41 thoughts on “Update from Credit Union Central of Canada on Budget and #FATCA”
This was the most interesting and revealing part:
The Canadian government is not yet convinced it needs to enter into an inter-governmental agreement with the U.S., similar to those between the U.S. and several European countries.
That seems to imply the Canadian government thinks those 5 European countries signed deals that are very bad for them.
Maybe the Canadian government’s position is the existing agreement between Canada and the US should be the model for all countries. The existing agreement only offers the US information on US citizens resident in the US.
@omghesstillanamerican
Canada is very attached to that agreement because it is totally reciprocal Canada reports to US and accounts held by any US Resident in Canada and the US reports back to Canada on any accounts held in the US by Canadian residents.
I think they’re very smart to hold their ground. That agreement basically does an end run around citizenship based taxation and since it’s already signed why change it.
@omghesstillanamerican
A few more points:
Canada is the only country that the US has such an agreement with and if the US is able to get information directly from Canadian banks instead of the CRA there is no incentive for them to hold their end of the existing bargain in terms of reporting to Canada information on accounts held in the US by Canadian residents.
@Tim, so if a Canadian bank signs the FATCA agreement with the US, they should expect to get slapped around real good by the Canadian government. Because banking is so heavily regulated in Canada, no smart bank will sign on with FATCA.
@omghesstillanamerican
That is still an open question no one yet either in the banks or the government wants to talk about it. One possibility I have suspect is FATCA might apply to the investment subsidiaries of the major banks that already participate in the Qualified Intermediary Program but not apply to the main bank itself in terms providing traditional checking and savings accounts(at least for a period of time). I am pretty certain though we are going to get a pretty strongly worded comment letter from Flaherty at the end of April as he just did to Geithner on the Volcker Rule back in February
I don’t know if you have seen this letter already but I am going to post a link along with another one from Mark Carney.
Thanks so much for posting the link to Credit Union Central’s report on the Federal Budget.
I found the following quote particularly significant for anyone who felt that Credit Unions would be exempt from FATCA : “This new US legislative requirement imposes onerous reporting requirements on foreign financial institutions, INCLUDING CANADIAN CREDIT UNIONS.”
Re your comment above that FATCA might not apply to the banks providing chequing/savings accounts but would apply to the investment arms of the banks – Great for anyone who does not have investments but onerous for those people (especially seniors). Many seniors today, (myself included), use the income from our investments to pay our property tax bills, heat our homes, buy our groceries and yes, even pay our income taxes to Canada. (The only country we should have to pay taxes to!).
I hope this does not prove to be how Canada gets around the “Charter Rights” of its citizens – ie make sure the banks provide normal day to day banking needs, but investing becomes the problem.
@tiger
The problem Tiger is many people have investment in “US Stocks and Bonds” if all your and others investments were in non US securities this would be less of a problem.
@Tim and therein is a big hint about how some folks might want to review their current investment strategies PDQ …
@Tim
I think I need to have a ‘sit-down’ with my investment advisor. Yes, I do have some of my investments in the U.S. Of course, I did that because it was explained to me that for diversification and growth, I should not have ‘all my eggs in one basket’, should be diversified over asset class and sector and also over different countries’ markets. And of course, this last year, my investment advisor has been proven correct – my U.S. ETF’s have done better than any equities I held in Canada. I have most definitely decided that once we get through April 30th and some final regulations, I will be moving investments out of the U.S., no matter how much better they might be doing.
One thing I am still quite confused about re FATCA – if the FFI decides an individual is a ‘US person’, do they also have to report income earned on their Canadian investments. In other words, just like they now issue a T5 or T3 for income earned on non registered investments to the CRA, would they also issue forms such as 1099-DIV or 1099-INT to the IRS on those same investments?
@tiger
In a simple word YES. This is exactly what the US wants. I will also note on Credit Union side of things that Alterna which is one of the biggest in the country pretty equivocally said they weren’t complying with FATCA. If you are an Alterna member I believe I saw that there annual meeting is coming up in a few weeks.
As an aside someone should email Barbara Shecter of the National Post. She seems to cover these issues a lot and I suspect she was in the “lockup” yesterday. I also note she is a bit of a thorn in Amb. Jacobson’s side from what I have heard.
@Tim
So if I understand correctly, they can report the income earned on Cdn. investments to the IRS, but won’t withold from that income. However, on investments held in the U.S., they can and will withhold tax?
@tiger
They can withhold on US investments if you refuse to provide a W-9 and supposedly they are supposed to close your account but it is unclear how the latter part will/would work
@ Tim
Thanks alot for the info. I do most definitely need to meet with my investment advisor.
@tiger
We will probably know more in the next month so its nothing you have to deal with “right now”.
@Tim…
There is one thing that is not quite clear in my mind…
The Tax treaty that Canada has with the US already provides for reciprocal tax data exchange.
