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 thank you for your understanding
@Erin,
I am sorry to have bitten your head off last night. I put a lot of passion into the post you commented on, and the point of it was not to discuss how to make the best of the constraints imposed by USA when living in Canada as an ‘American’. Regardless, you are free to say whatever you like including changing the main point of the post; my rudeness was not justified. However, if you had introduced yourself to this site, showing a little empathy for those of us caught up in this life altering madness, before you started talking about how its not that bad, I would not have come out with guns a blazing.
You have obviously made peace with the restrictions placed on you by your home country, and appear to see your primary citizenship as ‘American’ despite acquiring Canadian citizenship in 2008. You even refer to yourself as an ‘American in Canada’ . Although some Brockers have closer ties to the USA than others, I believe that the vast majority think of themselves first and foremost as ‘Canadians living in Canada’.
@GWevil
Thanks for your excellent job explaining to Erin why I reacted the way that I did. You expressed my feelings perfectly.
@DukeofDevon,
RE: “WK. why are you so antagonistic to Erin?– 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. 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.”
Although I agree, I was hard on Erin, I’m surprised you cannot understand where my anger comes from. What you call, ‘merely pointing out some truths’ when Erin suggested our plight was not that bad, does not wash with me. Also, I never suggested duals not invest in RRSPs, and I don’t ‘not like it’ that she is ‘correct’ that duals can invest in RRSPs (though we all know that even RRSPs have constraints for a ‘US person’). Erin’s lack of empathetic response to my post, with her ‘its not that bad’ message, made me feel like a slave whose master has been nice enough to give him a mattress to sleep on, so he should be a happy slave.
Also, re: your comment that some dual citizens wish to keep their US citizenship, I don’t know why you would think you need to tell me that. Many Brockers who are fighting FATCA wish to keep their American citizenship. To fight against immoral citizenship based taxation is not mutually exclusive with desiring to keep one’s US citizenship, and I never suggested otherwise.
I’m glad that is all settled and GwEvil summed things up beautifully. I think ALL of us can proudly take our seats at the front of the bus. We do not have to accept that Harper & Co. consider us to be wheel fodder to feed to the banks and Uncle Sam. (Thanks to FromTheWilderness for the analogy.)
It’s OK, WhiteKat. I would probably respond the same way if I were in your shoes. I wouldn’t say I’m at peace with the restrictions, but I do try to comply, and it’s a lot easier for me to do so having known about these rules since becoming an expat than it would be if I discovered them after decades of being out of the US. Just became Canadian citizens in 2013, so I suppose I haven’t gotten out of the habit of calling myself “An American in Canada.”
The fact is, if people continue to comply without renouncing, the US will never consider RBT. Frankly, living my life as a second class citizen is intolerable for me to sustain for any length of time.
@Bubblebustin,
If the slave never tries to escape, he will never be set free.
Erin,
Not to argue but to hope you understand that many, many, many (or even most) who come to this site object to being referred to as “Americans in Canada.” The point is we do not consider ourselves to be such — nor do I consider my children born in Canada to be “Americans in Canada”. I do not consider “accidental Americans” born to Canadian parents in the USA but did not stay there, Americans in Canada. We are Canadians living in Canada and have an extra-territorial “dual” designation as “American”. It is an insult when we are described as “Americans in Canada” in media reports. In fact, I also object to the term “American” as there is a whole hemisphere of Americans. How did the US give itself that distinct but erroneous designation?
I recognize that some, like you, prefer the definition, American in Canada. That is your view of yourself. It is an insult to me as I was WARNED when I became a Canadian in 1975 that by doing so I would lose my US citizenship. That’s how I’ve lived my life in Canada. It was my choice to be Canadian, not an American in Canada. And, how exceptional for the US to consider my children’s birth to me in Canada an automatic conveyance of US citizenship that they think takes precedence to my children’s citizenship by place of birth in Canada? They were NOT born and raised on the plantation.
And, for those Canadians ENTRAPPED into some designated US citizenship (by ‘mental incapacity’) there cannot be renunciation, so why would there be compliance?
