FATCA Discussion Thread (Ask your questions) Part Two
Please ask your questions here about FATCA.
Participants will need to provide their e-mail address (real or fake) and an alias. The only written rule is that participants must use a same alias each time they post (and not “anonymous” or derivatives thereof).
Bear in mind that any responses that you get from participants is peer-to-peer help, and it is not intended as a replacement for professional advice. Also, the Isaac Brock Society provides this disclaimer: neither the Society nor any of its members are professionals. We offer our advice here only in friendship and we recommend that our readers seek professional advice if they need it.
If you wish to receive an e-mail notification of comments, check the box to that effect when making your first comment.
NB: This discussion is a continuation of an older discussion that became too large for our software to handle well. See FATCA Discussion Thread (Ask your questions) for earlier discussion.
@Bob
How horrible. Not everyone would be able to stand up to their bank mananger’s bullying. Good on you.
We’re in for a sh!t storm when place of birth takes precedent over one’s CLN at the bank.
@ Bob
That’s as frickin’ infuriating to read as it must have been for you to experience. Your “stinky dead albatross” is a perfect metaphor.
@Bob, I too have the gift of a US birthplace that I expect will keep giving into the future despite having jumped through the fiery hoops of US compliance. Glad you stood up to your bank and that they backed down in the face of your adamant resolve.
We’re not equal citizens in Canada or anywhere else if we have to show our US ‘freedom papers’ (CLN) on demand even OUTSIDE the US, or have even more paperwork forced on us just because of our national origin/birthplace – an immutable characteristic – and hence discriminatory grounds.
Letter to Bill Morneau, Minister of Finance.
Thank you for your letter of June 14 concerning FATCA and the Canada-US IGA.
I was happy to hear that you have concerns and that the IGA will be subject to ongoing assessment. As you must realize by now, the previous government rushed in to signing the agreement and rushed the enabling legislation through the house in an omnibus bill with little or no oversight. The IGA may be a better outcome for the banks but it is not for Canadians.
The IGAs are an invention of the US treasury department to extricate themselves from a difficult position. They were and are trying to apply U.S. law to the rest of the world in an extraterritorial manner. In the U.S. the IGAs have not been ratified by Congress so they do not have the force of a treaty. It would only have taken one country such as Canada to say ‘No’ to bring down the house of cards.
Your officials repeat over and over that we managed to get special treatment when, in fact, all the IGAs are virtually identical.
Imagine if China told all Canadian financial institutions to report to China the banking information of all Canadians who happened to be born in China so that the Chinese government could tax and fine them. There would be hell to pay. The current situation is no different.
Now turn to the common reporting standard (CRS). There is a vast difference between the CRS and FATCA. Under the CRS Canada will supply information to a foreign government about residents of that foreign country with accounts in Canada. FATCA on the other hand turns over banking information of Canadian residents to the I.R.S. There is no comparison. I think you will find the U.S. has no intention of joining the CRS parade. Congress refuses to allow it. The U.S. is likely the largest tax haven of them all and they intend to stay that way.
There are many Canadians who were accidentally born in the U.S. or who left decades ago when Certificates of Loss of Nationality were unknown. Now the U.S. State department denies that these Canadians lost their U.S citizenship when they became Canadian and demands a tribute of $3000. to allow them to renounce or to buy a CLN. These Canadians should be exempted from FATCA reporting as soon as possible.
Duke,
Excellent letter. Let’s hope they put as much thought into their response as you’ve put into drafting it.
@ Duke of Devon
Nice one! If Mr. Morneau is back from his EU/UK junket I hope he’ll take some time to look at some down-home problems. Would it be rude if I call him Bilderberg Bill now?
Finally, after many months a form letter reply from the Min. of revenue.
Give me a break- not worth a further letter.
Not sure this is the best place for this, but just FYI. From Accounting Today,
“UBS Gives IRS Records on U.S. Citizen’s Account in Singapore”
Duke,
The long overdue (*personalized* form letter) responses many of us have received from Hon. D. Lebouthillier show the continued incompetence of this Liberal government now in power, a carbon copy of the previous Harper government’s stance and a complete betrayal from the Liberal stand during the Conservative reign.
