I have today received a letter dated May 16, 2012, from the Honourable James M. Flaherty, Minister of Finance. I had no idea why I did not get a reply to my correspondence when I knew others had, so I am very pleased to finally get Mr. Flaherty’s letter. It does not give me what I’d like to hear, but it stops my guessing regarding the use of the beneficial Registered Disability Savings Plan for my son and the disabled family members of other such Canadian-American families.
He has confirmed that the RDSP (as well as the TFSA and RESP) are not recognized in the Canada-United States Income Tax Convention but that my concerns on this matter will be considered when the Convention is next open for renegotiation.
Mr. Flaherty has made it clear that the RDSP, which is used as a retirement tool (versus using a Registered Retirement Savings Plan) for many disabled persons,
as: Money paid out of an RDSP will not affect a person’s eligibility for federal benefits, such as the Canada Child Tax Benefit, the Goods and Services Tax credit, Old Age Security or Employment Insurance benefits. In addition, RDSPs will have little or no impact on provincial and territorial social assistance payments. For further details, contact your provincial or territorial government.
should only be used if the Beneficiary or the Holder of the RDSP is NOT also a US Person. It is not a beneficial tax-saving tool when such persons are US Citizens in Canada. Such persons are by virtue of their US citizenship, Second-Class Canadians, discriminated against and deprived of saving for their retirement by the use of an RDSP so their federal and provincial benefits will not be affected (vs the use of RRSP). It is apparent these Second-Class disabled Canadians must miss out (or be subject to US tax) on the following:
To encourage savings, the Government of Canada introduced the Canada Disability Savings Grant and the Canada Disability Savings Bond.
The Canada Disability Savings Grant is a matching grant that the Government deposits into the RDSP. Each year, the Government will match contributions made by paying up to $3 for every $1 paid into the plan, depending on the amount contributed and on the beneficiary’s family income. The Government will deposit a maximum of $3,500 each year, with a lifetime limit of $70,000. Grants will be paid into the RDSP until the year the beneficiary turns 49.
If the beneficiary’s family income is less than or equal to $83,088*:
• The Government will deposit $3 for every $1 on the first $500 contributed to the RDSP and $2 for every $1 on the next $1,000.
If the beneficiary’s family income is over $83,088*:
• The Government will match $1 for every $1 contributed on the first $1,000.
* Income amounts will be updated yearly based on the rate of inflation.
The Government of Canada will also pay a Canada Disability Savings Bond of up to $1,000 a year to low-income and modest-income Canadians. The good news is that no contributions are required to receive the bond; simply open an RDSP and fill out an application form at the financial organization where you have your RDSP. Bonds will be paid into the RDSP until the year the beneficiary turns 49. There is a bond limit of $20,000 over the beneficiary’s lifetime.
If the beneficiary’s family income is less than or equal to $24,183*:
• The Government will deposit $1,000 each year into the RDSP.
For beneficiary family incomes between $24,183 and $41,544*:
• The Government will deposit a portion of the $1,000. As your income increases, the bond amount paid decreases.
* Income amounts will be updated yearly based on the rate of inflation.
From Mr. Flaherty’s letter to me:
Thank you for your correspondence of November 14 and 21, 2011 and January 4, 2012 regarding the taxation by the U.S. of income earned by dual Canadian-American citizens resident in Canada, as well as the requirement for these individuals to file tax and information reporting forms in the U.S. Please excuse the delay in replying.
In your correspondence, you draw attention to financial interests held in Canadian deferred income arrangements, such as Registered Disability Savings Plans (RDSPs), Tax-Free Savings Accounts (TFSAs), and Registered Education Savings Plans (RESPs). While I cannot comment on the specifics of your situation, I would like to make the following general remarks.
Canada and the U.S. have agreed in the Canada-United States Income Tax Convention to exempt from withholding tax dividends and interest paid to a trust, company, organization or other arrangement operated exclusively to administer or provide pension or retirement benefits, such as a Registered Retirement Savings Plan or a Registered Retirement Income Fund. Accordingly, when the above requirements are not met, dividends and interest are subject to income tax.
Since an RDSP, a TFSA or an RESP can be set up to pursue financial objectives other than he exclusive provision of pension or retirement benefits, they do not meet the criterion set out above and, consequently, they do not receive an exemption from U.S. income tax under the Convention.
Your concerns on this matter will be considered when the Convention is next open for renegotiation.
The rest of the letter relates to our requirement to file a Foreign Bank Account Report (FBAR) and what has been reported in the Finance Minister’s correspondence to others. It also highlights the December 7, 2011 IRS guidance on U.S. tax return and FBAR filing requirements for citizens living in Canada and other countries.
It reiterates that penalties imposed by the IRS under FBAR will NOT be collected by the Canada Revenue Agency (CRA) on their behalf and that the CRA does not and will not collect the U.S. tax liability of a Canadian Citizen if the individual was a Canadian Citizen at the time the liability arose (whether or not the individual was also a U.S. Citizen at that time).
