THE INTENDED FOCUS OF THIS POST IS THE ALLIANCE FOR THE DEFENCE OF CANADIAN SOVEREIGNTY (ADCS) FATCA IGA LEGISLATION TRIAL IN CANADA HELD ON JANUARY 28, 2019.
The Government of Canada (who we are suing), together with some commenters on this site, strongly emphasize that Canadians should thank their lucky stars because they can easily get out of any FATCA-related “problems” (e.g., Canada won’t collect on behalf of the IRS at the present time, IRS at present time is not prosecuting all those turned over by FATCA, American interference is only hypothetical, “US citizens in Canada don’t seem to have much to fear from America or Canada, apart from the pointless automatic reporting. Canada may in fact be the last remaining country in the world where dual citizen status isn’t risky.” etc.). Why then did our Plaintiffs put themselves personally at financial risk with this lawsuit?
One reason for this trial is that Plaintiffs Gwen and Kazia want Canada’s FATCA IGA legislation, infringing on their privacy (Charter section 8) and equality (section 15) rights, declared unconstitutional by Canada’s Federal Court — and that a lawsuit is the way to achieve this specific objective.
Do privacy and equality rights matter? Should we care?
Plaintiffs also say in their court submission: “Canada effectively maintains that it enacted the Impugned Provisions under duress from a foreign state. The Court should be very slow to accept this as a justification for infringements of the Charter. Canada is expected to defend the constitutional rights and freedoms of its citizens and not bargain them away or capitulate to threats from a foreign bully state.”
Is it important that Canada be a sovereign nation and not bargain away Charter rights because of a threat from a foreign bully? Does standing up to a foreign bully matter?
The CBC tells us that information on 600,000 accounts/year has been turned over to the US IRS during the past years. Even those who do not support Plaintiffs’ lawsuit would likely admit that at least “some” of the accountholders did not give consent for the turnover — meaning that the loss of Charter rights is not hypothetical.
Gwen and Kazia believe, and shouldn’t this really be obvious to all Canadians?, that the loss of our Charter rights, the loss of Canada’s sovereignty, and the loss of dignity of a subgroup of Canadian citizens, are more than, as some commenters argue, just “a relatively abstract sort of harm”.
Canada argues no harm caused by the FATCA IGA, but does acknowledge that if Charter rights are infringed, it had plenty of justification to do so — Canada had no choice but to comply with United States FATCA demands and could not have said “no”.
The lawsuit began during the time of the Harper Conservative government. We had hoped that when the Liberals came to power, there would be no need to continue the lawsuit, because of statements made on June 25, 2015 by Justin Trudeau to ADCS (“The Government of Canada has a responsibility to stand up for its citizens when foreign governments are encroaching on their rights. We believe that the [FATCA] deal reached between Canada and the U.S. is insufficient to protect Canadians.”) — but this was not to be, and the lawsuit continues even with the change in government.
When reading the diverse comments below on a variety of topics please try to consider what Plaintiffs’ Gwen and Kazia want to achieve, on behalf of all Canadians, with their lawsuit.
More discussion of the lawsuit below:
THANKS TO our brave Plaintiffs Gwen, Kazia, and Ginny, witnesses, supporters who never stopped giving, and lawyers Joe Arvay and Arden Beddoes— and thanks to the Federal Court for selecting this trial for the very first live webcast
Our Alliance for the Defence of Canadian Sovereignty’s FATCA IGA legislation lawsuit finally (almost five years after ADCS incorporation as a non-profit) came to a Charter-Constitutional trial in Canadian Federal Court. It was held in Vancouver British Columbia from January 28 – February 1, 2019. We expect a decision in June or so of this year.
See our ADCS legal counsel John Richardson interviewed by CBC on the FATCA trial. In 2016 and 2017 private information on a total of 600,000 private accounts were turned over by Canada to the U.S. IRS each year. Read the Court submissions.
