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
@Erin,
Which countries do you hold dual citizenship with?
I’m no fan of FATCA or citizenship-based reporting, but if it’s here to stay, or here for a while longer, there’s no reason to scare people into not saving in RRSPs, etc. As Americans in Canada, we are constrained, but we can save for retirement, RRSPs are OK for us, we will not be double taxed when we start to withdraw from them. I am not in for a fight with you, I don’t even know you. I’ve read many books on US/Canada taxation rules, religiously read the Serbinski accounting forums, and have spoken with more than one cross-border accountant. You do what you want, I’m going to keep contributing to my RRSP while this whole thing shakes out.
Born an American, got Canadian citizenship last year
@Erin,
Well, I am not an ‘American living in Canada’, and I will not accept second class citizenship status because I was born in YOUR country. I am a Canadian living in Canada who happens to have been born in the USA.
I don’t know you either, but your lack of empathy and understanding shines through your words. YOU may be a foreigner to MY country, but I AM NOT a foreigner to my country and I will not accept the scraps that you are willing to accept, which is likely, actually a ‘fair’ deal for YOU.
@Badger, @All, Erin says ‘RRSPs are OK for us’
Who is ‘us’?
I know my RRSPs that I have not told the IRS about are definitely NOT OK.
Well, you’re right, it’s not OK that you haven’t been reporting your RRSPs. But as for the PFIC penalties for mutual funds, my understanding is that it doesn’t apply to mutual funds held within RRSPs. This blog did a post that mentioned this here, http://isaacbrocksociety.ca/2012/06/12/how-citizenship-based-taxation-steals-from-the-treasury-of-other-countries-pfic-edition/ with this relevant part quoted by me,
““There has been a lingering question about the US tax treatment of Canadian Mutual Funds in taxable accounts. This discussion does not apply to investments in RRSP accounts. In early 2010, the Internal Revenue Service issued a determination that most Canadian Mutual Funds are corporations for US tax purposes, even though they are organized as trusts under Canadian law. Because they are corporations, most Canadian Mutual Funds are Passive Foreign Investment Companies (PFIC).”
Now this is a couple years old, if you have solid proof that this has changed, I would want to know, of course. I would think that if the rules had changed, it would have been mentioned at Serbinski though.
Not sure why you’re so hostile, surely if what I said is true, this whole situation is still bad, but maybe not quite as bad?
@Erin what you don’t seem to grasp is that those of us who have lived all our lives in Canada and who never made a penny in the U.S., find it abhorrent that we should even have to be subject to ANY of the immoral citizenship-based taxation of the U.S. This is a sovereignty issue for Canada and not a “tax rules” problem. I, for one, refuse to subject ANY of my savings to the scrutiny of a foreign tax entity and therefore, under the “rules” WOULD be subject to confiscatory penalties. THAT is the immorality of the US tax system.
@Erin,
Please re-read my post again. And while you are reading it, keep in mind that I have never had a life in YOUR exceptional country.
@GwEvil,
I think that Erin is not real. She is here to be a shit disturber. Her timing is perfect. She has no point to argue because the deck is stacked against her. Deflection is all she knows.
Why do you think I don’t grasp that, just because I corrected what seemed to me like a couple mistakes in the post? I agree with you that it’s abhorrent, I was just telling my Canadian friend about it yesterday and how terrible it is.
Whatever, just trying to help people make their way through this system, as it now stands. Of course, I hope it changes, for all of our sakes, and especially those people who have lived here for years without being aware of these IRS expectations.
@Erin,
You are not helping anyone, unless you think prodding cows to the slaughter is help. I call BS on your ‘I hope it changes’. Whatever…just calling BS when I see it.
Erin,
Some quick observations.
Your RRSP / RRIF is addressed in the US / Canada Tax Treaty. You have obviously researched and all is dandy with your filing of Form 8891 each year to defer taxation on your RRSP — then if you convert to the RRIF you can use Foreign Tax Credits to offset what you would owe to the US on the deferred account (which generally the US hates and penalizes US Persons Abroad for holding). The Foreign Tax Credit will not always apply to everything. It appears you have researched and gotten good financial advice for your particular circumstances. It’s great that you have had good financial planning so it all works out for you — hopefully. I presume someone may take care of doing your actual yearly tax and/or reporting returns as well. Or, do you have the expertise to handle all those required additional forms, no penalties risked?