The Fact Sheet was enclosed for information purposes only, not to be viewed as tax advice.
Uncle Sam: Rosa, go to the back of the bus with the rest of the expats.
Rosa Parks: Okay, I’m going, I’m going.
Uncle Sam: Hurry it up, and sit down and shut up, before I have you thrown underneath.
Rosa Parks: I’m sitting, I’m shutting up! Please don’t hurt me.
Uncle Sam: Good Rosa, now have a small piece of chocolate. But remember, CBT is here to stay.
@Joe and @Samuel, I agree that the real devil is the citizenship-based taxation. If the US were to adopt a residence-based taxation like other countries, then FATCA could focus on homelanders hiding money offshore instead of screwing up Expats!
Moderator I would like to communicate with 5th Swiss privately and wonder if you could give him my email.
@Dianne, we don’t know who this shady 5thSwiss is. We are pretty sure that he is not who or what he puts himself out to be.
5th Swiss reminds me of the Wizard of Oz.
I’m still struck by some of his comments as I re-read them today:
“….. State has unlimited funds for enforcement if you insult its agents and they choose to take you on.”
Could very well be true. It would be entirely consistent with the refusal of the US to abide by international tax norms, or to demonstrate any reason in its dealings with expatriates and US persons abroad.
But what would that say about the US government and its agents and their priorities and ethics? That in a fit of pique at some posts on the internet, it would proceed to add to the US imposed burden of a Canadian dependent with a disability – who of course being deemed legally incompetent to understand the concepts of UScitizenship or renunciation, would also logically be incompetent to understand the US tax code?
That the US government’s agents, when faced with a patently unjust and unethical situation would not work to find a solution, but force those affected to lay low – rather than bring an injustice to their attention?
And that we might be deemed “tax protestors”; that is hardly something that can have any result for those who have already renounced properly – since some are no longer “US taxable persons” or citizens of the US. And many lost citizenship and US taxable status decades ago. Does that mean that we’re not to even have the right of free speech? And that the right to criticize and protest publicly would be denied to us from afar, extraterritorially – based merely on a long ago US birthplace or parentage? We are not in the US.
He said that the RDSP issue could have been dealt with at the same time as the RRSP issue. Well why didn’t the US proactively deal with it the same then? And CHOOSE to avoid unfairly burdening those with disabilities? And also CHOOSE to see some reason and ethics re our children’s legal local education savings via the RESP? Hmmm. What I’ve read from articles by respected US professionals re the RRSP issue – it definitely sounded like it wasn’t at all easy to get the US to see even a small amount of reason about RRSPs. It was only after outcry that it got fixed. Punitive and burdensome was the initial and ongoing treatment by the IRS towards RRSPs. RRSPs are still technically deemed taxable ‘foreign trusts’, each and every one if not reported religiously and individually (not in the aggregate) with the 8891. They still require correct annual reporting on an 8891 and reference to the treaty (relief under Article XVIII (7) of the Canada – US Tax Treaty ?) in order to stave off US extraterritorial double taxation of our retirement savings. If you acquire your first RRSP at age ,’ll still be filing the 8891 on it until its dissolution – ex. if dissolved at age 68, that is 50 distinct annual 8891s – for that specific RRSP alone. The treatment of RRSPs were still an issue a year or more into the OVDI program wrangling too, in terms of how to do catch up reporting, and whether they’d be thrown into the penalty base (despite being recognized by the treaty). That the other registered accounts would be treated as ‘taxable foreign trusts’ and accompanied by the punitive filing and confiscatory penalty demands of the 3520 and 3520A was then entirely predictable. Though the IRS and Treasury have so helpfully still declined to answer definitively or provide a remedy. And apparently the agents of the US don’t think that the relief to otherwise ‘benign actors’ outside the US is worth bestirring themselves to fix.
Is it ‘tax protest’ to point out what is unjust and unethical? Surely this situation is not news to either the US or Canada. I note that even the spotlight of FATCA shining on CBT issues did not win the RDSP or RESP and other registered savings any ACTUAL relief under the FATCA IGA. Despite what Flaherty would like the public to wrongly infer from his misleading comments.
Your Canadian Taxpayer Money at Work (Who are these people we pay wages to for answers like these?), see my NON-ANSWER to My Query to The Office for Disability Issues (above link):
badger, thanks for your additional comments on the 5thSwiss “veiled threat”. To be gagged from free speech on this issue is repulsive to me, no matter ‘my being taken on by State with unlimited funds they have if they should be embarrassed by me’.