SOME OF THE TRIAL EVENTS:
DAY FIVE: Canada argues that our Plaintiffs have no standing. Arvay responds that the fact that Plaintiffs are designated US persons and have banking accounts at risk should be enough. Also mentions the public interest in this case and that Plaintiffs are carrying the torch for all those designated as US persons in Canada.
Discussion of remedy: (Section 24 vs. 52 vs. Declaration). Arvay asks that primary remedy sought be section 52. Canadian Charter section 52 says: “The Constitution of Canada is the supreme law of Canada, and any law that is inconsistent with the provisions of the Constitution is, to the extent of the inconsistency, of no force or effect“.
If Plaintiffs Gwen and Kazia win, Arvay wants the remedy applied in six months, argues that Canada never keeps to one year remedy. Canada wants one year.
A lot of discussion on CRS (which came after the IGA) vs. the IGA. Arvay says that we are not in court to defend or challenge the CRS.
Canada says that banks put data into a T5 for millions of Canadians, so what’s the big deal with the IGA? Arvay responds by saying that if Canada tried to impose a requirement for IGA data in, for example, the massive cash-independent contractor economy, would that not require a warrant? Absolutely he says. Where is the warrant for the IGA?
Arvay: The IGA is a HUGE fishing expedition just because of a hunch. WE WOULD NOT ALLOW THIS FISHING EXPEDITION IN CANADA. IGA allows IRS to pursue those people under the rubric of the tax system.
Canada justifies the legality of the IGA on the basis that our Tax Treaty with US says each will assist the other in tax compliance. But Arvay responds that just because we have a treaty with a country — that does not make it charter-proof: A TREATY DOES NOT MAKE A CHARTER-FREE ZONE as Canada appears to suggest.
There was a discussion on whether the merits of US tax law impact on this case.
Arvay pointed out that the only reason the IGA is relevant to the US tax scheme is because the US has citizenship-based taxation (CBT). But it has also been argued that the Court cannot rule on the merits of a foreign tax. Yet Arvay says that isn’t Canada obliged to explain why it is important for CANADA to give effect to the US CBT law? No evidence, he says, that this purpose is important to Canada.
He gives an example: So what if the US amended its tax law so that there would be a special tax on all US persons whose parents were born in China (because the US is angry at China).
Would we then uphold a Canadian IGA law that helped in this human rights-violating US tax compliance? Canada would say Yes? Because we are not allowed to consider the merits of any sacrosanct US tax law — and we said in the treaty that we would help in US tax compliance? Canada can’t be asked to do this just because it is in the treaty, Canada has to justify that the law has a valid purpose says Arvay.Canada asserts that the IGA is better for Canadians than FATCA. Arvay counters in part by saying that with FATCA you get a choice to disclose or not disclose — puts the choice in the hands of the citizens, not the banks.
Canada asserts that it provides oversight when providing our banking info to the IRS. Arvay responds that CRA placing a stamp on the documents could not be oversight that provides any protection.
Arvay disagrees with Canada’s assertion that a section 1 onus to justify for Canada only applies to criminal case. Disagrees also with Canada’s narrow view on a section 15 criterion that the category of persons affected (US citizens plus others) is too broad.
Canada says that Parliament already provides protection to Canadians because Canada cannot collect on behalf of the US per the Tax treaty. Arvay responds that the IGA exposes a group of Canadians to enforcement and has denied this group the protection of Canadian sovereignty.
Arvay points out that Canada did not respond to his assertion on whether the IGA is arbitrary re: “accidental” “Americans”.
Canada argues that there is no problem using IGA obtained data for domestic purposes. Arvay argues that that is not a purpose of the IGA and that the type of data collected could not be used in Canada without a warrant.
Arvay mentions that yes it is true that Canada will not help collect FBAR penalties, but Canada has provided no evidence that IRS will not use IGA data for FBAR purposes.
Trial ends. Justice says that this is a complicated case.
