Schubert receives an important clarification from Finance Minister Jim Flaherty regarding the affect that the recently-signed OECD treaty will have on the Canada-United States tax treaty, specifically regarding the protections afforded to Canadian citizens.
In early November, Finance Minister Jim Flaherty signed on behalf of Canada an OECD treaty called “Convention on Mutual Administrative Assistance in Tax Matters.” I had noticed at that time that Article 11 and a couple of other articles seemed to contradict Article XXVI A of the Canada-US Tax Convention.
Article XXVI A (section 8) states that neither party can be required to collect tax liabilities claimed against a resident by the other party, if those liabilities were incurred while that resident was a citizen of the other party. Article XXVI A is the basis for repeated statements by Canada Revenue Agency and by Minister Flaherty in September and October 2011 that no tax liabilities (and that means both taxes and penalties, including anything arising from forms 1040 and FBAR and all the rest of it) claimed by the US against a Canadian citizen (citizen at the time of the liabilities) would be collected in Canada.
I wrote to Minister Flaherty on November 28 and again on December 27, 2011, asking for clarification of whether the OECD treaty was inconsistent with the protections provided Canadian citizens under the Tax Treaty.
I received in this afternoon’s post a personally-signed reply from Minister Flaherty, dated February 10, 2012. He says point-blank, the apparent inconsistency “is not the case.” He continues, “It is intended that, at the time of the deposit of Canada’s instrument of ratification of the Convention with the Secretary General of the (OECD), Canada will reserve against Articles 11 to 16 of the Convention and consequently, will not be bound by the Convention’s provisions in respect of the assistance in the recovery of tax claims. The Convention therefore does not alter the current application of Article XXVI A of the Tax Convention, which provides for assistance for the collection of taxes between the tax authorities of Canada and the US.” The full text of my November 28 email to Minister Flaherty, and a photograph of the letter I received in reply to my email, appear in the attached PDF file at the bottom of this post.
The “current application” is, as Flaherty has said in writing to at least one MP and to several persons who have posted on this website, that Canada will NOT collect any taxes or penalties claimed by the IRS against anyone in Canada who was a Canadian citizen at the time these alleged liabilities were incurred. FLAHERTY HAS SPECIFICALLY STATED THIS APPLIES REGARDLESS OF WHETHER THE CANADIAN CITIZEN HOLDS DUAL US CITIZENSHIP. (For now, I’ll leave aside the issue of the US claiming you’re a dual citizen when you are certain in your own mind that you are NOT and that any such claim by the US is absurd.)
Depending on whether one speaks of the December IRS announcement of a requirement for filing back six years, or the OVDI standard of eight years, any Canadian resident who was or became a Canadian citizen prior to 2006 or 2004, respectively, has the option of telling the IRS to jump off a very tall cliff, with respect to tax filing (including FBARs, and Form 8854 with respect to expatriated Americans), as long as that resident is prepared never to cross the US border again. The IRS has no jurisdiction on Canadian soil, it can only apply to Canada to collect tax claims on its behalf, under the provisions and limitations of the Canada-US Tax Treaty. That includes Article XXVI A mentioned above and in Flaherty’s letter to me.
I appreciate that some people feel they have to be able to cross the US border, either for family or business reasons. However, I strongly suggest anyone who is concerned about the costs, both financial and moral, of complying with IRS extortion, seriously consider the option of refusing to comply with IRS demands and not crossing the border again. Yes this may have a down-side for you, but what is the trade-off in terms of costs to you, your family, and your retirement if you comply with the IRS?
There is also a very strong moral and political issue for those who firmly believe in good faith they haven’t been US citizens for decades, have made no claims to nor exercised any rights of US citizenship since committing their expatriating acts, and therefore have no logical or even legal reason to pay taxes to a foreign country which has provided them NOTHING by way of protections, goods, services, benefits or rights. Particularly when they have for decades fully, freely and honestly paid taxes (at higher rates than Americans) to Canada and its provinces for protections, goods, services, benefits and rights they HAVE received from their adopted country.
I don’t know what effect the Tax Treaty has with respect to the application of FATCA on Canadian soil. No doubt that is something being raised by Flaherty and his officials even now. Bear in mind, however, that the only real financial cost that can be imposed on you for failure to comply with FATCA, as far as I can tell, is a 30% withholding of certain transactions ARISING FROM US-SOURCE INVESTMENTS. Do you have US source investments? How important are they to you? Can you unload them and re-invest the funds in Canada instead, before FATCA comes into play? Think about it.