Bill Yates wrote to me that the IRS is grossly underfunded, an opinion that’s been confirmed various times by Nina Olson, National Tax Advocate. The IRS would have to be absolutely corrupt and horribly vindictive to allocate the precious little resources they have on going after Canadians like Calgary’s son. I think they’re on the verge of collapse and in a desperate effort to survive will come up with enforcement tactics that use the least amount of resources, both in terms of money and manpower: a campaign of fear and computer generated warning letters – with little in terms of manpower to back them up. That’s not to say that they won’t make examples of people, but that’s all part of the carefully executed fear campaign. It’s interesting that 5thSwiss criticized Calgary for putting herself in the line of fire and in the same breath suggests that she approach the US government to have her son counted as a US citizen.
I hope you don’t mind me passing along your son’s situation as an example of the extent of FATCA (and CBT) madness. I simply couldn’t hold back with a commenter at IBTimes who considers FATCA to be one of the greatest laws to be passed by Congress in decades. It seems to be his opinion that everyone in the whole world must fall on the FATCA swords in order to catch big US tax evaders who are probably big enough to have already done a workaround by now.
What an egregious absurdity is the answer you received from our federal government;
“……As you may know, Canada ratified the Convention [United Nations (UN) Convention on the Rights of Persons with Disabilities] in March 2010. Ratification of the Convention is a demonstration of the Government’s commitment to removing obstacles and creating opportunities for people with disabilities.”
How they live with themselves I really don’t know.
If Flaherty is as skilled and knowledgeable as he so brazenly asserts here:
“Hon. Jim Flaherty: Mr. Speaker, I was taught by Peter Hogg as well. I got an A in the tax course……”
then we really have to ask why it is that he allowed the Canadian registered accounts that he is so very proud of – like the RESP, TFSA and RDSP to be taxed and made toxic by a foreign nation. And why he allowed the pre-existing US extraterritorial capital gains tax on Canadian family homes to stand? Surely those represent “obstacles” and “barriers” to the wellbeing of Canadian citzens and residents with disabilities.
Flaherty has been one of the longest serving Canadian Finance Ministers for just over 8 years (“…. Only a handful, however, have served in this critical post for as long as the current minister. In the past 12 months, Jim Flaherty has moved up the ranks from seventh to fourth in terms of time-served.” http://www.nationalnewswatch.com/2014/02/11/flaherty-number-4-and-climbing-on-list-of-canadas-longest-serving-finance-ministers/ ) . He has presided over the Canada US Tax Treaty. He is very familiar (or should be) with its contents, gaps, insufficiencies, etc. And knew full well of the last-in-time rule and the savings clause. He knows what that, CBT and FATCA means for those affected in Canada – including the most vulnerable.
That the RDSPs are not even afforded the ‘protection’ that RRSPs finally got, are down to him, on his watch. And even more hypocritical given his public performance here re the plan http://www.cbc.ca/news/politics/disability-savings-plan-hits-home-for-flaherty-1.1050186 http://www.theglobeandmail.com/news/politics/ottawa-notebook/the-finance-minister-the-disability-assistance-plan-and-a-flood-of-tears/article618491/ . Should all Canadians not be afforded the protection and security that the RDSP will provide for his children? Your son and tens of thousands of others were born in Canada – just like his, but he is willing to stand by and let the others be claimed by the US IRS and Treasury just because they had a US parent.
That the The Canada Disability Savings Program, Employment and Social Development Canada sent you such pap as an answer to the established fact of harm being done to the vulnerable like your son, our dependents and children in Canada; is just part and parcel with the Harper government’s obvious ability to dissemble. Signing the FATCA IGA was blatant hypocrisy as well as malfeasance as to the rights and wellbeing of the very Canadian citizens and legal residents that they swore to uphold and protect.
I really don’t know how these people sleep at night.
And who do they think their constituency is?
Em, you can use my family’s situation as an example anytime — I’d be pleased to have anyone do that if you think it would help. Thanks!
Pretty much my sentiments. One gets weary of trying as it seems no document seems to really protect us or no one wants to use “whatever” document we have that says it will protect us (remove obstacles and create opportunities for people with disabilities in this case). Are all there as window dressing, including the Canadian Charter of Rights and Freedoms? We’ll see if there is a way around how that is to protect ALL Canadians. Human rights be damned.
And, their constituency???? Do we matter? Only they and their party line seem to matter.
The older I get and the more of this I experience, the more cynical I become, but I’m still in the fight.
I’ll have to wait to see if T.H. replies to my comment but so far there’s silence at the IBTimes article.
T.H. appears almost unreachable.
If he can’t comprehend your son’s situation I would have to agree with that.
There was a 5thSwiss who posted on the Englishforum.ch message board in the past. He described himself as having a doctorate in law from a Belgian university, as a past DOS vice-consul and as a former practicing attorney but is now retired. He said that he has residences in the French area of CH and also in GB. The LinkedIn profile of the name of the first response to the Jeker blog “Help, I want to expatriate, but they won’t let me … part II” appears to align with statements made about himself on Englishforum.ch. Just an opinion.
T.H. came back so I gave him one last shot and ended it. He seemed to be phishing and goading with ad hominem — probably an IRS shill or a compliance condor. Not worth any more of my time, at any rate.