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FATCA agreement between Canada and the United States

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Canada–United States Enhanced Tax Information Exchange Agreement
Agreement Between the Government of the United States of America and the Government of Canada to Improve International Tax Compliance through Enhanced Exchange of Information under the Convention Between the United States of America and Canada with Respect to Taxes on Income and on Capital
Signed5 February 2014
LocationOttawa, Canada
Effective27 June 2014;[1] under litigation since 11 August 2014[2][3]
ConditionNotification of Canada it has completed its internal procedures
SignatoriesCanada and the United States
LanguagesEnglish and French

The FATCA agreement is an international agreement signed between Canada and the United States that allows the implementation of the Foreign Account Tax Compliance Act (an Act of the U.S. Congress) in Canada. It is one of 30 intergovernmental agreements the US has concluded with other countries to implement the FATCA.[4]

FATCA requires United States persons, including individuals who live outside the United States, and financial institutions outside the United States, to report the principal amount held in their financial accounts outside of the United States to the Internal Revenue Service (IRS).

According to the Canadian Broadcasting Corporation (CBC) there are about one million American citizens living in Canada. This treaty also affects their spouses, children, or anyone with whom they own property, share a business connection, or hold a joint financial account. Transfer of Canadian banking records to U.S. tax agency doubled between September 2015 and September 2016.

The agreement exempts Tax-Free Savings Accounts, Registered Disability Savings Plans and Registered Education Savings Plans.[5]

Canadian banks say they expect compliance costs to be "enormous".[6]

According to Bloomberg, Revenue Canada minister Kerry-Lynne Findlay promised that this treaty will not impose any U.S. taxes or penalties on people holding accounts in Canada.[7] On January 29, 2017 the CBC reported that the former government of Stephen Harper felt it had no choice but to comply with the U.S. request to provide banking records of Canadian residents, but said it was able to exempt some types of accounts from the information transfer. Prime Minister Justin Trudeau, Treasury Board President Scott Brison and Public Safety Minister Ralph Goodale have not responded to public requests to re-negotiate the FATCA agreement.

October 2013 Financial Post report

While anticipating the agreement but before it was signed, Scotia Bank, one of Canada’s large banks, spent almost $100 million, implementing a system to report to the United States the account holdings of Canadians of American origin, and their Canadian born spouses in order to comply with FATCA. According to the Financial Post FATCA requires Canadian banks to provide information to the United States including total assets, account balances, account numbers, transactions and more, and includes assets held jointly with Canadian-born spouses and other family members.[8][9]

CTV January 2014 report

In January 2014 CTV Television Network reported that Allison Christians,[10] the H. Howard Stikeman Chair in Tax Law at McGill University, said that the Foreign Account Tax Compliance Act could impact all Canadians. "The way the U.S. law is written, financial institutions around the world have an obligation to ensure that any accounts that are held by American people with U.S. status, that information about that account is given to IRS...." Allison Christians collaborated with Queens University professor Arthur Cockfield on another paper on this topic.[11]

FATCA requires Canadian banks to identify and supply the financial information of anyone considered to be a U.S. person to the IRS. FATCA may affect Canadians with no ties to the U.S. Christians says that financial institutions face high costs to implement the new rules, and that all customers will face higher banking costs typically passed on to clients in the form of higher fees and charges.[12]

Financial Post March 2014 report

On March 26, 2014 Julius Melnitzer wrote in the Financial Post that FATCA requires foreign financial institutions to report the financial activities of their American clients to the Internal Revenue Service and to withhold funds in appropriate circumstances. However the Isaac Brock Society [13] leaked documents from CRA's guidance notes that suggest that the Canadian federal government and Canada Revenue Agency (CRA) have undermined the intergovernmental agreement (IGA) with the U.S. which is aimed at catching American tax evaders living in Canada. It is alleged that Finance Canada and CRA "intended to drastically depart" from key definitions found in the IGA and FATCA, and that CRA's interpretation of the draft legislation is “significantly different” from OECD guidance.

