Today’s CARP Newsletter: Federal Finance Minister’s Letter to CARP about Foreign Account Tax Compliance Act Flaherty: Canada Won Privacy Protection, Exemptions and Other Relief from FATCA
Editor’s Note: Finance Minister Jim Flaherty announced earlier this month that Canada and the United States have signed an intergovernmental agreement under the Canada-U.S. Tax Convention on US access to financial accounts held by dual US-Canada citizens. Since the announcement, CARP has heard from numerous members who are dual Canada-US citizens concerned with the financial and privacy implications regarding the new Foreign Account Tax Compliance Act (FATCA) agreement. CARP has shared with Finance Minister Flaherty’s office the views expressed by our members Minister Flaherty has responded in a formal letter to CARP members. Below you will find the full contents of the letter: – See more at: http://www.carp.ca/2014/02/22/federal-minister-finances-message-carp-members-canada-won-privacy-protection-exemptions-relief-fatca/#sthash.o374vF8J.dpuf
It is true, as Finance Minister Flaherty points out, the actual requirements for US Persons to file and report (paying ‘compliance industry professionals’ if they are not capable of dealing with the complexity in fear of penalties) and to remit to the IRS actual taxes owed that are not covered by the US / Canada Tax Treaty are not within the power of Canada to change — EXCEPT there should be immediate revisions to that US / Canada Tax Treaty to REALLY EXEMPT much of what we will continue to be faced with.
What We Won
Under the intergovernmental agreement, financial institutions in Canada will not be forced to report any information to the IRS. Rather, only information on accounts held by U.S. residents and U.S. citizens will be reported to the Canada Revenue Agency (CRA). The CRA will then exchange the information with the IRS through the existing provisions and safeguards of the Canada-U.S. tax treaty. This approach is consistent with Canada’s privacy laws, adding a strong layer of protection that would have otherwise been absent.
Canada obtained even further exemptions and relief though.
For instance, we ensured that certain accounts are exempt from FATCA and will not be reportable at all. Many of the accounts exempted are those of special importance to seniors – like the Registered Retirement Savings Plans, Registered Retirement Income Funds, Registered Pension Plans, Tax-Free Savings Accounts, and more. Also, we further made certain that smaller financial institutions, like small credit unions, will be exempt for any reporting at all.
In addition, the 30% FATCA withholding tax will not apply to clients of Canadian financial institutions. Furthermore, we had the FATCA requirement that would have made financial institutions close accounts or refuse to offer services to certain clients removed for Canada.
What this Means for Dual Canada-U.S. Citizens
As well, this agreement is strictly a tax information-sharing agreement. It will not impose any U.S. government taxes or penalties on U.S. citizens or U.S. residents holding accounts in Canada. Furthermore, the CRA does not and will not collect the U.S. government’s taxes on Canadian citizens if the individual was a Canadian when the tax liability arose – this includes dual Canada-U.S. citizens.
Our Government fully understands the separate, but important, issue of U.S. citizenship-based taxation on dual Canada-U.S. citizens. The U.S. government’s system of citizenship-based taxation is different from the residence-based approach generally followed most of the rest of the world.
This creates unique challenges for U.S. citizens who reside in other countries – especially Canada. However, as these are U.S. laws that apply to U.S. citizens, they can only be addressed by the U.S. government – not Canada. In that regard, I would encourage U.S. citizens in Canada to share their concerns with the U.S. government.
Rest assured, Canadian financial institutions must be open about their policies and procedures for complying with the agreement and must be prepared to make this information available to anyone. Importantly, financial institutions must allow account holders to have access to any personal information that has been reported to the Canada Revenue Agency.
If CARP members have further questions or would like more details about this issue, I welcome you to visit http://www.fin.gc.ca/n14/14-018-eng.asp, email me directly at email@example.com, or write a letter (postage-free) to me (address it to me at House of Commons, Ottawa, ON, K1A 0A6).
