regarding FATCA, the Foreign Account Tax Compliance Act. There are privacy advocates and constitutional scholars in every country that object to FATCA but nowhere have folks been more vocal in their opposition than in Canada.
Two of our recent posts on TaxConnections regarding Canadians and FATCA garnered almost 100 comments within being posted.
Said one Canadian, “FATCA does threaten Canada’s sovereignty. It violates our Charter of Rights and Freedoms as well as our privacy laws. By its very nature it’s imperial over reach… Canadians are very sensitive to what Trudeau called the “elephant to the south” of us.”
“Canada needs to stand up for its citizens. FATCA is a violation of our privacy rights as well as the Canadian Charter of Rights and Freedoms,” wrote another.
Yet over the objections of some very powerful banks politicians, Canada approved an intergovernmental agreement with the United States this week. Under its terms, the Canadian Revenue Agency will collect the information and turn over the names of account holders with suspected ties to the United States to the IRS. Canadian banks will not have to directly report to the IRS but will bear considerable costs associated with capture of the required data.
Canadian Revenue Minister Kerry Lynee Findlay told reporters, “This is strictly a tax information-sharing agreement. This agreement will not impose any U.S. taxes or penalties on U.S. citizens or U.S. residents holding accounts in Canada.”
Part of the media frenzy in recent weeks has been caused by Canadian banks. Two years ago, Canada’s largest bank, TD Bank, claimed it would cost $100 million to comply with FATCA. Some journalists and members of the public now claim that it will cost each Canadian bank that much money. (The IRS, on the other hand, has only spent $8.6 million in recent years gearing up for FATCA.)
Another reason for the vocal opposition is the thousands of US expats living in Canada. According to Canadian census data, 263,475 Canadians claim they are immigrants from the U.S. This number doesn’t include dual nationals, Canadians living here that bank in Canada and Americans who maintain Canadian accounts.
The final agreement exempts from reporting certain federally retirement plans such as RRSP’s, accounts under C$50,000 ($45,150 USD) and some small financial institutions and local banks that deal primarily with Canadian residents.
Unlike many other countries, Canada has long had special treaties with the United States dealing with cross border taxation issues. We will be examining those treaties and specific details about the new FATCA agreement in future posts. Still at issue are RESPs and RDSPs (special education savings and disability plans) which are not specifically addressed in the text of the agreement.
For most Canadians, FATCA will have no impact on their daily lives. U.S. citizens, dual nationals and Canadians who live or work here (and thus are required to file U.S. tax returns) will be impacted. Since 1970, the U.S. Bank Secrecy Act has required these folks to report foreign financial assets on a special form called an FBAR (Report of Foreign Bank and Financial Accounts). The penalty for not filing FBARs can be huge; up to the greater of $100,000 or 50% of the highest historical account balance per account.
Although the IRS routinely imposes those high penalties, we expect that Canadians not aware of the reporting requirements will be able to demonstrate their actions were not “willful” and thus qualify for lower or no penalties. The cost of amending returns and filing FBARs will be higher, however.
FATCA goes live for foreign banks on July 1st, although Canadian banks and financial institutions won’t be turning over data until next year. Rather than panic, we urge folks with potential US reporting obligations to educate themselves on the new law and then seek professional assistance. For some that may mean an expat tax service. For others, particularly those with larger balances or worried about exposure to the higher penalties, a conversation with an experienced FBAR lawyer may be the best advice.
If you or your company find that you more than one year of FBARs (Report of Foreign Bank and Financial Accounts), give us a call. Our FATCA lawyers have helped many folks come into compliance. We usually offer flat fees for our services. Because we handle many of these cases, we can offer our services for less cost than many other tax lawyers.
Post by Brian Mahany, Esq.
Tag as FATCA, FATCA compliance, FATCA attorney, FATCA RRSP, FBAR lawyer