DAY FOUR: Just so no one has any doubt whatsoever as to Canada’s number one reason for the IGA, Canada confirmed that, yes, as we all had expected, the primary objective of the IGA was to avoid those nasty complications of non-compliance. [If a really powerful country points a gun to your head, just comply.] Canada says that this primary important objective weighed against the low privacy concerns of the data seizure and the minimally intrusive way the info is collected make the IGA provisions reasonable.
Canada points out that some of our witnesses received a Chapter 3 and not a FATCA letter, but the point is that Canada does admit that accountholder information has in fact been turned over to IRS and that is not in dispute. [600,000 in 2016 and in 2017 per CBC]
Canada feels that IGA is not overly broad because you can’t check what you don’t know. The IGA is ok because everybody does it (e.g., CRS).
Regarding privacy Canada says that once account info has been turned over to CRA an expectation of privacy is lost and it’s ok for Canada to use the info for domestic purposes (not a purpose in the IGA).Even if there is an expectation of privacy that expectation is very low.
Regarding section 15 equality Canada says that the distinction between the Plaintiffs and other Canadians is not an acceptable enumerated factor — we say it is and the Justice said that she will think about it. For those who feel that we might re-negotiate a better deal with the bully, Canada helpfully told us that FATCA is what it is and that we can’t change that system.
Canada says that it does careful monitoring of the info sent to IRS because an officer puts a stamp on the document telling IRS to keep the contents secret.
The Charter should not protect those who flaunt US law says Canada. Canada ended today’s presentation with this: Plaintiffs are asking the Court to put the country at risk just so that someone can travel there — this is outrageous and NOT a privilege that the Charter can protect. In other words, we and the Plaintiffs are in it only for the travel.
DAY THREE: Canada explained in its scholarly economic assessment that there can only be MUCH DOOM AND GLOOM FOR CANADA if Plaintiffs Gwen and Kazia win the lawsuit. Canada says that if Gwen and Kazia win on behalf of all Canadians, and the Court rules that the FATCA IGA legislation violates our Charter rights, the U.S. would never re-negotiate FATCA because Canada brings NOTHING to the table.
DAY TWO: Our side explained why Canada’s FATCA IGA violates Charter sections 8 and 15 and why a section 1 override is not justified. Mr. Arvay read the powerful words of our witnesses who felt that they were abandoned by their country, treated as a second class citizen, betrayed by Canada — statements relevant to the section 15 violation.
DAY ONE: The Justice asked our lawyers generally: So what SHOULD Canada have done [instead of the IGA legislation?] Our lawyers answered in part: We expect Canada to stand up to the bully when our Constitutional rights are at stake…We don’t negotiate our Constitutional rights away for economic reasons…
[DISCLAIMER: The official record of the trial events is only the official transcript provided by the Court — and not the recollections made in the Post or in any comments below.]
Re: Canadian Government Lawyer trying to dismiss claims as the tax treaty says that the Canadian Government will not help the US collect US tax debts from Canadian citizen residents of Canada when they were situated as such at the time the tax debt was incurred.
They just tried to trivialize the entire situation. I used to tell the story of someone famous on Brock that was reported in The Wall Street Journal (I think they got tired of me telling the story a few years ago, so no names listed here). They had their OMG (Oh My God) moment when they found out about the the US double taxation claims and FBAR penalties for not reporting accounts. They were ~deeply frightened (=not trivial), that they would be bankrupted (=not trivial), that they would lose their house that was intended for retirement savings (=not trivial), that they would lose a very significant chunk of the family finances mostly earned by their Canadian only spouse only from work in Canada (=not trivial). They were fearful they could not visit US based relatives (= not trivial). They had many sleepless nights as a result (=not trivial). Financial terror (=not trivial).
== Not Trivial Canadian Government, and I hope you are listening, even if as you say the Canadian Government would not help the US collect against this person. IMO, the Canadian Government has/is causing harm through neglect, malpractice, and disregard of the Canadian Government obligation to protect Canadian resident citizens from intrusive extraterritorial law, and this includes providing utmost clarity in the tax treaty in regards to double taxation obligations.
