From Jim Flaherty:
November 8, 2012
Thank you for your correspondence of July 26, 20 12 regarding U.S. government taxation policy, specifically the Foreign Bank Account Report (FBAR) and the Foreign Account Tax Compliance Act (FATCA). Please excuse the delay in replying.
Rest assured, the Government of Canada shares many of these concerns and has expressed them directly to the U.S. government. While we all understand that Canada and the U.S. share many common values, including ensuring fair tax systems where everybody pays their share, we have concerns about the impact of FBAR and FATCA on Canadians.
For instance, many dual Canadian-American citizens captured under FBAR have complained they have only very remote links to the U.S. and a very limited knowledge of their tax reporting obligations to the U.S. (Note: please find enclosed a ‘ fact sheet’ on the history of U.S. tax and FBAR filing requirements for U.S. citizens no matter where they live in the world.)
We recognize that the vast majority of these dual citizens being targeted are honest, hardworking and law-abiding people – including many senior citizens – who have dutifully paid their Canadian taxes. Their only transgression has been failing to file Internal Revenue Service (IRS) paperwork that they were unaware they were required to file.
Now, faced with the knowledge they have an obligation to file U.S. tax returns (even if they most often do not actually owe any taxes), we appreciate that many dual citizens want to fulfill that obligation. But we also understand that the threat of prohibitive fines for simply failing to file a return they were never aware they had to file has become a frightening prospect causing unnecessary stress and fear among many honest, hardworking individuals.
As such, we have called on the U.S. government to look upon those individuals impacted in Canada with leniency. I am happy to report that the U.S. government has listened to our concerns and the concerns of Canadians. Recent guidance by the IRS on December 7, 2011 and Canada
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June 26, 2012 (which are referenced in the attached fact sheet) will help dual citizens residing in Canada deal with their U.S. tax filing obligations and provide assistance to people with Canadian retirement plan issues. The Government of Canada applauds these actions. The December 7, 2011 guidance states that U.S. taxpayers who owe no U.S. tax are not subject to any penalties for a failure to file a U.S. tax return, while other taxpayers may be eligible for reasonable cause relief. In the case of a failure to file an FBAR, where the IRS determines that a violation was due to reasonable cause, the guidance says that there is no penalty.
The June 26,2012 guidance signals the intention of the U.S. to provide simplified procedures to allow taxpayers who pose low compliance risk to become compliant with their U.S. tax and FBAR filing requirements without facing penalties or additional enforcement action.
In addition, the IRS is streamlining the process for U.S. citizens and dual citizens who have contributed to Registered Retirement Savings Plans or Registered Retirement Income Funds in Canada to take advantage of the provision in the Canada-United States Income Tax Convention allowing deferral of taxation in the U.S. of income in those accounts, if they have not already done so.
The new streamlined filing procedures are accessible as of September 1,2012. Instructions for the new procedures can be found by visiting the IRS website (the specific link is also referenced in the attached fact sheet). [not included here]
I should also note that penalties imposed by the IRS under FBAR will not be collected by the Canada Revenue Agency (CRA) on the IRS’ behalf. While the Canada-United States Income Tax Convention contains a provision that allows for the collection by a country of taxes imposed by the other country, this does not apply to penalties imposed under laws that impose only a reporting requirement. Furthermore, 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).
A related piece of U.S. legislation causing similar concern is FATCA, which is proposed to come into force on January 1,2014. To be clear, Canada respects the sovereign right of the U.S. to determine its own tax legislation and its efforts to combat tax evasion – the underlying objective of FATCA. In fact, our two jurisdictions cooperate to prevent tax evasion.
However, we are concerned that FATCA would impose significant compliance obligations on Canadian financial institutions, and raise significant privacy concerns for Canadians.
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Canada is not a tax haven and people do not flock to Canada to avoid paying taxes. But for those who would seek to evade taxes, we believe that there are ways of addressing these issues with the U.S. through our bilateral Income Tax Convention.
The Government of Canada will continue to express its strong concerns relating to FATCA with the U.S. government and advocate on behalf of Canadians on these issues. Talks arc underway between Canadian and U.S. officials to develop an approach that both countries will find agreeable.
Please consider the enclosed fact sheet, which may provide additional information on FBAR, and which contains Internet links to the recent IRS guidance. This letter and the fact sheet are intended for information purposes only and should not be viewed as tax advice. Taxpayers who think they may be affected by any of the measures discussed in these documents should seek advice based on their particular circumstances from an independent tax adviser with appropriate experience.
Thank you for writing.
Yours sincerely.
James M. Flaherty
Enclosure
*I am Canadian, born in Canada to Canadians in 1970 and raised here married to an American with 4 kids. The disconnect between the Canadian citizens who 75% lean Liberal, As long as the government continues to “pony up” to the Americans, we’re selling our sovereignty down the river. And I’m going to continue to say that…until the IRS backs off.
*Now this is the statement put out by the Australian Finance Minister a few days ago(I was going to give its post until all this other stuff came up) Note the emphasis in bolded.
Today I announce Australia has commenced formal discussions for an intergovernmental agreement with the United States to minimise the impact for Australians of the United States’ Foreign Account Tax Compliance Act (FATCA) in Australia.
I make this announcement after meeting with United States’ Treasury Secretary Tim Geithner in Washington DC this afternoon (Washington time).
FATCA was enacted by the United States Congress in March 2010 as part of US efforts to improve compliance with US tax laws. FATCA will impose certain due diligence and reporting obligations on foreign (non-US) financial institutions including Australian institutions.
A key objective of the intergovernmental agreement the Australian Government is negotiating with the US Administration is to facilitate Australian compliance with FATCA in a way that reduces its overall burden on Australian business.