If you are not a Canadian citizen, or became one after 2004 and certainly after 2006, this may not help you. If you reside in and are a citizen of a country other than Canada that has a bilateral tax treaty with the US, you need to consult with your government or a tax lawyer in your country about whether your country has similar protections available to you under a dual tax treaty with the US, whether your country has signed the OECD treaty, and whether your country is or isn’t going to “reserve against” Articles 11 to 16 of the OECD treaty. Residents in countries other than Canada, who read this post and investigate what protections they do or don’t have, are encouraged to post the results of their investigations in their own country, as a reply to this thread. Or perhaps someone can start a separate thread for countries other than Canada …
The fact that it has taken two and a half months to get a reply (signed by Flaherty himself, on Minister of Finance stationery), suggests to me the wording of the letter has been vetted very thoroughly by Departmental lawyers. However, I am neither a lawyer nor an accountant, and I am not offering professional advice. If you are in any doubt about the foregoing as it may apply to your own case, I urge you to consult a tax lawyer who is familiar with Canadian, as well as US, tax law. Preferably one based in Canada. I for one have more faith in the motivation, and ultimate loyalty to my concerns, of a fellow Canadian than I would have in any American lawyer. (For anyone residing in and a citizen of a country other than Canada, replace “Canada” with “your country” in this paragraph.)
And, speaking in spite of being a life-long supporter and member of the NDP who has never voted Conservative in his life, God Bless Jim Flaherty. Our government is in fact standing on guard for its citizens. As is the NDP. Who knows what the Liberals stand for?
For the more legally minded, you might check out the “revenue rule” which is a common law tradition regarding collection of taxes
outside of the taxing jurisdiction. This was mentioned to me by a cross border tax expert long before the Canadian Finance department stated that CRA would not be collecting US taxes
and FBAR penalties from Canadian citizens.
@geeez- even if you get a credit isn’t the downside of these credits the fact that they are not dollar for dollar? If they were one for one then that would leave open the possibility that the U.S. could owe you money on taxes that you never paid. But by giving you a partial credit you can be left owing them money on income that you earned abroad.
Capital gains and passive income are only partially sheilded from U.S. taxation. The FEIE is also only partially sheilds your wage income because it has a cap. Either way you look at it the object of U.S. tax policy with regards to expats seems to be to prevent them from succeeding.
The war against expats is the only form of class warfare that both Republicans and Democrats will join forces on.
Reblogged this on Stop Unconstitutional Double Taxation and commented:
This could be a model for all countries.
@Schubert – “let’s not paint the IRS as the army of Modor. They have restraints…”
I posted a while back of a case where a husband and wife were living in Costa Rica and telling US expats not to file US taxes. And they were selling some sort of “guide” to expats, showing them how to get out of paying US taxes. They were extradited to America and are either in jail, or served time.
No matter how misguided some US policies may be, I will not defy them in such a manner. I’ll just play their game and renounce like they want people to do who don’t want to play their games anymore.
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Last evening I forwarded copies of Flaherty’s letter to me, copies showing my name and address since I’m already well-known to them, to Paul Dewar, my MP, as well as to the NDP Finance and Foreign Affairs critics and to Denise Savoie MP-Victoria, with whom I’ve previously corresponded on the FATCA/FBAR/ex-post-facto citizenship issues.
After sending off the emails, I walked down the street to a neighbourhood art gallery where Paul Dewar was hosting a reception for his NDP leadership campaign. (For non-Canadians, Dewar is one of currently seven candidates for the leadership of the New Democratic Party of Canada, which is Canada’s Official Opposition party and government-in-waiting; the winner of that leadership could possibly be the next Prime Minister if the party plays their cards right and the current PM screws up enough or voters get fed up enough with him. The current government has a majority of seats in Parliament, but only got 39% of the votes nationally in the election last May.)
I introduced myself to Dewar, whom I’d not personally met before. He remembered the name from my emails. I spoke with him for a couple of minutes (there was an informal queue, which I’d jumped a bit) and alerted him to the Flaherty letter I’d just sent to him, mentioning that it is important that the Opposition pay careful attention to the “reservation against” Articles 11-16 of the OECD Treaty when it comes to Parliament for ratification. Paul assured me that the NDP will be vigilant about this. Not that I think Flaherty would change his mind or reneg on a promise, but I have much less faith in the motivations or others in his party, including the PM. Better safe than sorry. Anyway, the Opposition is well-informed now, as long as they read their email (which by all my evidence they do).
I’ve also passed on to Dewar the link to this website. He likely won’t have time to visit and browse, but I’m hoping a couple of his staff and advisers will.