@Duke and Calgary411,
I feel your pain. I long thought that all of the Brockers who were excited over the potential change in government would be severely disappointed once Muclair or Trudeau got into power. But especially if it was the Liberals. They have more entrenched interests in the status-quo than the NDP does, but both parties would soon say things like: we didn’t realize how complicated an issue this was and we know are unable to make those changes. We need to have access to the US Markets, their our biggest trading partner, etc, etc, etc.
Unfortunately, both Cons and Libs are the status quo folks. There is only superficial differences between them. They want us to believe that there are huge differences, but in reality they are cut from the same cloth. The NDP are a more recent development, but they are not that different then the other two. They are a little more left leaning then that Libs, but not drastically so.
I have gotten to the point where I am not even interested in voting anymore, because all of the choices suck. There is not one good reliable party to vote for. I honestly believe that the whole system is fubarred.
Anyways, I hope after that cheery note, you both have a great day.
Cheers,
Rocky
Does anybody know what happens to the W-8BEN that FFI’s want people to sign? Does it stay with the FFI or do they send it to the IRS? I think I read somewhere (but cannot find) that they hold on to it and only would send it to the IRS if requested. As a former US citizen, am I obliged to report my SSN on this form or can I get away with just putting down my SIN? Very worried about red flags going up.
Also any advice on a 1042-S? Always had registered accounts before, so never had to deal with this, but apparently it’s par for the course with nonregistered accounts. Does this nightmare ever end?
@JeffreyB – have you been asked to sign a W8-BEN?
Personally I intend to refuse, if asked. This to me is one of the weak points of FATCA which might be successfully challenged under local law. Non-US-citizens should not have to sign a U.S. tax form, as it cannot be signed without implicitly accepting the jurisdiction of a U.S. court.
What is a registered / non-registered account?
@JeffreyB
A signed W-8BEN stays with the bank or financial institution, perhaps apart from some very exceptional circumstances, which I don’t think I’d worry about. I have not (yet?) been required to provide one of these to any non-US bank(*), but if asked my approach first and foremost would be to request that they provide a non-US ‘self-certification’ form, in particular without the nauseating ‘under penalty of perjury’ so beloved of the IRS. If they didn’t I would cross that bit of the W-8BEN out, at minimum. Generally I don’t see any strong need to provide an SSN in this case — after all, 99% of W-8BEN filers won’t have one, so the lack of any on yours shouldn’t raise eyebrows and just puts you in with the herd (whereas the presence of one might I suppose raise eyebrows, if you happen to have a very suspicious bank).
(*) For the W-8BEN I have to provide to my US 401k provider, held from when I worked in the US, I do supply my SSN. They have it anyway from when I opened the account decades ago, so it’s not like they’re getting anything new there.
@iota
Registered accounts would probably be Canadian tax-advantaged things. RRSP, RESP, RDSP and so on. Kind of similar to UK ISAs and SIPPs.
@JeffreyB
On the 1042-S, that’s just a report of how much interest/dividend a US bank or broker paid to a NRA, and how much it paid over to the IRS in tax withholding on the NRA’s behalf. Equivalent to a 1099 for US persons. You can use it to help complete your Canadian return (assuming you’re Canadian here); under FATCA the CRS would receive a copy of it (theoretically!). And if you have to file a US non-resident 1040NR for any reason, you attach it to that as proof of withholding for any refund. If the US bank/broker has a W-8BEN from you then they should have withheld the correct treaty rate, so that you don’t actually need to file a 1040NR.
The 1042-S is useful where the withholding was overdone for some reason, since it lets you get a refund out of the IRS. Most common is where the US bank doesn’t have a W-8BEN (usually down to lax customers!) and so withholds at 30%. In this case you can get half of that (15% rate in the Canadian treaty, others will vary) back as a refund.
Thanks to everyone for their responses.