The Tax Treaty says the Canadian Government will not help the US collect tax debt (provisions listed above). FBAR penalties are not a tax debt! FBAR penalties may be incurred even in the case of zero income to tax. FBAR penalties are for noncompliance to reporting requirements ($10,000 penalty for each non-willful violation [each account, if total accounts > $10,000 at any point of the year]. But if your violation is found to be willful, the penalty is the greater of $100,000 or 50 percent of the amount in the account for each violation—and each year you didn’t file is a separate violation.Canadian Government, your argument would be firmer if the tax treaty included explicit exemption of “FBAR penalties” in that statement of non assistance of collection. It does not!
“FBAR penalties” have been around for some time and still after decades the Canadian government has not pursed revision of the treaty to explicitly exclude “FBAR penalties” in the statement of non-assistance to US debt collection. Non-inclusion of “FBAR Penalties” in the tax treaty suggests a combination of flawed attention by the Canadian Government to the tax treaty and/or that the treaty revision mechanism is flawed in that the process is so cumbersome that many years are required to make a change, yet a cause of this could be dismissiveness (shirking obligation) on the part of the Canadian government in pursuing changes.
FATCA, not FBAR is more directly in question. There are individual FATCA 8938 penalties for not sending in 8938 reports on accounts, if thresholds that are higher than that for FBAR are met ( unmarried taxpayers if the total value of your specified foreign financial assets is more than $200,000 on the last day of the tax year or more than $300,000 at any time during the tax year [includes retirement accounts].(penalties: $10,000 and an additional $10,000 added for each month the failure continues, beginning 90 days after the taxpayer is notified of the delinquency up to a maximum of $50,000 per return [per year]). These penalties are additive to FBAR penalties.
The information required by 8938 is in many ways is duplicative to FBAR information, and require associating income (if any) from a particular account to a specific line on a US 1040 tax return. Canadian government your case would be firmer if “individual FATCA 8938” penalties were explicitly exempted in the tax treaty statement of non assistance to US tax authorities. It is not!
Then also there is the case of the bookkeeper and non-beneficial employer accounts in a separate post and Forbes article referenced above. The explicit exemptions from FBAR and 8938 should also cover employer accounts, business accounts, partnership accounts, individual accounts, and all other manner of classification of accounts to cover the range of possibilities that need to be covered.
A fact is that the tax treaty has a number of gaps and may provide no “protection” in regards to double taxation, penalties, and compliance and associated expense from from particular US taxes and compliance. Some newer taxes/compliance since the singing of the last tax treaty are Obamacare NIIT Tax, FATCA 8938,Transition Tax, and GILTI – all relatively new and cruising right through the porous tax treaty, without allowance for credit of Canadian tax paid.
Thanks Canadian Government for mentioning the Tax Treaty. You mentioned the pledge within the treaty of Canadian Government non-assistance to US tax debt collection [which the FATCA IGA itself violates], which upon closer inspection, raises gaping holes in your arguments. There is lots of work needed on the tax treaty to truly prevent double taxation.
A comprehensive definition of “Prevention of “Double Taxation” should clearly be stated in the tax treaty and should include this situation: you have $0 earnings and investments in the US, you pay a fair share of tax to Canada as a resident in Canada, then there should be $0 extra to pay to the US, and zero compliance forms to send them.
Of course, the tax treaty is not on trial here: but the FATCA IGA where it violates the Canadian Charter Rights. So maybe a chuckle on your part Canadian Government for this diversion in response to your diversion. The trial will show if the Canadian Charter of Rights is a scrap of paper or has real meaning and protections.
“…the tax treaty is not on trial here: but the FATCA IGA where it violates the Canadian Charter Rights.”
The tax treaty is very much at the heart of this trial: not the Mutual Assistance in Collection provisions, but the Information Exchange provisions. That’s the hook the IGA relies on for its (dubious) claims to legality.
‘FBAR penalties are not a tax debt!’
Exactly. That’s why they have no place in a tax treaty. If Canada and the US make an FBAR treaty, let’s try to make sure Canada won’t collect US FBAR fines from Canadian citizens.
