UPDATE: September 23, 2014, from JC comment, additional to The_Animal’s original list:
The injustice is even worse than presented:
a) Canadian Welfare payments are considered taxable by the US in Canadian Government POV
b) Canadian Disability payments are considered taxable by the US in Canadian Government POV
c) Canadian Employment Insurance is considered taxable by US in Canadian Government POV
d) Canadian Worker’s Compensation is considered taxable by US in Canadian Government POV
e) Canadian Child Support Payments are considered taxable by US in Canadian Government POV
f) Canadian Child Tax Benefit payments are considered taxable by US in Canadian Government POV
The Canadian-US Tax Treaty is an abomination to embody the point of view of the Canadian government, that Canadian government assistance to families is taxable U.S. income. These areas above should have been explicitly exempted from U.S. tax in the tax treaty. Without the exemption, there is no clearer case of US government infringement on Canadian sovereignty.
I believe this subject is so very important. These are the families I, too, worry about the most — and, believe me, I worry about ALL *US Person* families. For these families, how will they ever have enough for the US citizenship renunciation fee, let alone the cost of compliance either to remain a US citizen abroad or to check out of the USA properly? How will many even understand all of the complexity? Who at a US Consulate OR what Canadian MP, who must take responsibility in subjecting persons to this by not standing up for these *US Person* Canadians, their rights waived by the signing of an intergovernmental agreement for FATCA with the US Treasury, will assist these low-income persons?
From The_Animal, put into this post to be further discussed in comments.
How FATCA will impact those of modest means (low income families).
Homelanders like to trumpet the fact that we have an “foreign earned income exemption” of 97,000. Unfortunately, the trump card is the “earned income” classification. Earned income means pay checks from an employer. So what does that do to most sources of income for those expats of low-income or on social assistance?
a) Welfare payments are not considered “earned income” in IRS’s POV.
b) Disability payments are not considered “earned income” in IRS’s POV
c) Employment Insurance is not considered “earned income” in IRS’s POV
d) Worker’s Compensation is not considered “earned income” in IRS’s POV
e) Child Support Payments are not considered “earned income” in IRS’s POV
f) Canada Child Tax Benefit payments are not considered “earned income” in IRS’s point of view.
So all of these are taxed by the United States Internal Revenue Service in its overreaching grasp. Since most expats of modest means have a corresponding lack of education, they are furthermore hindered by not being able to understand the intricacies of the US tax system. Furthermore they do not have the monetary resources to get into compliance as their choice is between putting food on the table for their families or starving and coming into compliance.
Secondly all accounts that are not disclosed by means of an FBAR are subject to a financial penalty of $10,000 per account that is not considered wilful non-disclosure – the penalty for wilful is $100,000 or 50% of one’s account balance, whichever is greater. How is someone who makes $18,000 per annum supposed to come up with $10,000 for a non-wilful penalty let alone $100,000 (if the whim of the IRS is that the account-holder is a wilful non-disclosure)? For these families there is no financial safety net to dip into. For these people there is not a single way to come into compliance that would not wreak financial ruin on the family.
“There has to be a better way” is the constant refrain that I’ve been hearing from everyone. Unfortunately there is NO way for those of low-income to even think of coming into “compliance”.
From a comment I made this morning, the portion pertaining to low income persons who have Canadian Registered Disability Savings Plans: http://isaacbrocksociety.ca/2014/06/01/its-time/comment-page-72/#comment-3097016