@watcher I really don’t care if I am taxed 15 or 30%. Yes, every dollar counts but I would rather not have to EVER endure filing anything IRS related again. Regarding the 1042-S, are you saying that this gets provided to me by my bank and they send it in to the IRS, however, I do not have to file anything myself unless I am claiming something on a 1040NR? In other words, there’s no filing I have to do?
As someone who renounced his citizenship, I feel the US has a special place in hell for us and I loathe to have to draw any undue attention to myself. I would rather just find mutual funds that have only Canadian or foreign (non-US) content, but this is next to impossible. Every fund seems to have at least some US stocks.
@JeffreyB
NRAs can usually avoid filing any US tax return. A bank/broker will withhold tax on NRAs at either 30% or the appropriate treaty rate (15% for Canada) if they have receive a W-8BEN from the customer. In both cases this withholding would normally match the actual US tax liability, and in this case there is no need to file a ‘nil’ 1040NR. This is different to the 1040 for US persons — they get to file this even in the unlikely event that their tax withholding exactly matches their liability. Just one more way in which life as a US NRA is more pleasant than as a US person, then. See the 1040NR instructions for more.
So… if your only US-source income is some dividends and/or interest, and perhaps also some pension distributions (401k, IRA), and if your banks and brokers have a W-8BEN from you which shows you as entitled to the US/Canada treaty rates, at the end of the year your withholdings will match exactly your actual US tax liability and tada, no 1040NR required. This is how the IRS avoids being deluged by 1040NRs from everyone on the planet holding US shares.
Of the cases where NRAs do have to file a 1040NR, most would be where the bank or broker has over-withheld at 30% on someone in a tax treaty country. And while some may be bank or broker error, I suspect that most often happens because a) the customer forgot to or blew off the need to send them a W-8BEN, or b) a non-US bank is not an IRS ‘qualified intermediary’, and so is not permitted to handle W-8BENs and must withhold on everyone at the 30% flat rate.
Bottom line: if you jump through the W-8BEN hoops for your banks and brokers you can probably avoid having to file anything annually with the IRS in future, even if you hold US-situs investments.
Final note: non-US domiciled funds may themselves hold US stock, but that doesn’t make them things that generate a 1042S. It is holding US domiciled funds/ETFs and US stocks that trigger this.
@Watcher interesting. I never knew this. Any funds I held before were in RRSP’s, so if there was any withholding, I did not see this. But for non-registered accounts any potential withholding is made visible. I’m just learning all this. I’m not really sure I understand your example
“non-US domiciled funds may themselves hold US stock, but that doesn’t make them things that generate a 1042S. It is holding US domiciled funds/ETFs and US stocks that trigger this.”
Are you saying that as long as the fund itself holds the stocks, then this does not generate a 1042S for the client, but if I hold the stock directly myself it does?
I need to educate myself further on this. Sorry to ask so many questions, but what is the CRS and what is their role in all this?
Thank you for taking the time to answer.
Canada-domiciled ETFs and mutual funds will not generate 1042-S forms even if they hold US securities. And, I *think*, most (all?) securities purchased on a US exchange will result in a 1042-S if they pay dividends, etc. I suppose that a dual-listed stock such as CIBC (CM on TSE and NYSE) would result in 1042-S if bought on the NYSE (but not if bought on the TSE) – but I’m just guessing here. Anyone know?
@JeffreyB: “Are you saying that as long as the fund itself holds the stocks, then this does not generate a 1042S for the client, but if I hold the stock directly myself it does?”
Yes, in a nutshell, as long as ‘fund’ here is not a US domiciled fund or ETF. If you hold US stock — or more or less any US asset — through a non-US (Canadian, say) corporation then you keep the IRS at arm’s length. In this case you don’t actually hold US shares; what you hold is shares of a Canadian corporation which itself holds US shares. This is an important distinction; the IRS cannot pry into or control non-residents’ holdings of non-US shares. Of course, the Canadian corporation has to then deal with the US, but that’s their problem and not yours. For shares, using Canadian or other non-US funds or ETFs is the simplest way to insulate yourself from the IRS.
