My letter to CARP: (please feel free to edit as you like and send to whoever you like)
Some politicians have used the very myopic argument that USA has the right to determine its own taxation rules. Of course it does, so does Canada, but does USA have the right to impose US taxation rules on Canadian citizens living in Canada who have never earned a dime of US source income? Even if you think so, and I can’t imagine why anyone would, does USA have the right through its taxation laws to prevent some Canadians from effectively planning and saving for their retirement?
This is what FATCA in combination with USA’s unique to the world citizenship-based taxation laws will do to Canadians and their families where one family member is deemed to have ‘US person‘ status.
Who is a ‘US person’ living in Canada? Although you may be a Canadian citizen, FATCA considers you a ‘US person’ if you:
- were born in USA even if you left as a young child, and your parents are Canadian!
- were born in Canada to one or more American parents, even if you never lived in USA!
- regularly visit the USA and meet the substantial presence test
- hold a green card
- are an American citizen
What Information will FATCA collect?
FATCA requires all Canadian financial institutions to report annually to the IRS ( to be done via the CRA as outlined in the recently signed IGA) on details of a variety of bank accounts with focus being on account balances.
What happens if I am married to a ‘US person’?
If you have joint accounts with your ‘US person’ spouse, those accounts will be subject to FATCA reporting regardless who actually earned the money inside those accounts.
What will USA do with the bank account balances of Canadians who are ‘US persons’ or share accounts with a ‘US person’?
The vast majority of Canadians living in Canada with ‘US person’ status are unaware that USA law requires them to submit annual ‘Foreign Bank Account Reports’ (FBAR) detailing bank accounts held in Canada which are considered ‘foreign’ despite being held by a Canadian living in Canada. Financially devastating penalties are imposed for failure to file FBARs. The IRS will use the information it gets from the CRA to verify against FBAR reports, and will then assess devastating penalties for non reporting of these so-called ‘foreign’ accounts. Penalty calculations were devised as punishment for homeland Americans hiding untaxed money offshore, so they are very harsh, and are applied with no consideration as to whether or not the ‘US person’ is a Canadian living in Canada or an American living in USA.
Besides, penalties for not reporting my so-called ‘foreign’ accounts here in Canada, what are the taxation and retirement planning implications of being a Canadian living in Canada with ‘US person’ status?
Although there is an exemption of approximately $97,000 of earned income called the Foreign Earned Income Exclusion (FEIE) which provides relief from double taxation of the first $97,000 of Canadian earned income, the key is that it applies only to EARNED income. Non-earned sources of income are not subject to the FEIE. Thus Canadians with ‘US person’ status will be taxed by USA on the following sources of Canadian sourced income: disability benefits, unemployment insurance benefits, pension income, investment income, etc. Thus low-income people and retirees are double taxed on non-earned income which for most retirees is the bulk of their income.
Most retirees count on the sale of their principal residence to help them in their retirement, and in Canada we do not tax capital gains from the sale of one’s principal residence. This is not the case in the USA. Canadians with ‘US person’ status will be taxed by USA on the capital gains from the sale of their home in Canada, subject to a 250K exemption.
Canadians with ‘US person’ status who have invested their savings in Canadian mutual funds will be subject to the dreaded ‘passive foreign income corporation’ rules which will make their investments expensive liabilities.
In addition, TFSAs, RESPs, and RDSPs do not have the tax exempt status afforded to RRSPs. Even RRSPs are not tax exempt for the year unless a special form is filled out every year. Don’t be fooled by the government pumping the FATCA IGA as a good deal because TFSA’s, RESPs, RDSPs, RRSPs and other registered accounts are not FATCA reportable; this does NOT make them exempt from USA taxation and reporting requirements. One has to wonder if our government is actually facilitating US tax evasion on the one hand, while enforcing US citizenship based taxation on the other.
US imposed citizenship-based taxation laws mean it is impossible for a Canadian living in Canada with ‘US person’ status to effectively save for their retirement, or for the education of their children, or for the care-taking of their disabled children.
Why can’t a Canadian with ‘US person’ status just renounce their US citizenship, and avoid FATCA reporting, FBAR penalties, double taxation, and restrictions on retirement planning?
