Something I think we need to better understand (or at least I do),
Roy Berg, director of U.S. Tax Law at Moodys Gartner Tax Law LLP, discusses concerns that Canada’s approach to FATCA may spark a dispute with the U.S. over personal trusts:
Advisor.ca, Dean DiSpalatro, March 31, 2014: “Feds bury FATCA law in Budget bill”
On Friday the Conservative government tabled legislation to implement key elements of this year’s Budget. But it contains more than tax credits.
Buried within is a revised version of draft legislation implementing the Intergovernmental Agreement (IGA) with the U.S. on FATCA. A Department of Finance press release makes no mention of this part of the bill.
…
If the trust has a Global Intermediary Identification Number (GIIN), the firm will consider it a fully compliant Foreign Financial Institution (FFI). As a result, the trust will receive the dividends in full.
If the trust doesn’t have a GIIN, the U.S. firm withholds 30% and passes it to the IRS. Berg says the same will happen with securities accounts based in the U.K., Ireland and other countries that have IGAs with the U.S. Their IGAs and guidance notes label trusts as FFIs.
How did our lives become so complicated?
@RoyBerg,
Now I am confused. Since RRSPs, RESPs, TFSAs. RDSPs (not LIRAs) are exempt from FATCA reporting, and they are not ‘personal trusts’, what is the concern with them? Yes, they are foreign trusts as far as US is concerned, and yes they are FBAR reportable and gains are taxable, but for those non-compliant US persons who are counting on this carve-out as some semblance of respite (until FATCA falls apart as it inevitably will one way or another), is there something else to be wary about regarding these registered investment vehicles?
Note to anyone with a LIRA: these are NOT on the list of exempted registered investment vehicles in the IGA.
@Bubblebustin, that’s not how I interpret what Roy Berg said. I think he was just reminding us that RRSPs, etc are still considered to be ‘foreign trusts’ (aside from the personal trust issue), and are thus FBAR reportable, and the gains are taxable. So for someone who wishes to be compliant, they need to keep this in mind, and not think that the carveouts have any impact on US taxation laws. I think most of us reading here regularly already know this.
From Nina Olson’s 2013 NTA Report to Congress — have we discussed this?
REPORTING REQUIREMENTS: The Foreign Account T ax Compliance Act Has the Potential to be Burdensome, Overly Broad, and Detrimental to Taxpayer Rights
As sent to me from a “dear friend” with following:
My thanks and I’m glad to post it here.
@Calgary,
I hope your friend is feeling well enough to go to the ACA forum.
I would add that there are no protections for those who are 0% compliant either! But of course, we’ve brought this on our own….tax cheats that we are. The nerve of us, not wanting to pay homage to TWO tax masters.
It doesn’t matter the circumstances regarding HOW any of us came to be considered ‘US citizens’, or why we left (whether by choice or not), presuming we were law-abiding citizens while we actually LIVED in the USA. Citizenship based taxation is plain WRONG! The cases of ‘Accidental Americans’, and people like your son serve to highlight the ridiculousness of it, but bottom line is that NO ONE deserves this.
@ WhiteKat
Hear! Here! Rock on! Or should that be Brock on!
Maybe these IDIOTS in Congress who can’t agree on anything might be able to get something done if they would listen to people like the NTA who are paid by US taxpayers to make recommendations on how lawmakers can take real action on important issues affecting Americans, rather than just IGNORE her! She should resign in protest, but they probably wouldn’t give at $h!T!
@bubblebustin, I totally agree. I don’t understand why they don’t listen to her.
It must be so frustrating. I wonder if Victoria asked her why they ignore her.
@noone
(3) Responsibilities of Commissioner
The Commissioner shall establish procedures requiring a formal response to all recommendations submitted to the Commissioner by the National Taxpayer Advocate within 3 months after submission to the Commissioner.
http://www.law.cornell.edu/uscode/text/26/7803
Apparently this obligation was first ignored Douglas Shulman, and continues to be ignored. Why doesn’t she kick up a fuss about this? Oh yeah, maybe she doesn’t want to get audited…
@ bubbelbustin
indeed, the treatment of TFSA and RESP treatment is one of the more perplexing aspects of the IGA/Legislation… while they are “exempt accounts” under Annex II, they are not “deemed compliant” and thus are “reporting financial institutions.”