What about the fact that the CRA under FATCA will now have access to an unprecedented amount of information from one sect of Canadian taxpayer? Aside collecting info on behalf of the IRS, is the CRA itself targeting Canadians with US personhood for their own use/misuse?
It is odd that Canada just this week announced sanctions on the Ukrainian government because of its strictly internal actions against its own citizens but won’t denounce sanctions against the U.S. for its discriminatory policies against U.S. persons who are resident in Canada and therefore under Canadian law.
It is equally ridiculous and hypocritical that the U.S. seriously believes that it has the moral authority to determine when a country is violating the humans rights of people within or outside of said government’s territory but will not listen to criticism by other nations of U.S. human rights abuses. The U.S. wants to establish international norms for human rights but won’t acknowledge the application those norms when it comes to its own policies.
Heads up U.S. Residence based taxation is the world standard of all Western and non-Western democracies other than for Eritrea. It is long past time that the U.S. joined the civilized world.
So what Flaherty has said and what the U.S. government has stated is that no government has authority to say how another government should treat its citizens. Even if those citizens have another citizenship. U.S. citizenship trumps any other citizenship. Both leaders need to get off their moral soapboxes and stop preaching to any other country.
The CLN may not be enough for border crossings. However, it stops all new “tribute” issues from that point going forward for sure.
@Duke of Devon
“counterproductive”? Don’t make me laugh. Don’t be so……..so…….uh Canadian ;-)))
If I wasn’t such a polite compliant well mannered gentleman running for office here I could say a lot worse things.
No bank account for YOU!
We all do it. Badger has enough comments like that to make several books. I only hope she has saved each and every one to add to a future “Book of Brock”, written hopefully because Brock helped to WIN the reincarnation of the War of 1812.
If I read it correctly, there is an Interesting provision in the additional 155 pages of FATCA regulations issued by the US on Friday. These now say that a FFI has reason to know information about “foreign” status is incorrect if there is unambiguous evidence of a place of birth in the US. But there are now 2, rather than just 1, ways to be treated as “foreign” nevertheless. The first (old) way is by producing evidence of citizenship in another country and a copy of a CLN. The second (new) way is by supplying a certificate of foreign status (W-8), producing evidence of citizenship in another country, and giving “a reasonable written explanation of the individual’s renunciation of U.S. citizenship or the reason the individual did not obtain U.S. citizenship at birth”. Those born in the U.S. who thought they had lost U.S. citizenship when they naturalized in Canada before the change in U.S. law on “intent” may welcome this, assuming their FFI is willing to take a risk about what kind of written explanation the U.S. will consider “reasonable”. So now we have banks making citizenship determinations!!!
February 23, 2014 at 9:17 pm
The CLN may not be enough for border crossings. However, it stops all new “tribute” issues from that point going forward for sure.”
That is true for Canadian FATCA The European FATCA still require you to be tax compliant. It like Green Card status in Canada. Canada will not recognize Green Card status in Canada. Once you got your CLN, Canada will ignore you filling tax status in US. If you CLN now you will probably receive nasty letters from IRS for not filling all the tax stuff. If you can explain to Canada government that you relinquished this may be a better situation for Duals or accidental Canadians.
The European, Japan and Mexico may have the ability to change their FATCA to Canadian status. If China gets a better deal than Canada, we can get the Chinese deal. China is in a much stronger bargaining position to Canada. They are a net creditor their and export market to USA is less subject to problem. Canada export to USA is hard to move commodities. In addition a lot of our mortgage money is supplied by the Americans investors. The European had a much stronger position than us. If the European Union had said no FATCA would have died.
. So now we have banks making citizenship determinations!!!
It goes back to CRA to make final determination.
If one of the big “wins” for Canada is supposedly allowing Canadian FIs to report to CRA, instead of directly to the IRS, then why do Canadian firms have to register directly on the IRS’s FATCA portal?