I have pointedly not forwarded the Flaherty letter to any Liberals. They’ve never even acknowledged receipt of my past emails. I have yet to hear of any public position taken by the party or by any of their MPs on our various issues. I’d vote Tory before I’d vote Liberal; at least I know that the Tories stand for something and what it is, even if I generally disagree with about 90% of it. I don’t know what the Liberals stand for, or whether they stand for anything other than getting back into power. As far as I’m concerned, the Liberal Party of Canada is a waste of space.
Re: IRS taxation of Capital Gains (passive income) – another important factor on reporting gains/losses on the 1040 – the Proceeds and Adjusted Cost Basis are both reported at the exchange rate as of the date of “Sale” and “Buy”. As that rate has changed drastically in the last 20 years, it is possible that any gain reported to the IRS could be considerably greater than what is is reported on the Canadian return. It could be thousands of dollars greater if the buy was in the late 90’s and the sale in 2010 or 2011 when we were almost at par. Any losses could be considerably less. A real problem with compliance.
@Schubert: Have you sent copies to Elizabeth May? I know she doesn’t have much power because she has the Green Party’s only seat, but she’s personally caught up in this.
She was born in US, came to Canada as a child and became a Canadian citizen in 1970s. Like many of us did not think she was still US citizen.
I copied her and others on letters I sent to Harper and Flaherty. I haven’t heard from anyone yet, but it’s still early.
@Blaze but really @ May and the Liberals, who aren’t listening or paying attention:
I sent Elizabeth May a separate copy of a detailed email, my first in fact, that I’d sent the day before to Flaherty, Baird, Dewar, and the opposition critics of both Finance and Foreign Affairs of both the NDP and Liberals. (I don’t bother with the Bloc; I won’t correspond with separatists, on principle.) That was on October 31. I’ve had replies from Flaherty, Dewar, and the NDP foreign affairs critic, no one else, to that and other emails. May never even acknowledged my email (nor did Baird nor the Liberals), and I did mention in a personal cover note that I understand she’s an ex-American. After nearly four months, I won’t continue sending emails to a politician who can’t even send a robo-acknowledgement (which is what I initially got from Flaherty via the Finance Departmental Correspondence Unit, in fact in response to every email I’ve sent him).
If someone else wants to keep trying May (or the Liberals, for that matter) they’re welcome to do so, and I wish them luck. But I won’t waste my time, energy, or vote on any party that doesn’t even have the courtesy to acknowledge receipt of a message from a citizen and taxpayer. Yes Flaherty has a whole government department behind him, and opposition members and backbenchers don’t have those resources. But every MP has an office staff and computers, and how complicated is it to send at least a robo-reply by email?
BTW I’ve had personal and specific replies from Denise Savoie who is an NDP MP from Victoria, BC. I’m not her constituent, and I live more than 2000 miles from her riding. She still replied. I’ve heard of other NDP members who have replied at some length to emails they got from citizens in other ridings, notably a Toronto NDP member whose name escapes me who is an ex-American himself, which is why the citizen wrote to him.
I think the preceding paragraph speaks very highly of the NDP members of parliament and how they view their jobs and responsibilities (and the fact their salaries are paid for by all Canadian taxpayers, whether they voted for a given party or not and whether they live in a given riding or not). And it speaks volumes about the other members.
I think these things are important in a democracy, and I’d hope they’re important and noticed by other voters too. I have a VERY long memory for things like this. It’s one reason why I vote NDP and am now a party member (when I was a federal public servant I very carefully never joined any political party or attended political meetings; I strongly believe that Canada deserves non-partisan public service — including in Parliament, the courts, the police, and the military as well — from people who have ONE citizenship and ONE loyalty. Which is what I believed I had as soon as I became Canadian, months before State sent me the CLN, a document of which I’d never heard until it came in the mail — and LOTS of so-called relinquishers felt and thought the same when they became Canadian, even though they never got a CLN and are now queued up to get one after having first found out about it on websites like this one, in recent months).
I believe Elizabeth May did send a letter to Flaherty last fall at some point that included making light of her own personal situation. I have not heard anything out of the Liberals at all on this. One thing you have to remember is both the NDP and the Conservatives as succesors to the old Reform Party have a certain amount of populism in their DNA that Liberals don’t.
Flaherty has stayed much stronger on this issue than I had thought as recently as December when their seemed to be a lot of silence coming from his office. I do note there are news reports that several additional European contries such as Ireland have made official requests to become part of the FATCA five group so this whole thing is moving much more towards an intergovernmental issue between Ottawa and Washington in which case MP’s of all parties are fully justified in being able to take a long look at any FATCA “deal”.