‘Canadian government your case would be firmer if “individual FATCA 8938″ penalties were explicitly exempted in the tax treaty statement of non assistance to US tax authorities. It is not!’
8938 and other TAX FORM penalties might be tax penalties. Since the US government treats tax penalties as taxes, the US government expects the tax treaty to prevent Canada from collecting from Canadian citizens. I think the Canadian government should distinguish penalties from taxes, by coincidence the same as the US constitution does (the 16th amendment authorizes taxes but the 5th amendment prohibits penalties without due process). But meanwhile, even when tax penalties are treated as taxes, the tax treaty covers it for Canadian citizens.
@JC
“Canadian Government Lawyer trying to dismiss claims as the tax treaty says that the Canadian Government will not help the US collect US tax debts from Canadian citizen residents of Canada when they were situated as such at the time the tax debt was incurred.”
When did this occur? Was this after arguments were heard yesterday (Friday) afternoon?
Marie,
This might address your question, taken from my DAY 5 notes/recollection at the top of the post:
“Canada says that Parliament already provides protection to Canadians because Canada cannot collect on behalf of the US per the Tax treaty. Arvay responds that the IGA exposes a group of Canadians to enforcement and has denied this group the protection of Canadian sovereignty.”
Regarding the tax treaty being at the heart of the trial, Arvay discusses this (see Day 5 trial notes above):
@Stephen Kish
What comes to my mind is that the government should not have to “provide protection” to certain individuals who have had their rights violated in the first place.
Mr. Arvay made a point yesterday which I can’t quote exactly. But basically he said that a treaty should not be a Charter free zone. The government seems to be forgetting that this is a Charter case. Mr. Arvay also mentioned Section #52 of the Charter as a remedy which says, (thanks to Google)
“The Constitution of Canada, which includes the Canadian Charter of Rights and Freedoms, is the supreme law of Canada. Any law inconsistent with the provisions of the Constitution is, to the extent of the inconsistency, of no force or effect.”
This makes perfect sense to me, but as you know I’m biased.
“Arvay responds that just because we have a treaty with a country — that does not make it charter-proof: A TREATY DOES NOT MAKE A CHARTER-FREE ZONE as Canada appears to suggest.”
Hear, hear!
@plaxy
Yes! That should be our war cry.
“A Treaty does not make a Charter-free zone”
🙂
It would make a good scarf; I’m thinking Madame DeFarge and the knitting.
Another point: the US supposedly taxes its citizens wherever they reside on the grounds that all Americans should be taxed on their income in the same way, and to the same degree, in accordance with the US tax code, wherever they reside. They’re all entitled to the same (US) tax breaks.
By going along with this, Canada deprives a subset of Canadian citizens, resident in Canada, of the right to be taxed on their income in the same way and to the same degree as other Canadians, in accordance with the Canadian tax code. US-born Canadians aren’t entitled to the same (Canadian) tax breaks, because their government prioritises another government’s tax policy over its own.
@Stephen Kish, what happens to the IGA if plaintiffs win the federal trial? Does it get struck down at that point or does nothing change until after the supreme Court appeal? Donors to federal Court case as well as donors to future appeal will want to understand the implications of a win at the federal level.
As others have commented, the effects of FATCA and the IGA are not trivial, as the government lawyers would like us to believe.
My experience with renouncing and filing five years of back tax forms plus the form 8854 was quite traumatic. Although I’m okay about it now and glad to be all Canadian.
Even more traumatic was my experience of getting a letter from the IRS pre-FATCA prior to becoming a Canadian citizen. They claimed I owed a large amount in taxes and penalties which turned out not to be true. Resolving that issue was very damaging emotionally, although I ended up owing nothing after a legal battle.
The IRS will try to come after people even though the government of Canada will not, at this time, enforce collection for Canadian citizens. It is a situation which could change as governments worldwide tend to cave in to USA demands.
I certainly hope the court case is a win for Gwen, Kazia and all on the ADCS team.