@Calgary,
I hear you Calgary….this is what set me off last night, and every time I hear myself referred to as an ‘American in Canada’, I see RED. I am sure that Erin understands our perspective now, but point is that she really DOES see HERSELF as an American in Canada. Maybe this is why she does not appear to mind the second class Canadian citizenship status, to the degree that we do.
Unfortunately for you and me, although we are Canadian citizens, and identify only as Canadian, our own government sees us as Erin sees herself.
Great point, Calgary411!
Excellent work WhiteKat with your letter to CARP, and GwEvil with your above post and recent magazine interview. For our subgroup of being born in the US but growing up and living only in Canada, only as Canadians, it does certainly feel like no official authority is on our side. The USG acts like we owe our primary allegiance to the US, and even the Canadian government is telling us to file US tax returns because we are “US citizens”.
It has become clear to me that only we can stand up for ourselves to our MP, our bank, whoever, and say that we are only Canadians (who happened to be born in the US, but have never made any claims on US citizenship) and that we refuse to co-operate with any of this nonsense. How can anyone make a just and rational argument that we should pay taxes to a foreign country where we have never lived or worked, and have received no benefits or services from.
The sad truth about world history is that it is full of unjust events – this is likely the first time in our lives that we have personally experienced a significant unjust event. Your anger is understandable WhiteKat. I can’t stand to see Obama on TV now – I get too angry.
Right, WhiteKat. Erin and others who see themselves as American in Canada are entitled to how they see themselves. And, we who see ourselves as only Canadians in Canada are a very different breed.
Sad we have been told by the completion of negotiations with the USA for an intergovernmental agreement that our Government of Canada sees us as “Americans in Canada” rather than “Canadians in Canada.” Sad indeed. Enshrined in this IGA is our second-class designation we now have to any others in Canada no matter their national origin or their parent’s national origin.
Well, I can see how you would be upset when referred to as “Americans in Canada.” I lived in the US for 31 years so I do still feel American. My children, however, are US citizens who have never lived there, so will likely feel as you do. I am not OK with FATCA and what the IRS is doing, I don’t like the restrictions and rules, and I want to apologize to anyone who felt my comments were unempathic or minimizing of the tragedy this is for so many people. I am on your side.
Another way to screw the govt, at least the BC govt:
http://dogwoodinitiative.org/no-tankers/petition Sign this petition. We are winning. If Harper wants to push through these pipelines by selling us out to FATCA then we must rise against them, in fact we must rise against and oppose anything this government wants. Let them feel the effects of a few million of us opposing anything they do anywhere. All friendly Canadians to our cause need to vote as a block to oppose anything in the future that any of the parties want to push.
@WhiteKat
If someone has already brought this up, please excuse the repetition.
When I finally read the Canada-US tax treaty, I realized that the problem began long before FATCA. The treaty recognizes the right of the US to collect taxes from American citizens living in Canada resulting from transactions occurring in Canada (i.e. salaries paid, dividends and interest, etc.)
That no more makes sense than allowing the US to collect a sales tax on all purchases made by Americans living in Canada, or a real estate tax on their homes.
The exclusive right to levy taxes on its own territory is integral to the sovereignty of a nation. The Canadian constitution defines the taxation authority of the Federal and provincial governments. There is no mention of the authority to allow a foreign state to levy and collect.
I believe that the treaty itself should be contested in court as unconstitutional. At the very least, such a treaty shluld have been subject to a national referendum before approval.
To give the devil his due, we should remember that the Canadian government did reaffirm that thete will be no collection of fines or taxes on liabilities arising while a Canadia citizen is a resident of Canada, which covers a lot of us.
Department of finance IGA FAQ, last question:
http://www.fin.gc.ca/afc/faq/fatca-fra.asp
And it seems, for the moment, that there will be more non-reporting Canadian financial institutions than before the IGA (see recent posts on fatca questions thread).
However, the price for this is never crossing the border, never owning ( or inheriting ) property in the states, and, if you want to avoid being reported, chosing your financial institution very, very carefully. And it would be better never to ever travel by plane or ship, for fear of finding yourself in an American airport or port as a result of an emergency situation. So, at the best, you become a second class citizen.