The agreement as signed does indeed make the CRA the actual person responsible for calling in the IRS on Canadians of American ancestry. Flaherty’s letter suggests that the existing US:Canada tax treaty has privacy safeguards in place. Firstly, There are in fact NONE, ZERO and NOT ONE such restriction. If CRA decides to disclose, Canadian taxpayer can’t prevent and certainly can’t get it back. The only “protection” is that CRA does not have to ENFORCE against dual citizens for any liabilities arising after Canadian citizenship was acquired. Secondly, even the limited “protections” of no requirement to disclose registered accounts or if there is there is a reasonable explanation for loss of citizenship don’t actually oblige ANYONE to inquire. So if the Bank has somewhere in its archives a piece of paper that says you were once American, they can pass that on to the CRA and the CRA to the IRA without anyone asking you whether you have an explanation for why you are no longer American. You are then at risk of having to go to Washington to prove what you are not or face a lifetime of administrative harassment and threats of penal sanctions from abroad. There is no requirement to notify you of ANYTHING before the CRA decides to hand over all of your personal data to the IRS. Absolutely NOTHING. I doubt this stands any kind of court challenge. Personally, I am totally satisfied that I am not a citizen of the over-reaching republic to the south, but I don’t relish the obligation of having to go there to prove it to them or spend thousands in fees for the privilege of not being one. Barbaric.
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Anne Frank –
Excellent exposition of a KEY point
The “freedom” granted to Canadian banks and to CRA to pass along their impressionistic “evidence” to the United States, with possibly ZERO interaction with the affected account holder, means that all Canadians have no guarantees about the “privacy” of their financial information.
Flaherty is sick. What drugs is he doing?
Last reported, he was taking prednisone, a very powerful steroid medication. That’s nasty shit.
So, Flaherty is bragging about “What We Won”? Who benefits?
Consider a US person in Canada who is fully compliant with US filing obligations and continues filing going forward, and whose FFIs are fully compliant. This person is not bothered by FATCA at all, because he is already willingly reporting all the same information to the IRS. This is an example of the end result the US hopes FATCA will deliver, right?
For the people I just described, the hard-fought negotiations by our government don’t benefit them at all.
So, what is it that Flaherty won, and who benefits from it? Clearly, the only benefactors are those who choose to ignore the IRS and never set foot in the US again. Flaherty has listed all the ways that he is protecting those people. I won’t quote them again: they’re at the top of this page.
Read his words again with this point of view. People who already file US taxes and FBARs are not helped or hindered by the IGA. Non-US citizens (with Canadian spouses) were never at risk of privacy violations (other than by error) and not impacted other than by higher banking fees. Only those who shun their US obligations and refuse to file are helped by the Canadian IGA and all the victories claimed by Flaherty.
@WhatAmI, who benefits: the person like me who was semi-compliant. There may have been some accounts which I failed to report, perhaps an RRSP or two or three, and/or TFSA. Now, under current IGA rules, I never have to report them. But this takes guts, and a lot of people actually need the CDN government’s protection because they are not the Clint Eastwood type. Flaherty is fail.
EVERYONE is affected by this IGA, including fully compliant USPs. Only former USPs who left the US tax system compliantly and have a CLN are relatively good to go but even so, errors will occur and once that data is gone, it’s gone forever. They no longer have any control about what is reported to whom and whether or not what was reported was correct or even whether or not it was actually reported (banks don’t have to notify their clients). This is NOT good; NOT a “win”. The whole point of this is that PRIVATE and SENSITIVE financial data will be transmitted from agency to agency to who knows where by FATCA reporting. These transmissions are not and never will be “secure”. Everyone should be bothered by that shotgun dispersal of their private information. Every shot exposes them to the potential abuse and theft of their data. The only good FATCA is a dead FATCA and Canada could have put the world out of this misery by saying NO, but failed to do so. I believe that a FATCA stopped in Canada would have been the end of it, for everyone.