We addressed this unfortunate result in our submission to Finance (which, admittedly, is rather technical and hard to read).
@ whitekat
TFSA and RESP are in a bad position if the legislation becomes law:
a) they are an “exempt account” under Annex II of the IGA
b) they will not be a “financial institution” under domestic law (they’ll be an NFFE)
c) BUT under FATCA (US law) and partner-IGAs they are a financial institution
d) thus if they (theTFSA/RESP) own a US (or UK, etc.) investment account the US (UK, whatever) such institution will withhold. Can TFSA/RESP hold accounts in the US/UK/etc? I don’t know the answer to that question. However, might this cause a problem when the pass-through payment regime comes into play in 2017? Quite possibly.
So if TFSAs and RESPS are financial institutions, what does this mean to ‘US persons’? For example, if a Canadian with ‘US person’ status who is non-compliant has a RESP invested in Canadian mutual funds, or GIC’s, banks won’t care because the RESP is an exempt account. Canadian mutual funds can be easily sold, and GICs cashed out. There is no one on the other end to withhold 30%. Where will the treatment of RESPs and TFSAs as FFI’s be apparent?
@RoyBerg,
What about LIRAs? Are they exempt under the IGA? Will they have the same trust issues as TFSAs
and RESPs that you discussed earlier?
@Moonstruck, LIRAs are not on the list of exemptions in the IGA, so I would assume they are FATCA reportable. I have one with under 50K in it that i recently moved to a FFI that I don’t have any other holdings with, just to make sure. Sshhhhh….don’t tell the IRS!
I still don’t get the trust issues that Roy Berg is talking about regarding RESPs, TFSAs, and I assume RRSPs. I get when the ‘personal trust’ problem, but don’t see how it applies to RESPs, etc. Hopefully he will come back and clarify a bit for us. I have a feeling it is more of a problem for the Canadian government with regard to the IGA not meeting FATCA regulations, and not so much a problem for us. I mean we have LOTS of problems already, but this one doesn’t seem to be directed at the individual – but I am only guessing here.
@Roy Berg, I am curious, what was the purpose of your article exposing the fact that Canada might not comply to FATCA to the letter?
Are you trying to tip the US and give them a reason to force the penalties on Canada?
Sorry for being cynical here. I just didn’t get it.
Why wouldn’t you let the Canadian government to interpret the IGA as they want.
Regardless, it might not have been the best move for IBS to “leak” that document in that case. It might not play in Canadian people’s favor.
@Roy Berg
When a FATCA compliant institution makes a payment to a non-FATCA compliant institution, does it always have to withhold a portion of the payment irrespective of the source of income? I had somehow understood that a FATCA compliant institution had to withhold an amount equivalent to its own proportion of US source income when making a payment to a non-FATCA compliant institution. Do you know if that’s right?
@Noone, Maybe the issue is that FFI’s can not allow us to cash in our RESPs, etc without proving we are US compliant, or must hold 30% – could that be the issue? YIKES! In that case we are all screwed. Note to self: stop imagining every bad possibility; it worked great when I was in IT, but now it is just driving me crazy.
Perhaps Roy Berg reasons that by implementing FATCA softly as the Canadian government appears to be doing, the enabling legislation will be implemented with minimal fuss, thus getting the current government off the hook.
Meanwhile, the FATCA bus will keep cruising along, only to throw Canadians infected with US indicia beneath it in the future.
Abraham Lincoln supposedly said, “the best way to get a bad law repealed is to enforce it strictly.”
How ironic, from the guy who set the precedent for taxing (punishing) Americans for moving abroad.
How does this jive with FATCA: Canada’s ‘Too Big To Fail’ Bank Problem Is Worse Than U.S.: International Monetary Fund (IMF)?