Worth noting that US persons should not hold non-US funds or ETFs. For such folk, these are a US tax death sentence due to US PFIC tax rules (look that up, and then wonder at its complexity and unfairness!). This is more or less the mirror image of the situation for NRAs. While NRAs are often strongly motivated by (at times, frankly, bonkers) US tax rules to use non-US fund and ETFs, US persons cannot realistically use anything but US funds and ETFs thanks to other (also bonkers) US tax rules.
@Watcher, do you think a U.S. brokerage would still send me a 1099 rather than a 1042-S, as I haven’t told them that I’ve renounced? I’m scared that if I file a W8-Ben that they’ll close my account, but I really still need it for when my parents send me Birthday and Christmas checks. I also might find it handy if I ever inherited from them someday…
But am also concerned that if my single share holding produced a dividend without tax withheld that I’d then owe tell IRS some taxes (even if just a few dollars) but nevertheless have to file a 1042-S to settle it up with the IRS?
I’ll give you a simple and clear example. One of the most popular ETFs of all is the Vanguard S&P 500 ETF. It’s popular because it holds a basket of the top 500 US stocks and the cost of ownership is minuscule.
I live in Canada. If I buy the US version on the New York exchange, I have the huge hassle of US tax returns and even worse I have the potential obligation to file an estate tax return.
So instead, I can buy the Canadian version of the US S&P 500 on the Toronto exchange.
Presto Shazam, No US tax obligation, no exposure to US estate taxes. Vanguard sends me a T3 or T5. reporting my annual earnings for my Canadian tax return. Any US taxes have been deducted at source and the T slip tells me what credit I get on my Canadian return for US taxes withheld. No sweat.
Thanks. I had thought about asking the bank directly, but this would mean self-certifying that I once was a US Citizen, and we all know how that would go. After all the tax hell I went through, I prefer to stay low key. I’m honest and truthful, but I will only answer questions and provide the most minimal answers that the law allows me to. It’s not their business anymore–I’ve paid my dues. I thought of asking an accountant, however, after paying thousands and thousands in legal and accounting fees to become “compliant”, I shudder at the thought. I’m even surprised I have one dollar left to even think about investing.
I’ve always liked the camaraderie of this site. We’ve all be affected by this mess, and it’s nice to be able to reach out to others and feel a connection. Thanks again.
I hear you, @Jeffrey B!! We’ve all been through traumatic times…many of us are scarred but I love the camaraderie and shared empathy.
I would close my American account if it weren’t for my aging parents stateside. I meant in my previous post that I am concerned that a future US dividend might produce a 1099 and no tax withholding so I might have to file a 1040NR to settle.
@monalisa1776
The regulations require a 1042-S in place of a 1099 for NRAs. The focus on 1042-S is the US’s “commitment” to reciprocity under FATCA (yeah, right!). The W-8BEN now demands a non-US tax ID (that would be your UK NI number), and information reported on 1042-S should reach its way, via the IRS, to HMRC. That way HMRC can check that you paid you £1.37 or whatever in UK tax on your paltry US income.
If you haven’t filed a W-8BEN, your brokerage is going to do whatever they did in the past, presumably report dividends on a 1099 without withholding. So technically you would (as you noted) need to file a 1040NR and pay 15% of dividend to the US, and claim this against UK tax. Messy and inconvenient.
Who is your broker? The risk of having your US accounts summarily closed because you become an NRA is apparently not zero, but seems to vary by broker. I have an account at Vanguard and sent them a W-8BEN nearly a decade ago, and regularly since — no issue with them so far. My US credit union has also been accommodating.
Can you live without a US brokerage account? For simple transactions, as a backstop maybe investigate US dollar accounts in the UK as an alternative to a US brokerage or bank? HSBC, or perhaps Nationwide in the Isle of Man, for example. These won’t be as convenient as an actual US account, but may be good enough depending on what you need.
Mona. Can I ever persuade you not to worry? Your US source income is soooooo low that you are not expected or required to settle anything with the infernal revenue society.