The Foreign Tax Credit does not always work so smoothly. It could not be used / did not apply to the Grants and Bonds that the Government of Canada contributed to my son’s RDSP, for which I am the Holder. I paid about $2,000 to the US in taxes for funds that Canada contributed to my son’s RDSP. There will be other things not taxed in Canada that don’t get the “protection” of the Foreign Tax Credit. If a person with any kind of disability is eligible for a Disability Tax Credit, US tax is payable on that Canadian credit received.
We all have different circumstances. You may wish to retain your US citizenship and return to the US to live one day. For me and many others, that is not at all our plan for the future. Canada is our home, our chosen citizenship. We want to rid ourselves of the extraneous citizenship that we are burdened with because of extra-territorial FATCA combined with US citizenship-based taxation. For “accidental Americans” (I don’t know your situation) it is especially unfair that they be subjected to any taxation for those who have no connection at all to the USA, except by accidental place of birth or parent. No choice in the matter; no claim to citizenship — automatic required tax compliance to the US and confiscation by penalty for not having filed. Education on the matter be damned — these people were to know by osmosis?
As far as I’m concerned I had to get out from under the absurdity of the cost of administration in dollars and stress to me for my and my husband’s US tax compliance each year. I have renounced; my husband has renounced; my daughter has renounced and we have our CLN’s to show our local CANADIAN “foreign financial institutions” when the round-up of US Persons begins. Total for my husband and me for professional tax law and accounting, as well as an immigration / nationality Washington, DC lawyer: in excess of $42,000 (three years returns had to be re-done and re-submitted because of incompetent professional work. I was LUCKY ENOUGH to have retirement savings that I could dip into to “solve” my compliance problem. I resent every penny that I had to pay for I was told when I became a citizen of Canada in 1975 that I would be losing my US citizenship by doing so. I made too many mistake in entering myself back into US clutches so was unable to claim the relinquishment of my US citizenship in 1975 when I became a Canadian — CITIZENSHIP BY CHOICE. The reality is the many / most will not have those funds available to pay to the ‘US tax compliance industry’ to help us through the maze.
I am the Holder of an RDSP for my son who happens to have a developmental disability or ‘mental incapacity’ so he does not understand the concept of citizenship. Absurdly, he cannot renounce his “automatically acquired by his birth in Canada to me US citizenship”, as I was a US citizen at the time. Renunciation must be undertaken with no influence of any other person. A parent, a guardian or a trustee does not have the right to renounce that US citizenship on his or any other like my son’s behalf, even with a court order. It is entrapment into an unwanted, unregistered US birth abroad and the US actually considers my son’s US citizenship trumps his citizenship by place of birth, Canada. Not one penny of my son’s (or any other person’s as him) provincial funding should go to the high costs of administration of US tax and reporting returns. Refer to my statement above: the Foreign Tax Credit was useless and US taxes paid for Canadian taxpayer funded contributions by the Canadian government to my son’s RDSP.
Yes, the banks are off the hook in not having to report registered Canadian accounts to CRA for turning over to the US IRS. It changes nothing for the individual’s tax and reporting return requirements.
Hi Calgary411,
I have heard a bit about the RDSP problem (sounds like it’s treated like the RESP and TFSAs I was told to avoid). That’s horrible, especially that there is no way for him to renounce. Whatever has been said about me, I do sympathize, and often used to blog about the IRS, FATCA and how unfair it is.
I think I was fortunate to have moved abroad only 11 years ago, since the expat forums I frequented online talked about the tax rules. I don’t know how I would have found out otherwise. I paid an international tax lawyer to do my taxes at first, then I paid him to teach me how to do it myself. My taxes are not all that complicated, so it works.
WK. why are you so antagonistic to Erin?–
“LOL. How dumb do you think we are?”
She is after all merely pointing out some truths. If one chooses to fill in the right forms to form nation, it is perfectly reasonable for duals to invest in RRSPs. You might not like it but she is correct. Not all dual citizens are accidental and some wish to keep their status.
@Erin
It sounds like you’re trying to figure out the best way to live as a second-class citizen in Canada.
Why does it sound like that to you? Because I am holding onto my US citizenship?