@Petit Suisse
The exemptions on FATCA reporting of certain accounts and the non-collection of taxes and penalties are what allow us to remain as 1st class citizens of Canada – and are there to motivate us to continue to buy those financial products from the banks. Being taxed on them and not being able to re-enter the US makes us 2nd class citizens of the US only.
Hi all! new here! I am very impressed with the extensive information related to FATCA and other tax issues on Isaacbrock. I’m glad I have found this website also.
Recently I ran across an article on Taiwan about FATCA and how it might not be implemented because of political and privacy issues, but it seems the information is just from a tax guy, I don’t really believe what he says, but wanted your opinions, here is the article: http://squawkonomics.com/2014/02/02/fatca-meets-its-match-banking-confidentiality-law-to-derail-fatca-in-taiwan/ Would appreciate some thoughts.
Thank you, Chingwen, for the interesting read.
The YouTube link in that article doesn’t work. This might be the correct link: http://www.youtube.com/watch?v=l4ObjCGPP64.
Here is another I found re FATCA in Taiwan, http://www.youtube.com/watch?v=o_YR2BA7EWA, obviously not the same one. (The interview itself, Ross McGill / Global Tax, is in the English language — just a good description of how IGAs work.)
Here is the link to the English version of the article.
http://www.youtube.com/watch?v=l4ObjCGPP64 – seem the link is the same yes.
Although a good read, as a local resident here in Taiwan and knowing and understanding the way politics work here, I don’t think Taiwan has any way to avoid signing up to FATCA. Can CPAs be trusted with opinions? Seems too good to be true. If other countries cannot avoid FATCA even they have privacy laws, how is Taiwan going to avoid it. I don’t see it happening.
@All,
I made a small, but meaningful change(I think) to the above post for those who might be interested in reusing it, by moving the word EFFECTIVELY within the following line.
‘Even if you think so, and I can’t imagine why anyone would, does USA have the right through its taxation laws to EFFECTIVELY prevent some Canadians from planning and saving for their retirement?’
Changed to:
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?
I was not trying to say that it was impossible to do a certain amount of planning and saving for retirement (for example with RRSPs so long as the requisite form is filed annually), but that it is restricted(forget the form for RRSP exemption for a year and you have a problem), and in many other cases retirement planning is also restricted (for example, the sale your principal residence may result in capital gains taxation).
It is amazing how one misplaced word can change the nuance of a sentence.
@Chingwen: sadly this guy Chou appears to be full of complete bollocks. Taiwan is perfectly able to sign tax agreements with countries that don’t recognise it (like the Taiwan-UK DTA from 2002). The Personal Information Protection Act gives you little protection either: at most it means your bank will have to get your written consent before sending your information to the US (unless the Bankers’ Association manages to lobby to get that niggling little detail removed). There’s even a theory that that the government could use the “protection of public security & national interest” provision of Article 16 to force disclosure in the event an individual refused to give consent, though I think that’s stretching it.
Can anyone confirm for me my understanding that income from work pension plans is taxable by USA, as well as being taxable by the Canadian government?
Also, once a RRSP is turned into a RRIF and withdrawals start, are these RRIF withdrawals taxable by USA? My understanding is that they are not double taxed.
Assuming RRIFS are not double taxed, is there an annual form that must be filed to prevent this, similar to the form that must be filed to allow tax deferral of RRSPs?
In which case, to summarize, the ONLY investment vehicle that can be used by a Canadian with ‘US person’ status to avoid double taxation is in fact the RRSP, providing that the proper annual paperwork is submitted to the IRS.
Comments?
@Eric,
Yes I agree. Tax accountants don’t have all the answers, it’s more like speculation than anything else. Why this was news, is actually laughable. Perhaps just this reporters way of trying to get fame? Who knows. The local government seems to be fully aware FATCA’s problems, but still fear US backlash if they don’t sign on, so.. unless something particularly astronomical happens, I would venture to say eventually they are going to sign it.
WhiteKat. RRIFs are not double taxed. Form 8891 is used for BOTH RRSPs and RRIFs to obviate any taxes on the accrued earnings. Any withdrawals from either type of plan are protected by ‘foreign’ tax credits. Knowing how sensitive you are, I put foreign in quotation marks- please don’t shoot the messenger.