The 5 nation EU pact as an alternate structure to FFI direct reporting required by FATCA seems to be a similar tax data reciprocal exchange.
What is the difference, at a fundamental level, between the two? Are you familiar enough to be able to explain, or would this get into the technical weeds and I would get lost understanding?
@JustMe
The existing tax data exchange applies only to “US Residents” whereas with FATCA the US wants data on US Citizens living in Canada.
Every country should be fighting for the same deal Canada signed years ago. Offering information on US residents only.
The 5 European countries that signed offering to exchange data on US citizens residing in Europe have betrayed not only those citizens but their own sovereignty.
Tiger re
“@Tim
So if I understand correctly, they can report the income earned on Cdn. investments to the IRS, but won’t withold from that income. However, on investments held in the U.S., they can and will withhold tax?”
As far as I’m aware, this is incorrect. For US investments, the withholding is not done by the Canadian FFI It is done at source in the US.
Under FATCA, Can. FFIs would report that a US Person has an account. That’s the only change. They don’t report income on Can investments to the IRS.
Remember, accounts under 50k are exempt, under 1 million are subject to ‘electronic search’ of the bank’s info for ‘US indicia’ and RSPs may well be exempt.
Fatca is far from a done deal as far as the banks are concerned.
@Tim…
Humor me a bit, as I am dense….
When you say “US residents”, I want to be sure that I understand how you are using this terminology.
Is this right?
The US/Canada tax treaty provides that
1. Canada will give the US information about those who are resident in America but hold accounts in Canada, and
2. The US will provide information about those who are resident in Canada but hold accounts in America.
Do I have that stated correctly? If not, could you spell it out more clearly for me as I want to have the distinction clear in my mind. Thanks for your help.
Sorry to be so slow on the uptake here, but I don’t want to misread.
@JustMe
Yes, you have it exactly correct. What is notable is that for scenario number 2 Canada is the only country to date the US gives this type of information automatically to(This is “DATCA” non resident alien reporting that Reps Posey et all are up in arms about expanding).
@Tim…
Ok, great. Got it. Just wanted to be sure.
@JustMe
Just out of curiosity I noticed you have relatives from Bellingham, WA. Are you familiar with Point Roberts, WA. I actually recently found out there is a small community bank based there and given the nature of the place I wonder how many of their clients are Canadian. There was an interesting article I linked to below that talked about the current status of Point Roberts
This was the most interesting and revealing part:
That seems to imply the Canadian government thinks those 5 European countries signed deals that are very bad for them.
Maybe the Canadian government’s position is the existing agreement between Canada and the US should be the model for all countries. The existing agreement only offers the US information on US citizens resident in the US.
@omghesstillanamerican
Canada is very attached to that agreement because it is totally reciprocal Canada reports to US and accounts held by any US Resident in Canada and the US reports back to Canada on any accounts held in the US by Canadian residents.
I think they’re very smart to hold their ground. That agreement basically does an end run around citizenship based taxation and since it’s already signed why change it.
@omghesstillanamerican
A few more points:
Canada is the only country that the US has such an agreement with and if the US is able to get information directly from Canadian banks instead of the CRA there is no incentive for them to hold their end of the existing bargain in terms of reporting to Canada information on accounts held in the US by Canadian residents.
@Tim, so if a Canadian bank signs the FATCA agreement with the US, they should expect to get slapped around real good by the Canadian government. Because banking is so heavily regulated in Canada, no smart bank will sign on with FATCA.
@omghesstillanamerican
That is still an open question no one yet either in the banks or the government wants to talk about it. One possibility I have suspect is FATCA might apply to the investment subsidiaries of the major banks that already participate in the Qualified Intermediary Program but not apply to the main bank itself in terms providing traditional checking and savings accounts(at least for a period of time). I am pretty certain though we are going to get a pretty strongly worded comment letter from Flaherty at the end of April as he just did to Geithner on the Volcker Rule back in February
I don’t know if you have seen this letter already but I am going to post a link along with another one from Mark Carney.
http://www.sec.gov/comments/s7-41-11/s74111-212.pdf
http://www.sec.gov/comments/s7-41-11/s74111-211.pdf.
@Tim
Thanks so much for posting the link to Credit Union Central’s report on the Federal Budget.
I found the following quote particularly significant for anyone who felt that Credit Unions would be exempt from FATCA : “This new US legislative requirement imposes onerous reporting requirements on foreign financial institutions, INCLUDING CANADIAN CREDIT UNIONS.”
Re your comment above that FATCA might not apply to the banks providing chequing/savings accounts but would apply to the investment arms of the banks – Great for anyone who does not have investments but onerous for those people (especially seniors). Many seniors today, (myself included), use the income from our investments to pay our property tax bills, heat our homes, buy our groceries and yes, even pay our income taxes to Canada. (The only country we should have to pay taxes to!).
I hope this does not prove to be how Canada gets around the “Charter Rights” of its citizens – ie make sure the banks provide normal day to day banking needs, but investing becomes the problem.