Roy A. Berg’s article “In FATCA-Land, a Canadian Trust is a Bank” is at:
http://www.moodysgartner.com/in-fatca-land-a-canadian-trust-is-a-bank/
Roy Berg,
Your Conclusion
‘US Persons Abroad’ including in Canada can certainly relate to that. I am certainly a different person than I once was as FATCA and citizenship-based taxation law has completely turned my world upside down. I can only image what this does to so many others with very little resources, either monetary or emotional. I can’t stop thinking about all of them. Financial literacy of many is lacking and is really needed to understand any of this on the simplest basis (but there is no simple basis).
What would your advice be for financial planners, banks or others who tell Canadians that Canadian registered investments are such good Canadian vehicles to save for retirement, education, disability? That they are only meant for full Canadians, not those deemed second-class Canadian citizens by virtue of their US indicia?
What would your advice be for any US Person in Canada, especially those with very little resources (monetary, emotional and lacking financial literacy)for buying, maintaining or getting rid of Canadian “foreign trust” accounts?
How would or should the Government of Canada, the Canadian Finance Minister, our MPs, answer the same questions?
I will forever rue the immorality of all this for innocent people whose only crime was ‘not knowing’ — and the US must bear some responsibility in that (that it doesn’t is shameful). I NEVER learned anything about citizenship-based taxation in my US schooling. Mind you, I am not a well-schooled person. But, really, if our lives are to be so changed by this FATCA monstrosity, why was it not the responsibility of the USA and USA schools to MAKE SURE that every person in their school system learned of the responsibilities of something that just does not make sense (only exceptionality and punishment and hatred for persons who have left the homeland, law borne in Civil War days). After all, it is information that US Persons must heed every year at tax time.
There is no common sense — and screamingly evident immorality in play. That it could be changed by RBT as US tax law (as the rest of the world) and that is apparently not being given real consideration just magnifies USA immorality.
@Calgary411,
I am still clued out as to what this means to average Canadians with average investment vehicles such as RRSPs, RESPs, TFSAs, etc who happen to have been born in USA. Who would have thought life could be so complicated?
whitekat,
or based on USA law and immorality?
Even more, how would those of you have known about US citizenship-based taxation and its responsibilities and made your decisions based on that knowledge?
No mention of the FATCA IGA here, but Mark Milke, a senior fellow at the Fraser Institute offers some interesting criticism of the budget, and takes sharp aim at the former finance minister.
My favourite excerpt:
“First, do no harm. This is not as easy as it sounds. Governments are often tempted to interfere and re-interfere. Fact is, for a country to thrive,
boring predictability is needed. Businesses and taxpayers can and do put up with much from governments but they will still invest in a country as long as the rules are clear and rarely change.”
http://www.winnipegfreepress.com/opinion/analysis/fewer-gimmicks-more-transparency-mr-oliver-253149361.html
@calgary411 If the IRS wanted more than 40,000 people to fill in that form, it should have spent the day it would have taken them to wordprocess an adequate one. Last year I actually had to resort to a home-made form to fit all of my piddling little accounts, since I was over the limit at the end of the year (8938 seemed to assume everything was in one or two mega accounts). There was a more suitable form on the internet, but my virus scanner said it was infected (which makes sense, given that this is a form on which people will be entering financial data). As a result, I have gotten rid of joint accounts with my spouse to keep under the thresholds, which ironically has the advantage of keeping more money away from the IRS. They haven’t really thought through these policies.
@Fromthewilderness Yes, ‘honest Abe’ Lincoln really did have it out for citizens abroad in a way that does not reflect public opinion. The confederate, northern and even the British press during the Civil War paint a picture of the mainly Yankee citizens abroad being loyal supporters of the union, but the members of the Senate Finance Committee and Lincoln unfortunately were incredibly hostile to citizens abroad, and not just on the issue of the income tax.
Response to March 31 Advisor.ca article:
Advisor.ca, Dean DiSpalatro / April 2, 2014: Finance bites back at FATCA criticism