One thing I’ll mention is that Dwight Duncan(Ontario Finance Minister and Liberal) along with Kevin Falcon(BC Finance Minister and Liberal), and Quebec Finance Minister Raymond Bachard(Liberal too) all sent strongly worded letters to the US backing Flaherty’s and Mark Carney’s complaints they sent in strongly worded letters on another extraterritorial US law called the Volcker Rule. So perhaps the focus with the Liberals should not be at the Federal level but with the provincial Liberals in Ontario, BC, and Quebec who DO regulate much of the financial sector in securities for example.
The other thing I forget mention is if Paul Dewar is your MP then Yasir Navqi is your MPP. Navqi is the Parliamentary Secretary to the Ontario Minister of Finance(Dwight Duncan) who is the overseer of the Ontario Securities Commision and the Financial Services Commission of Ontario(which regulates Insurance and Credit Unions). Now clearly Ontario is going to let the Feds take the lead on this one but I think it might be a good idea to let Navqi know of the situation and how it might effect Ontario regulated institutions. I can try to writeup more of what some of the implications are under Ontario law if you need me too. I would also consider notifying other provincial governments too. Does anyone live in Calgary West; Ron Liepert’s riding.
Good to hear that provincial Liberals are weighing in on the other issue, but so far I haven’t heard of Liberals at either level saying much or anything about FATCA or FBAR (I wouldn’t expect any provincial party to comment on the citizenship issues, but I think that’s very important at the federal level). I’ve yet to hear of federal Liberals saying anything on these issues. Maybe that’s a fallout from having a dual US citizen/long-time US resident as their last leader. But maybe I’ve missed something in the media, that’s always possible. I keep asking in posts on this forum, as I did on expatforum back when I still participated in it, for anyone who had a Liberal reply to come forward. If anyone has, I’ve missed it.
I’d be happy for you or anyone else to investigate the Ontario implications of FATCA and write Navqi or whoever. I am focusing my efforts on some more specific federal issues and targets and helping a few specific individuals I know, then on getting the rest of my life back (even those of us with CLNs are getting fed up and angry with how much of our lives this US-sparked crap is taking over, something I’ll never forget or forgive them for). I’m not going to get into lobbying provincial politicians over this, but I’d be delighted if others would pitch in on that one.
On this subject I want to bring up a “tentative” conclusion as regards to the collection provision of the double taxation treaty. My hunch is in fact they have never been invoked short of a case involving a huge amount of money probably in the corporate sphere for this reason neither the IRS or CRA really know whether someone is in fact a Canadian citizen. Thus they could conceivable put in quite a bit of effort just to show up on someone’s doorstep in Canada to collect and have the person in question whip out a Canadian passport. No one in either the IRS or CRA would want to waste that much time when there are other easier targets to find. Now CRA does have that voter registration section on the T1 personal return but I suspect that information is fairly restricted and probably not something they could depend on in determining whether could collect on someone on behalf of a foreign government.
In both the US and Canada there is actually no master list of who is a citizen or not. Both countries federal governments know who has naturalized and who has passports but most Canadians and Americans prove their nationality by presenting a birth certificate issued by a state/provincial or municipal government. Even passport and naturalization information is highly restricted in both Canada and the US to the actual departments who deal with these issues
@TIm: I don’t worry about them showing up on my doorstep (or even in Canada) and tyring to arrest me or force me into compliance. I still have enough faith in Canada’s laws fo that.
My fear is over FATCA. IRS may not have information about us now, but what happens when FATCA requires our banks to report on “US Persons?” (I will NOT call myself a US Citizen, because I haven’t been since I became a Canadian–despite the fact I don’t have a CLN. I will also NOT give my bank info about my place of birth (although staff at the branch where I have banked for 30 years know I’m originally from US).
If we don’t provide the information, we may be considered “recalcitrant” account holders and our financial accounts could be closed.
Isn’t bullying of us and are banks part of how IRS is trying to find us. They didn’t care about me 40 years ago–I didn’t have any money then. Now that I’m in my 60s with significant savings for retirement (which was strongly encouraged by Canadian government!), IRS suddenly pops us with their “Gotcha!” threats.
after renunciation I plan to move my accounts from my current bank to another financial institution. First thought was to TD but now am leaning to Caisse Desjardins. Large organizations are good at gathering information not so good at deleting or correcting data.