Most Canadians with ‘US person’ status who have lived for decades in Canada were unaware that USA considered them to be US taxpayers. This is not difficult to imagine, because citizenship-based taxation is counter to international taxation norms, and not intuitive. It just plain does not make sense, and is unfair to tax someone who does not live in a country and does not earn in that country, just because they were born there. Many consider this a human rights violation and a form of slavery. Only one other country in the world has citizenship-based taxation – Eritrea, a dictatorship in Africa.
So, getting back to the answering the above question, a Canadian with ‘US person’ status cannot relieve themselves of their US tax obligations by renouncing US citizenship. The renunciation process includes a promise that the ‘US person’ either is, or will become tax compliant for the prior 5 years. Getting up to date on past tax returns and FBARS is complex, expensive, and comes with risk of penalties for prior non-filing.
SUMMARY: FATCA is an American law which would be unenforceable in Canada, without the cooperation of the Canadian government. FATCA will be used to enforce American laws on Canadians, thus violating our sovereign right as a country to govern our own citizens. FATCA will be used to enforce immoral citizenship based taxation laws that run counter to the international norm of residence based taxation.
FATCA in combination with citizenship-based taxation will ruin the financial lives of Canadian families who have one family member with ‘US person’ status. FATCA will cause Canadians of retirement age, who have saved and planned for their retirement to become reliant on Canadian government handouts, rather than their hard earned money which will be siphoned off by the USA in the form of mostly penalties (relative to taxes owed) assessed on Canadian earned, already highly taxed money.
Please reconsider your view on FATCA and citizenship based taxation imposed by USA on Canada, and all countries in the world. It is too simple just to say, ‘USA has the right to make its own taxation laws’. The picture is much more complicated than that. If USA had a law that prevented women from driving, would it be OK for USA to tell Canada that Canadian women with ‘US person’ status could not drive in Canada?
Think about it.
Sincerely,
Kathleen XXXXX
Citizen of Canada since birth in 1962 in USA
Resident of Canada since 1963
Clear, well articulated argument to which there is no rational response except agreement! I hope this can reach a wide audience.
@All,
Sorry, but for some reason, the spacing was not carried over properly from the document I copied this from. It looks fine inside WordPress, but all squished together here…I’m working on fixing it.
http://www.fincen.gov/international/egmont/
It appears that there is an international “group” in addition to FATCA which snoops on personal bank accounts and has worldwide tentacles. If you are not disturbed enough about FATCA, check out this website.
Thanks for posting this, more ammo! But I wonder if the information you presented here would work in other countries as well without changing anything… some of it surely, but some of it I am not sure…
Excellent.
My original post re CARP announcement and my email correspondence with Michael Nicin, Director of Policy, m.nicin@carp.ca, is at http://isaacbrocksociety.ca/2014/02/11/carp-weighs-in-on-fatca/. Please direct your further correspondence to Mr. Nicin, WhiteKat. I also gave him the link to what I posted at Isaac Brock. One of my updates (#1, #2, #3) referred to Canadian snowbirds and CARP’s so-called “advocacy” and correct information that should go to them.
They deserve much push-back on their poor excuse for saying they lobbied the Canadian government regarding FATCA. They have not answered previous correspondence I’ve sent to CARP and Zoomer. I did get an immediate response(s) from Mr. Nicin this time. But, no, Mr. Nicin, I am not satisfied with CARP advocacy, and neither should any other US Person in Canada ‘of a certain age’ with retirement savings under threat. As far as I’m concerned, Zoomer is just their “marketing” arm, much of it aimed at someone who could be a Canadian snowbird in the USA.
Thank you very much for this effort. I have a meeting with my MP after going to his office in person this morning and will take a copy of this letter with me. I have a pile of work to do yet, but am taking all the time needed to do this. We cannot let this happen. Dictatorship is not how Canada works.
@WhiteKat:
Absolutely fabulous presentation and I think you hit all the really important points.
This will be copied, with your permission. by me. and along with the Submission to the Senate Ways and Means Committee by John Richardson, Willard Yates and Stephen Kish on January 17,2014
http://citizenshipsolutions.ca/wp-content/uploads/2014/01/RichardsonYatesKishJan232014SFCSubmission.pdf
to every MP in parliament along with PM Harper and ‘the Finance Cabal”!