For instance, CRA's guidance suggests that a place of birth is only unambiguous if an account holder lists it as “New York, New York, USA” but not if it is listed as "New York, New York." [14]

Litigation commenced August 2014

On 11 August 2014, in an action supported by the Alliance for The Defense of Canadian Sovereignty[15] (ADCS), two Canadian citizens—Ginny Hillis and Gwen Deegan—filed suit in the Federal Court of Canada challenging the constitutionality of the Canadian law that implements FATCA in Canada. Both Hillis and Deegan were born in the U.S., with at least one Canadian parent, but returned to Canada in childhood and have had no residential ties to the U.S. since. Hillis and Deegan claim that this would result in them having U.S. indicia and therefore being discriminated against by Canadian banks.[2][3] On 12 August, Canadian government spokesman Jack Aubry defended the constitutionality of the legislation, but otherwise declined to comment on the pending litigation.[16]

CRA transfers of banking records to the IRS

On October 13, 2015 Mondaq Canada reported that Canada Revenue Agency (CRA) had provided 155,000 information slips to the Internal Revenue Service (IRS) in compliance with FATCA, [17]

On January 29, 2017 the CBC reported that the CRA transferred more than 315,000 banking records of Canadian residents to the IRS in September 2016.[18]

Controversies

On January 29, 2017 the CBC reported that the transfer of Canadian banking records to the IRS in September 2015 was controversial because it was done without an assessment by Privacy Commissioner of Canada or the waiting for the outcome of a legal challenge to the agreement's constitutionality.

See also

References

  1. ^ "Entry into Force of the Information Exchange Agreement between Canada and the United States". Department of Finance, Canada.
  2. ^ a b Wood, Robert W. "Canadians File Suit To Block FATCA And Prohibit Handover Of U.S. Names To IRS". Forbes.
  3. ^ a b Trichur, Rita (2014-08-12). "U.S. Expats Sue Over Canadian Deal to Tell Washington About Their Accounts". The Wall Street Journal.
  4. ^ "Canada and U.S. sign agreement on tax evasion". Reuters. 6 Feb 2014.
  5. ^ Theresa Tedesco. "Ottawa had little choice in signing controversial deal with U.S. tax man". Financial Post.
  6. ^ Fitz-Morris, James (2014-02-05). "FATCA tax deal with U.S. takes some heat off Canadian banks - Politics - CBC News". cbc.ca. Retrieved 2014-02-05.
  7. ^ Argitis, Theophilos (2014-02-05). "Canada Signs FATCA Tax Pact With U.S. - Bloomberg". bloomberg.com. Retrieved 2014-02-05.
  8. ^ "Electronic spying 'a big issue' for banks, Scotia CEO Waugh says | Financial Post". Business.financialpost.com. 2013-10-23. Retrieved 2014-02-17.
  9. ^ "Dual Canadian-American citizens: We are not tax cheats | Financial Post". Opinion.financialpost.com. 2013-09-17. Retrieved 2014-02-17.
  10. ^ FATCA Forum - Part 5 of 9 - Allison Christians on FATCA and International Tax Law. 23 December 2012 – via YouTube.
  11. ^ Christians, Allison and Cockfield, Arthur J., Submission to Finance Department on Implementation of FATCA in Canada (March 10, 2014). doi:10.2139/ssrn.2407264
  12. ^ http://www.ctvsnews.ca/business/q-a-how-will-the-new-u-s-tax-law-affect-canadians-1.1638582
  13. ^ "The Isaac Brock Society".
  14. ^ Julius Melnitzer (26 March 2014). "Leaked documents show Canada 'intended' departure from FATCA agreement with U.S. - Financial Post". Financial Post.
  15. ^ "Issue".
  16. ^ "Dual citizens sue feds over FATCA tax deal with U.S." Global News.
  17. ^ "The CRA Complied With The September 30 FATCA Deadline After The IRS Advised That Notice 2015-66 Did Not Apply To Canada - Tax - Canada".
  18. ^ http://www.cbc.ca/news/politics/taxes-internal-revenue-service-fatca-united-states-1.3954789
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