Banks bracing for U.S. law requiring they inform on dual citizen accounts

The U.S. Internal Revenue Service has put dual U.S.-Canadian citizens on notice that they need to file U.S. tax returns

by Julian Beltrame

OTTAWA – The final thrust of Canada-U.S.. tax treaty negotiations is triggering fears among bankers on this side of the border that they will be dragged into helping out on an American hunt for tax cheats — and passing along information about Canadians to U.S. tax authorities.

The U.S. Internal Revenue Service has put dual U.S.-Canadian citizens on notice that they need to file U.S. tax returns — whether or not they have paid in Canada — or face stiff penalties.

Intense lobbying by Ottawa achieved some relief on a related issue involving tax obligations of dual citizens, with the IRS issuing a guidance that those owing no U.S. tax would not be subject to penalties for failing to report in past years.

The two sides appear headed toward a compromise on the issue affecting banks and their U.S. clients as well.

But recent statements and precedent-setting deals with the United Kingdom and other European countries suggest the IRS will still be able to secure — if indirectly — some, if not all, the information it is seeking.

Canadian Bankers Association president Terry Campbell said in an interview he is hoping Ottawa can convince the IRS to back off, but suggested that was unlikely.

“It’s very likely that under any scenario we will have to be gathering more information than we had to do beforehand,” he said.

Campbell added that he did not know the direction of the current bilateral discussions, but the recent U.K. deal with the U.S. suggests Canadian banks may be able to avoid turning over account information on dual citizens directly to the IRS.

Instead, the account information would go to the Canada Revenue Agency, which the IRS can then access by using bilateral tax information exchange agreements or any new arrangement the two countries agree to.

Such an outcome would be “an improvement,” said Campbell, although not ideal.

Current Canadian law does not require banks to ask clients whether they are also U.S. citizens, and changing bank procedures could cost in the tens of millions of dollars in administrative fees.

“The challenge with FATCA (the U.S. law) has always been it is an extraterritorial application of U.S. law which conflicts in many regards, including privacy, with Canadian law,” Campbell explained. “Secondly, it is an intrusion of U.S. authority into the Canadian space and it is administratively a very, very burdensome exercise.”

The federal Office of the Privacy Commissioner said they had been following the issue and that Canadian financial institutions remain subject to privacy laws.

“They will need to be continually mindful to … limit the amount of personal information they collect about individuals, obtain consent for collections, uses and disclosures of individuals’ personal information, and safeguard the personal information in their care,” said Scott Hutchinson, the senior communications adviser for the commissioner.

Hutchinson said the privacy office would respond to concerns “as they arise.”

Finance Minister Jim Flaherty has said Ottawa is “nearing a conclusion” on the issue, suggesting a similar arrangement as reached by the U.K. is in the offing.

“An agreement with the U.S. to share information on a government to government basis, within prescribed limits, will bring certainty to the application of the FATCA regime to Canadians, and will also facilitate compliance by our financial institutions,” he said in a statement.

In its previous deal with Washington involving dual citizens, Ottawa said it would not collect penalties on behalf of the IRS, nor would Revenue Canada collect taxes for the IRS on an individual that was a Canadian citizen at the time the liability began.

The U.S. Treasury Department said it is engaged in negotiations on FATCA with more than 50 countries — including Canada — and aims to reach agreements by the end of the year.

Campbell said financial institutions have no choice but to comply with U.S. law because the penalties can be onerous — a 30-per-cent tax on U.S.-source income.

“This isn’t just a Canadian problem,” he said. “The American authorities have managed to raise very serious concerns in virtually every country in the world.”

“(But) short of having the U.S. authority change their law, and short of having the world financial system being radically restructured, neither of which is going to happen, authorities around the world have come to the conclusion they must deal with the United States to make this as administratively feasible as possible.”




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Banks bracing for U.S. law requiring they inform on dual citizen accounts

  1. This is fiscal imperialism, and Canada should not give in to the IRS. The US should stop its citizenship-based taxation and the endless paperwork that goes with it.

  2. I sincerely hope that Canada and all other countries reject any IGA with the USA!

  3. It looks like Canada is not grown up enough to know how to stand up to bullies! One million Canadian American duals and there families are about to be thrown under the bus.

  4. Canadians need to wake up and smell the roses on this issue. This is nothing less than a sovereignty issue. Are we a sovereign nation or not? Tell the Americans to look after their own back yard before they start ruining lives here. Canada is not a tax haven, we have a tax convention with them already. Write your MPs, make some noise before it’s too late.

  5. Thank for this article which draws attention to the fact that on the 200th anniversary of the War of 1812, the Harper Government may be poised to surrender to the US. FATCA has been described by those in the financial community as the “Neutron bomb of the financial system”. It is an attempt by by the US to force the world to apply US law in the territory of other nations. In other words – Canada will cease to be a sovereign country. For the Harper government to enter into a FATCA IGA with the US is a complete capitulation and surrender to the US. While your article is greatly appreciated, it is extremely misleading in certain areas:

    First, the government of Canada has had NO success to date in negotiating with the US on this issue.

    Second, the banks DO have a choice on whether to comply. It’s just that there may be financial consequences if they don’t.

    Your article considers this issue from the perspective of only the government and the banks. How about considering this from the perspective of the one million Canadians who will be disabled from effective retirement planning by this law. But, its far more than one million. Those one million have families who are affected by this. You should take a moment and learn why.

    There are many sources from which you can learn the true effects of FATCA. These include blogs, etc.

    Here are a few:

    .isaacbrocksociety.ca

    .twitter.com/FATCA_fallout

    .repealfatca.com

    .renounceuscitizenship.wordpress.com

    If you want to keep it short, and want just want 10 good reasons why Canada MUST NOT enter into this agreement with the US, I suggest:

    .isaacbrocksociety.ca/2012/11/22/seven-reasons-canada-must-say-no-to-fatca/

    This is a very important moment in the history of Canada. The next few weeks will determine whether Canada remains a sovereign country or becomes nothing more than an administrative region of the IRS. I doubt the banks care. I doubt the Harper Government cares. But, you can bet your life that ordinary people, regardless of political affiliation – the same kind of people who fought the War of 1812 – do care!

    I am looking forward to a second article on this issue – one that describes the real effects on the people of Canada.

    Thanks,

  6. Would Canada have down this in the 30s if the Nazis established a regime to track Jews and their money outside of Germany? This is simply immoral and an intrusion into Canadian sovereignty. Once the fox is in the chicken coop, how will Ottawa ever get them out. What the UK has decided shows their timidity and stupidity. Why on earth should Canada follow their example? The Canadian Bankers Association and government should follow Nancy Reagan’s simple advice: “Just say no!” Ther Eli’s absolutely NOTHING Canada gets out of this at all, now or ever!

  7. So now Canadian laws are made in the U.S. congress. “Short of having the U.S. authority change their law” so the quote says. Well, that is what the U.S. is requiring of every other nation on earth including Canada. Our banking privacy laws, our Charter of Rights do not jibe with FATCA which after all is NOT a Canadian law. An IGA will cover the banks so they will be protected but, the little guy will have zero protection. Jim Flaherty you have let us all down by agreeing to sign anything like this with the U.S.A. without some parliamentary oversight or even any open discussion on this matter. If the U.S.A. is now making our banking laws we may as well think of which name we’d like to call our “country” but, perhaps first we’d better ask the U.S.A.

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