In addition I will be sending it to the Senators and Congressmen who are now pushing hard to abolish the IRS because of the criminal activity they have engaged in most blatantly.
Because of Obamacare they have set out to hire over 16,000 MORE IRS agents and have now armed them with assault rifles. It is bad in the US and getting worse.
And then there is this:
http://www.wnd.com/2013/05/democrats-turn-on-irs-there-will-be-hell-to-pay/
Don’t forget Senator Rand Paul:
Sen. Rand Paul introduced a bill to repeal anti-privacy provisions of the Foreign Account Tax Compliance Act (FATCA) and put an end to a defective bill that does not accomplish its objective of ending tax evasion. FATCA infringes upon basic constitutional rights, for under FATCA, private data of anyone considered a “U.S. Person” would have details of their financial assets provided to the IRS without a warrant requirement, suspicious activity report (SAR), or any allegation of wrongdoing at all. Stated in its simplest form, FATCA would require every non-American financial institution (such as banks, credit unions, pension funds, stock and investment firms, etc.) to register directly with the IRS and agree to provide specified financial data on the accounts of any “U.S. Person.” Perhaps even more troubling, the implementation of FATCA has allowed the Treasury Department to make independent decisions with respect to the sovereignty of foreign nations and the privacy of United States citizens. In order to implement this law, Treasury has initiated intergovernmental agreements (IGAs), citing the intent to engage in reciprocal information sharing with other nations. In other words, the Treasury Department, without the consent and authority of Congress, will force U.S. financial institutions to provide the bank account information of private customers to foreign nations.
@WhiteKat
Nice post, well argued.
I think it’s time to focus the discussion more narrowly.
The issue is NOT whether the United States has the sovereign right to determine its own tax laws. That’s a “side show”.
The issue IS whether the U.S. has the rights to enact laws that apply to people outside its jurisdiction and sovereign nations. They don’t and this is where the “push back” needs to begin and this is how the debate needs to unfold.
Re: 1 – The Right to makes laws that apply to people outside it’s jurisdiction
Examples where the U.S. attempts to apply laws to people outside its jurisdiction.
– people born outside the U.S. are U.S. citizens. Sorry but NOT A CHANCE! The U.S. has NO right to deem people born outside the U.S. to be U.S. citizens. If you were NOT born in the U.S. and have NOT become a naturalized U.S. citizen you are NOT a U.S. citizen (except perhaps according to them). The most that can be said is that the U.S. has laws that would allow to be certified as a U.S. citizen. This principle is obvious to anybody except a U.S. lawyer (so don’t bother asking them). Seriously, ask a U.S. lawyer the question of whether a person born outside the U.S. is a U.S. citizen. They will look to and only to U.S. law. Talk about “begging the question …”.
– “fine people” outside the U.S. who do NOT file FBAR and the like. Sorry, but this example of “Form Crime” took place outside the U.S. The U.S. can’t deem conduct in Canada to be a U.S. crime. The issue is NOT what does a U.S. say, the issue is whether under international law the U.S. has the jurisdiction to make laws for other countries (which it obviously doesn’t).
– tax non-residents on income earned outside the U.S. and on assets that that are not in the U.S. This is a gross gross violation of the sovereignty of other nations. It’s also theft.
– what about imposing taxes on its U.S. citizens who live outside the U.S.? Well it depends, if U.S. citizens are slaves, it may be that if the U.S. owns the person, then the U.S. owns the earnings of the person. So, the question is whether U.S. citizens are slaves or free people. This is NOT a decision that the U.S. is free to make. This is governed by international law. This is a decision that you make for yourself. Ask yourself the following two questions:
1. Do I want to allow U.S. law to deem me to be a slave even if I am not in the U.S.?
2. Do I want to accept international norms which are consistent with the principles of international law that presume people are fee beings?
Even if according to U.S. law it’s citizens are slaves (which they clearly are), the question is whether the law of your country of residence deems you to be a slave. You get my point.
Re 2: The right to make laws that apply outside its jurisdiction
– FATCA is a clear attempt to enact a law in the U.S. to apply to other nations.
So, what does all this mean? What I think it means is this:
It’s time to stop talking about all these distractions which include:
Does the U.S. have the right to make it’s own tax laws?