Let me just say something about why WK has reacted this way, because as someone in her same position, I can understand exactly where she is coming from.
Every day, all day long, all of us here on IBS work tirelessly at our second jobs, countering commentary from Homelanders and Canadians who believe the BS that they have been fed about FATCA being about catching “Americans living in Canada”. Daily, hourly, on endless news items, we are labelled “tax cheats”. So many of the comments are just ridiculously ignorant and some are downright evil and completely lacking in empathy that it begins to eat at your psyche. We are hated by both sides, who know nothing about us, and further, we have done nothing wrong. We are on the defensive all day every day, just simply trying to get people to understand what this actually IS. It is especially galling for us accidentals who have lived our whole lives in Canada and never considered ourselves anything but Canadian, and we can’t even relinquish!
Unless someone is in our position, they cannot appreciate the deep visceral fear, anger and betrayal that we feel. We had been living our lives with all the regular worries and cares of life and doing our best to work and save and support our families and, suddenly, THIS FATCA BOMB has been dropped on us! Not only by a foreign government but by OUR OWN.
So, keeping that in mind, if someone comes on IBS and starts calmly talking about how we might as well make the best of a bad situation that is here to stay (we HATE hearing that, after the relentless war we have been waging and are STILL waging!) and that things aren’t “so bad” because of the way the IGA was negotiated to include some investment exemptions, they have inadvertently walked into the middle of a boiling lava pit of anger and resentment, where their observations will not be very welcome. IBS is a haven for those of us who had been afraid and alone before. So after all this, even a well-meaning comment regarding compliance rules will not be looked upon kindly, to say the least.
I do not want to alienate anyone who is willing to help us in this fight, but anyone coming on here has to understand the extreme emotions that this issue stirs up, and attempt to tread carefully.
Great summary. Usable.
I hope that new visitors provide new information and receive information. Any chat site is prone to some misunderstandings.
Personally, I don’t see any method for a US person to be a merchant with all of this reporting. FATCA reigned in a whole new layer, under the assumption that anything created by a US person outside of USA is a “shell company”. I have gone to great lengths to become someone else’s employer in order to be a merchant.
FATCA was known to entrap US persons. Of 7.6 million, there are only a few thousand who have had the luxury of an international accountant.
http://samuelclemmons.wordpress.com/2014/01/03/fatca-entrapped-10s-of-millions-of-us-persons/
Now for a refreshing change of pace. The NSA is now under attack at their main facility in Utah. The IRS will soon face similar opposition across America as anyone paying attention knows. The IRS is on its last legs as there are calls for its dismemberment coming from all sides politically and from the tax industry itself that can’t make heads or tails of the ever changing tax code. The IRS is hated in the USA more than we hate it. It is doomed and hopefully will implode this year.
Utah wants to shut off water to the NSA as long as it is spying
http://www.infowars.com/utah-representative-wants-to-shut-off-water-to-nsa-facility/
A bit off topic here. I wonder if anyone can provide a “template” of the problems with the Fatca IGA. I need help with a “presentation” with quotes from the IGA as to where the largest problems and breaches of privacy and extortion are. We all want to physically meet with our MP’s this week to educate them and need a written document with references to the IGA. I am working on one myself, but this is huge…. looking for a bit of help. Once we have something solid, can we make a posting so anyone wishing to meet their MP can print it off and take it with them?
@GwEvil nicely said! Very nicely said and thank you! I have also faced opposition in my fight against this horrible law, few people understand how horrible this thing is, and I too get tired of people dropping hints that we decided to move overseas, so we should just accept it. It’s total nonesense and I won’t stand for it. Very good wording and very usable text to argue points against them and maybe even bring them to our side. Thank you for taking the time to write that!
@ NativeCanadian you might want to use this list of questions: http://isaacbrocksociety.ca/2013/11/22/123-questions-to-ask-your-government-about-fatca/ Frankly I think the whole list outlines the problems with FATCA because I don’t believe for a second that any government can answer all of them. Just for reference. I have not seen a true list of the problems with FATCA that I can recall. You might get some useful information here as well: http://americansabroad.org/issues/fatca/fatca-bad-america-why-it-should-be-repealed/
GwEvil,
I understand, thanks for explaining. I was familiar with this website, but I suppose unaware that most people here are in your situation as opposed to one more like mine.