While canadian financial services institutions scramble to prepare for the new U.S. law that requires them to report on accounts held by their American customers, those clients may need a helping hand now.
The new regime starts next summer. For the estimated one million Americans in Canada, this new law means it will be almost impossible to remain off the radar of the U.S. Internal Revenue Service (IRS) any longer. As a result, your American clients may be panicking and in need of advice and reassurance.
That’s also partly because many such clients have been in denial for some time. But that denial is now a recipe for trouble. “For people who aren’t filing [their U.S. tax returns and] thinking, ‘I’m a small fish; they’re never going to get me’,” says Christine Perry, a lawyer with Keel Cottrelle LLP in Toronto who specializes in cross-border tax law, “I think that’s just a naive way of looking at it. Their accounts will be reportable accounts, and banks will turn over all that information to the [IRS].”
The U.S. Foreign Account Tax Compliance Act (FATCA), passed in 2010, is meant to prevent Americans from using accounts held at financial services institutions outside the U.S. from evading their tax obligations. FATCA requires global financial services firms, including those in Canada, to provide the U.S. government with the names and account numbers of clients who are American citizens, starting on July 1, 2014. Global banks that choose not to provide this information will be assessed a 30% withholding tax on all U.S.-source payments.
Andrea Taylor, director with the Toronto-based Investment Industry Association of Canada, advises that financial services firms and financial advisors must play a crucial role in educating their American clients and providing them with support.
“There are few things that are more terrifying to clients,” says Taylor, “than finding out that they are U.S. persons [for tax purposes] and that they are delinquent with the IRS, when they may not have even been aware of their U.S. citizenship or tax status or the requirements that go along with that. Advisors and firms need to have a strategy for the clients who are U.S. persons to ease their fears and let them know that the IRS has programs in place to waive penalties for persons who are low-risk.”