What are the permutations of the newest FATCA IGA?
Will the FEIE continue to apply to U.S. citizens abroad?
It’s time to focus ONLY on these two questions:
1. Does the U.S. have the right to make laws that apply in and to sovereign nations?
2. Are U.S. citizens slaves or people according to the laws of the country where they reside. If people then the U.S. has no right to control their lives outside the U.S.
Let the Homelanders continue to be the slaves that they clearly want to be. It’s time to simply tell these people, that their laws, practices and principles end at their border.
Countries and people of the world unite. All you have to lose are your chains.
@WhiteKat:
A couple of things stand out in Senator Paul’s submission to the Senate:
“private data of anyone considered a “U.S. Person” would have details of their financial assets provided to the IRS without a warrant requirement, suspicious activity report (SAR), or any allegation of wrongdoing at all.
Warrant requirement is important and encompasses the protections in the 4th Amendment which is the basis on which Senator Paul is suing President Obama along with Freedom Works and Matt Kibbe . They have asked anyone affected to go to the website and sign their petition to join in the lawsuit. Senator Paul believes that it encompasses the entire population of the United States and it is my contention, certainly the rights and privileges of US Citizens Abroad or those designated U.S. Persons by the IRS for ‘tax purposes’
Designation of U.S. Person can work both ways. IF deemed to be a U.S. Person for ‘tax purposes’ then protections under the law must be assumed!
Geez!- Everytime I go over how they have worded things in FATCA and now the IGA with Canada it makes me sick. Angry.Downright FURIOUS! 🙂
A couple of questions after reading carefully and going through to make changes for the government where I am… Some things are not relevent but I want to make sure first.
What is CARP?
What is CRA?
What is RRSP?
What is TFSA?
What is RESP?
What is RDSP?
Thanks!
An excellent job on writing this! Very clear! Thank you for taking the time to do this!
taxconfuzaled,
CARP: Canadian Association for Retired Persons (Canada’s answer to AARP in the US)
CRA: Canada Revenue Agency (the more sensible Canadian taxation agency, unlike the US IRS)
RRSP: Canada’s Registered Retirement Savings Plan (registered CANADIAN account with which persons in Canada are encouraged by their government to save for retirement); at age 71, the RRSP usually converts to a Canadian RRIF (Registered Retirement Investment Fund) but it could also go into an annuity
TFSA: Tax Free Savings Account (another registered CANADIAN account (taxes already paid) that many lower income Canadians will use for retirement rather than the RRSP, which is deferred savings)
RESP: Registered Education Savings Plan (the CANADIAN registered account with which the Government of Canada encourages parents / grandparents to save for a child’s future college, university or trades education)
RDSP: Registered Disability Savings Plan (the Canadian registered account that the Government of Canada encourages persons to save for future needs for someone who has a disbability and qualifies for the CRA Disability Tax Credit.
@WhiteKat
I see you have got some of your spacing problems fixed. That is a constant problem if you just copy paste from word. You really have to copy as text only, or you have to go to the text tab and do a lot of editing… which is what I bet you did!
Well written letter….
Let’s hope that the GATCA annoucement by the OECDthrows confusion into the minds of those MPs of yours and causes them to pause in their rush to blow down to the master below them.
But note, GATCA removes any de minimis rules on accounts for auto data sharing and in many ways is more onerous than FATCA. Also, it supersizes the surveillance state aspect, so don’t rush to the conclusion that it is the savior, better or ‘fair’.
However, since it is focused on residence and NOT citizenship or nationality, it certainly shines the light clearly on what an aberration CBT is. Will that cause the U.S. to rethink it? Hard to know. They are exceptional, after all!
@calgary411 thank you for that, as expected none of them are related to anything outside Canada, I have removed them from my letter. Thank you again!
“One has to wonder if our government is actually facilitating US tax evasion on the one hand, while enforcing US citizenship based taxation on the other.”
The IGA is for the banks and it doesn’t take a stretch of the imagination to realize that Canada wants to keep us buying those US taxable financial products for the benefit of the banks. The US agreed because it’s just extra tax revenue and penalties for them when we’re eventually turned over to the IRS!