Gobsmacked, this is my personal opinion: I predict that if Plaintiffs win at the Federal Court level there will be no final decision until all appeals have been exhausted.
So, even with Gwen and Kazia’s win at the next level, Canada’s Court of Appeal, I predict that there will be no final decision until a decision on Canada’s appeal at the Supreme Court.
In our ADCS website we said: “We expect the Government of Canada, with its taxpayer funded resources, will defend this litigation ferociously using every possible legal avenue available to it.” that we need “to fund this litigation through three levels of courts ending at the Supreme Court of Canada.” and “Please understand that this litigation should be seen as a ‘marathon’ and not as a ‘sprint’.”
Thanks for your comment, PatCanadian.
It is good to remind that we are fighting for all who are or will eventually be affected, including those who are further discriminated against by their and their families’ economic means as they will get no assistance from Canada. I, as likely you, had the ‘luxury’ of retirement savings to dip into to pay huge fees to all the necessary US tax lawyers, US tax accountants, US immigration / nationality lawyers, etc. for our individual situations.
@Stephen Kish, thanks for your reply. So basically you are saying that the IGA will in your opinion remain the law in Canada until the Supreme Court makes a final decision. This surprises me but I am not a lawyer. Do you have any opinion regarding how many years it could take to arrive at a final supreme court decision? Will it take as long or longer than it did to get to federal court?
One hole in the government of Canada’s argument is the fact that there is one group of people the treaty does not protect, namely US citizens who are permanent residents of Canada, not citizens. To the best of my knowledge everybody in Canada is supposed to be covered by the Charter, i.e. Charter rights are not dependent on citizenship.
Those people are definitely harmed by the IGA because the CRA WILL collect any resulting US tax debts assessed by the IRS. That group may not attract much sympathy but Charter rights aren’t supposed to be dependent on popularity. Arguably, Charter rights are especially important for people who are not popular and who don’t engender much sympathy.
Thanks Calgary. Yes, we were relatively fortunate. Not having savings or an emergency fund for legal fees, etc. is even more of an ordeal. The effects of FATCA and IGAs is huge. As is the economic burden for individuals trying to protect themselves.
Gobsmacked, my personal opinion on timing, which counts for nothing, is that the time from now to Supreme Court decision will be less than the time from filing our first claim in Federal Court to now, and that maybe we will have a Court of Appeal decision by mid? earlier? 2020. No opinion on Supreme Court timing, but there is much urgency in this being resolved — CBC tells us that there are 600,000 accounts turned over in 2016 and in 2017 — the turnovers are not hypothetical.
Others more informed will have better predictions on timing — and we need to emphasize to all that the possibility of advancing to any of the next stages of appeal depends on the willingness of our supporters to fund our legal costs.
Who won?
Read somewhere recently that ADCT (same individuals as ADCS ) have dropped efforts to raise funds for US lawsuit against CBT. This was a wise move as the focus really needs to be on raising funds for the Canadian appeal which may be challenging enough
@Stephen Kish, 600000 records is likely only 1 or 2 hundred thousand people, some of whom could be American residents with Canadian bank accounts and the others most of whom will be legit US taxpayers (Canadian US persons living in Canada who voluntarily file US Taxes and are upfront about it with their banks ). Those Canadians who are hiding their US Ness won’t be amongst the reported ones which won’t change unless for some reason banks stop relying on self certification and require proof of non US personhood.
Speaking of hiding out, does anyone feel guilty about out right lying to those prying questions asked by Canadian ffis? The online investment brokerage I deal with asks several questions annually to all their customers designed to identify possible US persons. Were you born in the US is one of them. I’m getting used to answering no. Easy peasy. No guilt whatsoever.
@Aaron
Patriots
@Gobsmacked
No. No guilt whatsoever.
As with certain other activities, the first time was a bit awkward, but now it’s good fun.
Amongst the 1 or 2 hundred thousand people whose records are being sent, I left out a category. Some would also be US citizens living in Canada short term who would likely be filing already. Overall very few would be people who weren’t already filing Imo.