In February of this year the first report of the Internal Revenue Service’s new cross border tax enforcement initiative was announced.
Under the 2011 Voluntary Offshore Disclosure Program, amnesty from criminal prosecution was offered to US citizens in Canada who came forward before Sept. 9 to disclose their overseas accounts and pay the penalties. Few Canadians realized the consequences. After all, most Canadians who live and work in Canada, invest through their local bank or investment advisor, have no “offshore” accounts. Not true.
The obligation of all US citizens, including those who are also Canadian citizens, to file US tax returns and disclose foreign (Canadian) bank accounts to the Internal Revenue Service has been law for many years. Until recently, the laws were rarely enforced.
Having a foreign bank account is not illegal as far as US authorities are concerned, however those accounts, with some exceptions, must be disclosed and their balances reported to the IRS. The penalties for failing to report are severe: non-willful failure to file is $10,000; willful failure to file carries a penalty of $100,000 or greater.
Most US citizens in Canada would not owe taxes to the US on their earned income here. Canada and the US have a reciprocal tax treaty under which a foreign tax credit will generally be available to offset any double taxation that would otherwise exist.
Though no taxes may be owed, the filing and reporting requirements still stand. Just to clarify the issue – penalties are not being assessed for nonpayment of tax, they are being assessed for failure to comply with disclosure requirements.
In 2014 FATCA, the US Foreign Account Tax Compliance Act, will require all Canadian financial institutions to disclose the personal account information of US/Canadian dual citizens to the IRS as the price for investing and doing business in the US.
This proposed act represents an imposition on Canadian sovereignty and contravention of Canadian privacy laws. I have written four letters to Finance Minister Jim Flaherty on the issue and am enlisting the support of other MPs to bring the issue before Parliament as soon as possible.
I want to stress that FATCA, as currently legislated, places an unwarranted burden on honest Canadians and our financial institutions. Those dual citizens who live, work and pay taxes in Canada should not be subjected to the same laws intended to expose US citizens seeking tax havens in foreign countries.
As well as the sovereignty issue, the Canadian government should consider the consequences on its own tax base if millions (perhaps billions) of dollars flow out of the country. What will be the consequences for the Canadian economy? There is no question that the retirement security for tens of thousands of Canadians will be affected.
The requirement of all US citizens to file tax returns in the US and to report foreign tax accounts is American law and the Canadian government cannot affect change there, even on behalf of Canadian citizens. We can, however, act to protect our sovereignty and prevent the US from imposing its law on Canadian businesses and banking institutions.
We can call on the Canadian government to push their US counterparts to refine their reporting criteria to distinguish between criminals and honest citizens.
Alex Atamanenko, MP
BC Southern Interior