@ James Jatras
Good point. Obviously the USA is seeking “total information awareness” of all financial institutions in the world. FATCA is a way to inventory these institutions as well as the assets of individuals.
Right. “F” for “FAIL” for Flaherty … but I do wish him better health.
That is a problem — even then, as you point out, for the former USC with a US birthplace, it’s only *relatively* good to go. It’s creepy, like one can never escape completely.
If I’m reading the IGA right (not sure), even former USCs would have to fill out an IRS form, the W-8, and provide personal information that is no foreign county’s business. It’s like if you ever had any connection to the US, they want personal info in addition to the CLN. Sick. Well, the whole thing is sick. Anyway —
On page 21 of the IGA, Annexe II (b)(4)(a) lists three things that must be provided if a person is a former citizen.
The self-certification is in (a)(1);
their non-US passport is in (a)(2);
and the CLN (or reasonable explanation of why they don’t have one) is in (a)(3)
Anyway (a)(1) says “A self-certification that the account holder is neither a US citizen nor a US resident for tax purposes (which may be on an IRS Form W-8 or other similar agreed form)”
Right, another example of a technically non-compliant person benefiting from Flaherty “wins”.
Yes, I know and understand and wholeheartedly agree with everything you said about FATCA. However, my post was not about FATCA. It was about Flaherty’s ridiculous statements about what he “won” for us. A statement, but also grasping for some meaning or logic or hidden message. The governments probably don’t worry about errors, over-reporting, etc, like we all do. Let’s just set that aside for a moment.
He’s proud of the negotiations, right? The only (or at least the _main_) benefactors are those who are wholly or partially non-compliant.
Therefore, he must realize full well that many many dual citizens in Canada will ignore the IRS and not file anything, regardless of whether or not their private info is reported? Why else would he continually state that Canada will not collect taxes or penalties, and boast about all the exempt accounts (RDSPs, RESPs, TFSAs, etc), and boast that they negotiated away the 30% withholding, and negotiated away the bank account closures? He knows that many people won’t file anything. Why negotiate all those things if everyone complies? Nobody would have needed those concessions if nobody refused.
@calgary411 is hot on Flaherty’s heels about the vague and misleading public statements that seem to suggest US persons can ignore the IRS and get away with it. Obviously, the government can’t recommend that anybody do that, but everything they publish seems to indicate, nudge nudge wink wink, that with their winning negotiations the option is there.
It’s all crap, of course. People who intend not to file anything would be better off with no FATCA agreement and no reporting at all.
We’ve been saying here for a long time now that individual FIs may well decide to ignore the thresholds of $50K per account (which the IGA allows for), the $1 million threshold for “high-value accounts”, etc.
I’ve been wondering if the CRA might filter the info and only report the minimum required to the IRS.
I’m guessing probably not, since Flaherty said “Importantly, financial institutions must allow account holders to have access to any personal information that has been reported to the Canada Revenue Agency”. He didn’t say to contact the CRA to ask what they in turn actually sent to the IRS.
I just sent another email to CARP (to Nicin and copied Park). Thanks Badger for your inspiring post (hope you don’t mind I lifted a couple of your phrases). To make things less confusing, I left out Canadians born in Canada of US ancestry, but I am trying not to cloud the issue too much, so Calgary please don’t think I wasn’t thinking of you. I just find that the more info we throw at people, the more confused they get, so just thought I would focus on the Canadians born in USA for this email.
Dear Mr. Nicin,
Does CARP support ALL Canadians over age 50, or does CARP only support Canadian seniors who were not born in the USA?
Finance Minister Flaherty has made it clear that Canadians resident in Canada, but born in the USA of Canadian parents, are considered by him to be US citizens first and foremost, despite the fact that they are Canadian residents and citizens of 100% Canadian ancestry.