@ rivka88 interesting that you should say that. I went to TD Waterhouse and told them to start treating me as an Canadian only. They said that when an account is opened up a certain way, they have to continue with that pattern. They suggested opening a new account and moving everything into it. When I spoke to my lawyer, he said, yeah, open up a new account, but at another broker. That’s what I did, but only after I became a Canadian and no longer US.
@Tim Your suggestions make sense. How could they ever know. And if it is not a large amount of money, how could they go through the effort. I bet there is one thing that the IRS really FEARS. I mean fear, scared to death afraid: that the CRA would see what they are actually up to. That means it is more productive just simply to use their harassment techniques on Canadian residents rather than using the CRA to collect.
I received a letter today from Bob Rae, Interim Leader of the Liberal Party (although letterhead says Liberal Leader—no reference to Interim. Hmmm).
I know Schubert and others are annoyed or ticked off Liberals have not responded to them. I wrote January 25 to the Prime Minister, three Cabinet Ministers and three other individuals. Rae’s letter, (dated February 13 and which seems to be personally signed) is the first reply I have received. It’s more partisan than I would like, but Rae is a politician.
I suspect this is a standard form letter on this topic. It does not address RDSPs (sorry Calgary411!), TFSAs or employment pension plans. Rae also refers to “dual citizens” when I was clear in my letter that I, like Canada’s Prime Minister “am Canadian and only a Canadian”, but Americans suddenly think differently.
Here’s the text of the letter:
I would like to thank you for your letter of January 25, 2012 and for sharing your concerns regarding United Sates Foreign Tax Compliance Act and how this is affecting Canadians.
Liberals believe that the Government of Canada should stand up for honest hard working people who have been caught up by overly complex American tax rules. They are not tax cheats and it is past time for Stephen Harper to stand up for them.
Foreign Affairs Minister John Baird should be asking the United States for amnesty against penalties as the IRS’s Foreign Bank Account Reporting requirements were not adequately communicated to dual citizens living in Canada. In addition, Finance Minister Jim Flaherty should work to amend the Canada-US tax treaty so that the IRS does not tax savings vehicle which as RRSPs and RESPs, and instead recognize them as the tax deferred savings vehicles that they are.
We are also highly concerned that new regulations in the United States will soon force Canadian banks to share personal banking information with the IRS. This raises clear privacy concerns that must be addressed before these regulations take effect in two years time. We hope the Harper government will act to address these concerns instead of caving into American pressure as has been their past practice.
We have raised this issue in Question Period and will continue to press the Conservative government to do the right thing for Canadians.
Thank you for taking the time to write.
The Honourable Bob Rae, P.C., O.C. M.P.
You are right. The letter is a bit partisan.
I don’t think any politician, be it Rae or Flaherty understands that the U.S. calls many of us (including you and I and many “accidentals), “duals” and therefore in their eyes obligated for filing, but that most of us feel we have no connection to the U.S. and therefore should not have to file or be subjected to bank reporting under FATCA.
@Bob Rae, do you know how the IRS defines amnesty?
@Blaze: Please publish Bob Rae’s letter as a separate post. Thanks, Peter
@Tiger: I know we’re sounding like a stuck record (I can hear younger people saying “What’s a stuck record?’), but I continue to follow what US Consulate told us so clearly decades ago. We were permanently and irreversibly renouncing by becoming Canadian. It was final, legal and binding. That should be the end of the discussion as it relates to us.
Even 30 Year Tax Vet can’t or won’t give us a simple “Yes” or “No” answer on this. Steven, if you’re reading this, Tiger, Hijacked and I are still waiting for a simple “Yes” or “No” answer to our simple question. Do those who renounced US citizenship by becoming citizens of another country 20, 30, 40 or 50 years ago have any obligation to IRS today?
My only suspiscion as to Flaherty and Rae not perhaps using as strong of language as some would perhaps like is that they suspect is the response they make to their constituents will end up being published on sites likes this and eventually finding its way down to the US(In this regard they would be quite right to suspect this). Now I am not necessarily saying a stronger response is not necessary but I suspect Flaherty is still trying to work something out with the US before overturning the whole apple cart of US Canada relations. In the US this is still a really emotional issues with everything going on with UBS et all. Clearly the likes of John Tierney think that making life even more difficult for US citizens living in Canada is a winning issue in the US domestic political context. The question is whether Canada and its politicians want to go to war with the likes of John Tierney.
I thought the bible we swore on back in the early 70’s was the same bible both north and south of the border. Weren’t we all brought up that an oath taken on a bible was sacred?
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