@tiger
The problem Tiger is many people have investment in “US Stocks and Bonds” if all your and others investments were in non US securities this would be less of a problem.
@Tim and therein is a big hint about how some folks might want to review their current investment strategies PDQ …
@Tim
I think I need to have a ‘sit-down’ with my investment advisor. Yes, I do have some of my investments in the U.S. Of course, I did that because it was explained to me that for diversification and growth, I should not have ‘all my eggs in one basket’, should be diversified over asset class and sector and also over different countries’ markets. And of course, this last year, my investment advisor has been proven correct – my U.S. ETF’s have done better than any equities I held in Canada. I have most definitely decided that once we get through April 30th and some final regulations, I will be moving investments out of the U.S., no matter how much better they might be doing.
One thing I am still quite confused about re FATCA – if the FFI decides an individual is a ‘US person’, do they also have to report income earned on their Canadian investments. In other words, just like they now issue a T5 or T3 for income earned on non registered investments to the CRA, would they also issue forms such as 1099-DIV or 1099-INT to the IRS on those same investments?
@tiger
In a simple word YES. This is exactly what the US wants. I will also note on Credit Union side of things that Alterna which is one of the biggest in the country pretty equivocally said they weren’t complying with FATCA. If you are an Alterna member I believe I saw that there annual meeting is coming up in a few weeks.
As an aside someone should email Barbara Shecter of the National Post. She seems to cover these issues a lot and I suspect she was in the “lockup” yesterday. I also note she is a bit of a thorn in Amb. Jacobson’s side from what I have heard.
http://business.financialpost.com/2012/01/05/volcker-rule-pushback-widespread/
bshecter@nationalpost.com
@Tim
So if I understand correctly, they can report the income earned on Cdn. investments to the IRS, but won’t withold from that income. However, on investments held in the U.S., they can and will withhold tax?
@tiger
They can withhold on US investments if you refuse to provide a W-9 and supposedly they are supposed to close your account but it is unclear how the latter part will/would work
@ Tim
Thanks alot for the info. I do most definitely need to meet with my investment advisor.
@tiger
We will probably know more in the next month so its nothing you have to deal with “right now”.
@Tim…
There is one thing that is not quite clear in my mind…
The Tax treaty that Canada has with the US already provides for reciprocal tax data exchange.
The 5 nation EU pact as an alternate structure to FFI direct reporting required by FATCA seems to be a similar tax data reciprocal exchange.
What is the difference, at a fundamental level, between the two? Are you familiar enough to be able to explain, or would this get into the technical weeds and I would get lost understanding?
@JustMe
The existing tax data exchange applies only to “US Residents” whereas with FATCA the US wants data on US Citizens living in Canada.
Every country should be fighting for the same deal Canada signed years ago. Offering information on US residents only.
The 5 European countries that signed offering to exchange data on US citizens residing in Europe have betrayed not only those citizens but their own sovereignty.
Tiger re
“@Tim
So if I understand correctly, they can report the income earned on Cdn. investments to the IRS, but won’t withold from that income. However, on investments held in the U.S., they can and will withhold tax?”
As far as I’m aware, this is incorrect. For US investments, the withholding is not done by the Canadian FFI It is done at source in the US.
Under FATCA, Can. FFIs would report that a US Person has an account. That’s the only change. They don’t report income on Can investments to the IRS.
Remember, accounts under 50k are exempt, under 1 million are subject to ‘electronic search’ of the bank’s info for ‘US indicia’ and RSPs may well be exempt.
Fatca is far from a done deal as far as the banks are concerned.
@Tim…
Humor me a bit, as I am dense….
When you say “US residents”, I want to be sure that I understand how you are using this terminology.
Is this right?
The US/Canada tax treaty provides that
1. Canada will give the US information about those who are resident in America but hold accounts in Canada, and
2. The US will provide information about those who are resident in Canada but hold accounts in America.
Do I have that stated correctly? If not, could you spell it out more clearly for me as I want to have the distinction clear in my mind. Thanks for your help.
Sorry to be so slow on the uptake here, but I don’t want to misread.
@JustMe
Yes, you have it exactly correct. What is notable is that for scenario number 2 Canada is the only country to date the US gives this type of information automatically to(This is “DATCA” non resident alien reporting that Reps Posey et all are up in arms about expanding).
@Tim…
Ok, great. Got it. Just wanted to be sure.
@JustMe
Just out of curiosity I noticed you have relatives from Bellingham, WA. Are you familiar with Point Roberts, WA. I actually recently found out there is a small community bank based there and given the nature of the place I wonder how many of their clients are Canadian. There was an interesting article I linked to below that talked about the current status of Point Roberts
http://news.nationalpost.com/2012/02/27/point-roberts-washington-a-little-slice-of-the-u-s-only-accessible-through-canada/
The bank is called Sterling Bank of Washington State