Canada U.S. tax information sharing deal open to abuse

Privacy commissioner worried about Foreign Account Tax Compliance Act


OTTAWA—Canada’s privacy watchdog is urging the federal government to protect the personal information of Canadians affected by a new tax-information sharing agreement with Washington.

Interim privacy commissioner Chantal Bernier says a controversial bilateral agreement to comply with new U.S. tax legislation could give American authorities too much financial information about Canadian dual citizens.

The Foreign Account Tax Compliance Act, which targets U.S. taxpayers with international accounts, would require even dual citizens who live in Canada and have no financial footprint south of the border to file returns with the U.S. Internal Revenue Service or face penalties.

A House of Commons committee is studying an agreement between Ottawa and Washington, part of the federal government’s omnibus budget bill, that would require banks to report accounts held by “U.S. persons” to the Canada Revenue Agency, which would then notify the IRS.

There is potential for abuse, Bernier told the committee. She called on the federal government to notify banks exactly what kind of information is necessary, and ensure “appropriate technological” controls are put in place.

“The risk to privacy is mainly related to over-collection, over-reporting and security,” Bernier said.

But John Richardson, a Toronto lawyer who advises Canadians on the implications of the U.S. law, said the agreement represents a nightmarish situation for about one million Canadians, many of whom don’t even realize they are considered “U.S. persons” by the IRS.

“This a life-altering, monumental event for them,” Richardson said. “The most frightening question for many of these people is, ‘Are you now or have you ever been a U.S. citizen?”‘

Richardson said the government should refuse to co-operate with the U.S., which—unlike most other developed countries—levies income taxes based on citizenship rather than residency.

But officials from the Canadian Bankers Association and the Canadian Council of Chief Executives urged the MPs to pass the provision, saying the penalty to Canadian financial institutions would be prohibitive.

Washington has threatened Canadian banks and other financial institutions that operate in the U.S. with a 30 per cent withholding tax if they fail to comply.

“The implications on non-compliance would be astronomical,” said Darren Hannah, the association’s director of banking.

“Canadian foreign direct investment in the U.S. is right now $318 billion, U.S. source income flowing back to Canada from the U.S. is $42 billion every year—imagine subjecting that to a 30 per cent withholding tax.”

The Canada-U.S. agreement will allow banks to pass on information to the Canada Revenue Agency, rather than the IRS directly, Hannah said. It also does not force banks to pry into the backgrounds of Canadians unless they have reason to believe they are also U.S. citizens, he added.

Liberal MP Scott Brison said Canada could have secured a better arrangement had Prime Minister Stephen Harper made more of an effort to establish a closer relationship with U.S. President Barack Obama.

“The (agreement) gets Canadian banks off the hook for reporting, it does not get Canadian citizens off the hook,” Brison said.


Canada U.S. tax information sharing deal open to abuse

  1. Its all about tax greed. Why not simplify the whole mess and simply have the whole world state this:

    Business and people are to be taxed ONLY in the country of the origin of earnings. Cross border tax greed and world tax greed needs to stop.

    Country of earnings is who should get the taxes. So simple even screwed Ottawa and DC have a possibility of getting it right if enacted.

    Got audited and CRA screwed me around as I had offshore accounts. Filed a dispute and won, 3 to 0 is the score. Just tax greed incompetance for commoners while the Lichenstien group got away with tens of millions in taxes. CRA never did get Rizzuto family for the RCMP film of the “family” counting he money.

    Taxes need to be simplified. Taxation in the country of origin. If Lichtenstein invests in Canada, tax it on the way out so not to have offshore benefit. But often offshore has tax advantages domestic commoners don’t get.

    But our bloated governments love the statism Orwellian tax greed. Always trying to hide tax greed with non-valued added byzantine compexity and illusions.

Sign in to comment.