Canadian banks are joining a worldwide chorus in raising voices against a US law which will affect its citizens. The US’s Foreign Account Tax Compliance Act (FATCA), enacted by Congress in 2010, will be enforced in Canada on July 1 and will apply to Canadian banks who have US ex-pats as customers.
Though on the books for four years, FATCA is only now being strictly enforced worldwide as the US Internal Revenue Service (IRS) seeks to identify expats who are hiding money in foreign bank accounts, thus escaping possible US taxes. The banks are being asked, under penalty of nasty economic sanctions, to dig through their records for evidence of accounts owned by US expats and to send this information to the IRS so it can go after the alleged tax cheats.
US citizens living abroad are obliged under the law to, among other things, report assets in foreign countries banks and other financial institutions (A citizen living in a foreign country must report with their IRS Form 1040, amounts exceeding the equivalent of $50,000). To cross-check for compliance, the IRS is forcing non-US Financial institutions to report accounts whose amounts meet or exceed that threshhold. The financial institutions face punitive taxes on financial transfers between US and Canadian banks if they fail to comply.
What is rankling many Canadians is that for the first time in Canadian history the federal government is knuckling under to a foreign government( namely the US) to provide sensitive financial information about hundreds of thousand Canadians. And it is doing it without apparently getting any concessions in return. It will amend Canadian privacy laws to submit the information.
Canada is only one of many nations not thrilled with the FATCA law and Republicans are making this an election issue for US expats who vote absentee. In the upcoming mid-term congressional elections, Republicans are mounting a campaign to repeal FATCA, urging expats to vote their way for candidates that favor FATCA repeal. Until that is accomplished, however, countries have nothing to do but comply.
The proposed law applies to a broad class of US expatriates and Canadians who could now be subject to fines, interest penalties, criminal sanctions and denial of entry into the US. Canadian banks will have to research birth places, residences, Social Insurance Numbers looking to see if any ’US person’ has an account with them.
’US person’ is a broad term which includes both US citizens and non-citizens ( if they have personal or economic ties to the US-for example, former green card holders now residing in Canada). Part-time US residents, such as Canadian ’snowbirds’ and accidental Americans (Canadians with US citizen parents) may be caught in the dragnet. Also coming under scrutiny will be Canadian businesses that are partly owned by a US person. Information on them must be disclosed to the IRS. This includes confidential, potentially sensitive information that competitors might use against the Canadian company thus hampering their competitiveness.
Canada is only the latest country to feel the pressure of FATCA. At least there is a process here whereby Canada will legislate into compliance. This is not true in other countries around the globe whose banks are being bullied into disclosing information to the IRS. We think this is a privacy issue which needs to be looked at and repealed by the US Congress at the first opportunity.