“The renunciation process includes a promise that the ‘US person’ either is, or will become tax compliant for the prior 5 years. Getting up to date on past tax returns and FBARS is complex, expensive, and comes with risk of penalties for prior non-filing.”
Making back filing more frightening and fraught with danger is knowing that there’s no statute of limitations for someone who’s never filed US taxes before! The IRS could insist on going back until they find a taxable event to make going back worthwhile for them.
Good luck with your MP this afternoon, NativeCanadian!
@All,
A couple things I missed that will also hurt Canadians with ‘US person’ status financially, are:
1. the annual compliance costs which can easily hit the 2K mark if you have anything but the simplest of lives. For example, have a TFSA (useless anyway), and RESP (also useless), a couple RRSPs, investments in mutual funds and you have just created a stack of expensive paperwork for yourself.
2. the inability to invest in Canadian mutual funds outside RRSPs, which are considered ‘passive foreign income corporations’ for a Canadian with ‘US person’ status – thus are actually liabilities to own with their punitive taxation and complex reporting requirements.
Precious ‘medals’ prove to be a curse for US Olympic athletes:
https://taxconnections.com/taxblog/olympic-medals-taxable-the-answer-may-surprise-you/#.Uv5u8Xm4x1E
“Winning Olympic athletes from most other countries don’t have to worry about their medals being taxed.”
Is there no end to the stupidity of this country’s tax laws?
I think it needs a stronger opening.
See for example, this piece “FATCA SQUEEZES AMERICAN CLIENTS” for example of catchy opening line.
http://www.advisor.ca/tax/tax-news/fatca-squeezes-american-clients-144741
(May be worth posting separately as well, but I don’t know how to do this).
I just sent this to all the Ontario MP’s with the FATCA fact sheet attached for good measure. Now we have to send it to every other MP in the country. I added the privacy concerns as well as the fact that Canadian citizens’ private financial information is not protected from being shared with the CIA, FBI and NSA as well. I also added the fact that this gathers information with no presumption of innocence. Everyone is considered a criminal under FATCA.
I’m still working on Finance Canada and more MP e-mails but for whatever reason I took a diversion today and wrote to my now most favourite congress person (Kucinch use to be but sadly he was too good and they managed to redistrict him out of office) — Rep. Alan Grayson (Florida 9th). I didn’t expect a reply, just wanted to urge him to join Sen. Rand Paul’s effort to repeal FATCA. Within hours I did get a reply, albeit a pretty standard one. It was signed by him. Quite amazing actually. I generally don’t get responses like that from Canadian MPs and now I don’t even have an MP because he resigned without finishing his term. It’s going to cost us $500K for that by-election.
In case anyone has missed it our new Brocker, Charl, put together a heartfelt letter and posted it here:
http://isaacbrocksociety.ca/2012/01/24/vist-to-halifax-consulate/comment-page-2/
It’s so good to see more people joining the fray.
Not sure it’s accurate that retirees will be double taxed. When the Foreign Earned Income Exclusion is not enough to erase double taxation, then foreign tax credits can be used, taking into account taxes paid to Canada. I don’t use the FEIE at all, I only use foreign tax credits.
An American in Canada
@Erin,
Are you a Canadian?
“the inability to invest in Canadian mutual funds which are considered ‘passive foreign income corporations’ for a Canadian with ‘US person’ status – thus are actually liabilities to own with their punitive taxation and complex reporting requirements.”
It’s OK if they are within an RRSP
I’m a dual citizen
@Erin,
You are lost in the quagmire of rules. What works for one person, doesn’t work for another. Bottom line, is nothing I said was untrue. Citizenship based taxation is a bureaucratic nightmare that costs every Canadian with ‘US person’ status, everyone they are in a relationship with, and all Canadians, regardless if they owe no tax. In fact in many, if not most cases, it costs more to determine the taxes owed, than the taxes actually owed, Your comment deflects from the central point.
@Erin, so you are in for a fight tonight huh? You quoted my comment to this post when you wrote: ““the inability to invest in Canadian mutual funds which are considered ‘passive foreign income corporations’ for a Canadian with ‘US person’ status – thus are actually liabilities to own with their punitive taxation and complex reporting requirements.”
Then you wrote: “It’s OK if they are within an RRSP”
LOL. How dumb do you think we are?