An intergovernmental agreement would also improve existing reciprocal tax information sharing arrangements between the Australian Taxation Office and the United States Internal Revenue Service. This will help ensure Australian tax laws are effectively enforced so that Australian businesses and individuals who pay their fair share of tax are not disadvantaged by those who seek to evade their tax obligations.
The Government will continue to work with Australian stakeholders to ensure that their interests are reflected in discussions with the United States Treasury and to ensure there are appropriate safeguards in any future bilateral arrangements to protect the legitimate interests of Australian CITIZENS.
The Government has been actively engaged with the United States to minimise the compliance impact of this legislation on Australian institutions, and this will continue over the coming months.
Now my question what are appropriate safeguards in any future bilateral arrangements to protect the legitimate interests of Australian Citizens. As I commented to JustMe this is very Flaherty-like language which is kind of good thing because Australia seems to be using similar talking points as Canada. However, as with Flaherty it is hard to say what Australian Treasurer Wayne Swan means. Is a “future” bilateral agreement “this” agreement being negotiated over FATCA or some “other” revisions to the Australia US Tax Treaty.
*One thing to remember although he hasn’t commented recently Brocker Moby who is Australian wrote a very long submission to the Australian Treasury Department discussing all of the issues we have discussed here and included all of Flaherty’s public statements in his submission. I know he said he actually called someone at the Australian Treasury Department who indicated that the welcomed his submission and would review it carefully. So was this statement by Australian Treasurer Wayne Swan somehow influenced by “Moby” interesting question.
Yea, badger. Thanks for putting in one place all the many reasons.
Another is, should we ever need or want to visit sick, elderly or just our well parents, siblings, relatives or friends in the States or even be an ordinary tourist spending our C$ in the US, we are second-class citizens compared to any other Canadian by virtue of our US citizenship. My decision at this time is not to cross again to visit relatives as I won’t be able to explain to my adult son with a developmental disability why he would not be able to go along as well. It’s a personal decision, but based on my not being able to renounce his US citizenship on his behalf because I determine that to be in his best interests. For him to travel with a mom who has a Canadian passport that says she was born in the USA is just to invite questions to him about his relationship to me.
The immorality of how this affects so many, I think, is important. As well, common sense seems in short supply. Just the cost:benefit (much of it blowback to the US) and the enormous monstrosity of never-ending paperwork worldwide IGAs would create sounds like insanity. Or, perhaps it is ‘creating jobs’.
It may also be prudent to encourage the fast-tracking of any Canadian citizenship applications by US citizen long-term residents of Canada. They are at great risk and will be better protected by Canada once they are actual citizens of Canada.
@calgary411: good point re fast tracking the citizenship of those who seek to renounce US status – in some cases it has been far less than the 21 months ‘average’ as posted, but I can’t see it getting any better. The federal government doesn’t approve of dual citizenship anyway.
and,
re the BS wording from the Australia government, above, “who pay their fair share of tax are not disadvantaged by those who seek to evade their tax obligations“
Lets anticipate and pre-empt that parroted piece of IRS BS propaganda, and all underscore in our communications that WE PAY OUR FAIR SHARE IN CANADA, TO CANADA, and that there is NO such thing as a second and double layer of ‘fair‘ owed by us to the US just because they assert it to be so – inside Canada’s sovereign borders. They can assert and enforce whatever they want to inside the US – as Flaherty takes pains to acknowledge. The issue here is what Canada values inside it’s own borders, and Canada should simply refuse to allow/assist the US to implement it’s laws here. As we know, the US will not assist Canada to do the same inside the US. So, where is the reciprocity? Which we should also underscore – there is no and will never be reciprocity.
Unless, it is something like the oilsands and pipelines that is the bargaining chip. Ex. “I’ll trade the assets and savings and wellbeing of 1/32 Canadians and their households, for access to the US via a pipeline, and access to the financial markets – or some other preferral.”
Re the ‘fairness’ BS that keeps popping up in these statement – cribbed directly from speeches by Geithner and Shulman: Lets talk about ‘fairness’ we also don’t get US credit for the other taxes we pay here in full – like the HST, property taxes, etc. The Canada/US treaty exists to eliminate/minimize double taxation by the US. We don’t live there, we use no services, our US status is mostly accidental or involuntary, and we are almost effectively prevented from renouncing/relinquishing – by the rising and vindictive obstacles the US places in the way. So, for Australia or other countries to repeat the almost exact phrasing of the US IRS, is collusion in enabling the US to continue in its ‘unique’ system of extraterritorial taxation that victimizes us. There is only so much taxpayer money to go around, and for Canada to assist the US in eying our already transparent (to the CRA) accounts, and already post-tax assets, and CRA registered savings makes no sense.
Maybe we can shame them too, using the argument that if they collude with the US to enable FATCA on every single account in Canada, it flies in the face of Flaherty’s assertion that Canada is not a tax haven – they can’t have it both ways. And treating all of our accounts pre-emptively as if we were money launderers, terror funders and drug lords, is again to make us effectively second class citizens – whose accounts are to be routinely treated proactively to levels of meaningless scrutiny that our fellow Canadians are not subject to. Point out that the US doesn’t simply want to know how much interest is earned, the same as the CRA. FATCA and FBARs go far beyond that. Canada has no evidence that we are of any greater risk for ‘tax evasion’ and financial crimes than any of our fellow Canadians simply by virtue of having been born with the US shackles on our ankles. If it cooperates in a way that treats us as a specific class, with the presumption that we are at greater risk to offend, then that may be a Charter issue – treating one class of Canadians and Canadian residents differently merely by virtue of an additional citizenship status. Same for the green card holders. If they don’t live in the US, and have no US source income or property, then how should Canada agree to assert they are to be beholden to the US for life?