Re: the words of Flaherty with respect to the implementation of FATCA in Canada: ”…However, as these are U.S. laws that apply to U.S. citizens, they can only be addressed by the U.S. government – not Canada. In that regard, I would encourage U.S. citizens in Canada to share their concerns with the U.S. government.”
In other words, Flaherty believes this second class subset of Canadians are best served by dealing with the US government directly – WITHOUT the protection and assistance of their Canadian government.
For example, as the designer of our Canadian TFSA, and our negotiator of any US Canada Tax Treaty terms since he became Finance Minister, and the chief negotiator of the FATCA IGA, it is Flaherty as the Canadian Ministry of Finance who is directly responsible to CANADIAN citizens and legal residents for the outcome ON CANADIAN SOIL.
Otherwise, he has created a special second class citizenship for Canadians born Canadian – but in the US, of Canadian parentage.
Flaherty is saying that US definitions of who it claims as a ‘US taxable person’ trumps Canadian citizenship and civil rights on Canadian soil.
Canadians with so-called ‘US person’ status are currently taking steps towards launching a class action lawsuit against the Canadian government. See: http://isaacbrocksociety.ca/2014/02/23/possible-charter-challenge-legal-opinion-needed-and-funds/
Does CARP intend to live up to its promise of being: “committed to a ‘New Vision of Aging for Canada’ promoting social change that will bring financial security, equitable access to health care and freedom from discrimination”?
Will CARP stand idly by and do nothing, as the current Canadian government attempts to throw Canadian seniors with ‘US person’ status and their family members under the bus in order to protect Canadian banking institutions from the economic sanctions (30% withholdings of US sourced income) that USA is threatening for non compliance with FATCA? USA will never follow through with the threats; our government needs to call the bully’s bluff, and come up with retaliatory measures of their own if need be, rather than capitulating to the demands of a foreign government.
Might does not make right. Which side is CARP on – the big guys or the little guys?
Kathleen XXXXX (name not withheld from Nicin and Park)
Canadian citizen born in USA to Canadian parents in 1962
Resident in Canada since 1963
I am creating another version of above email with revisions directed towards JT and the Liberal party….removing the references to seniors, CARP…adding in references to the Charter of Rights and JT’s father’s role.
Take heart folks. We now have number 9 ! If this keeps up there won’t be any scumbag bankers left to report anyone
The dismal trail of dead bankers continues. As The Journal Star reports, a successful Lincoln businessman and member of a prominent local family died last week. Former National Bank of Commerce CEO James Stuart Jr. was found dead in Scottsdale, Ariz., the morning of Feb. 19. A family spokesman did not say what caused the death. This brings the total of banker deaths in recent weeks to 9 as Stuart is sadly survived by three sons and four daughters.
Which brings the total number of recent banker deaths to 9 ( via Intellihub):
1 – William Broeksmit, 58-year-old former senior executive at Deutsche Bank AG, was found dead in his home after an apparent suicide in South Kensington in central London, on January 26th.
2- Karl Slym, 51 year old Tata Motors managing director Karl Slym, was found dead on the fourth floor of the Shangri-La hotel in Bangkok on January 27th.
3 – Gabriel Magee, a 39-year-old JP Morgan employee, died after falling from the roof of the JP Morgan European headquarters in London on January 27th.
4 – Mike Dueker, 50-year-old chief economist of a US investment bank was found dead close to the Tacoma Narrows Bridge in Washington State.
5 – Richard Talley, the 57 year old founder of American Title Services in Centennial, Colorado, was found dead earlier this month after apparently shooting himself with a nail gun.
6 -Tim Dickenson, a U.K.-based communications director at Swiss Re AG, also died last month, however the circumstances surrounding his death are still unknown.
7 – Ryan Henry Crane, a 37 year old executive at JP Morgan died in an alleged suicide just a few weeks ago. No details have been released about his death aside from this small obituary announcement at the Stamford Daily Voice.
8 – Li Junjie, 33-year-old banker in Hong Kong jumped from the JP Morgan HQ in Hong Kong this week