The first week in July provides the opportunity for bi-national families to enjoy two celebrations: Canada Day and Independence Day.
But the U.S. cast a chill on Canadian celebrations this year with its Foreign Account Tax Compliance Act, which took effect July 1. This piece of legislation, to which the Harper government offered no obvious resistance, requires Canadian financial institutions to report to the U.S. (through the Canada Revenue Agency) all accounts held by U.S. citizens and, more chillingly, “U.S. persons,” a flexible term that can be used to describe almost any person or entity with a connection to the U.S.
The U.S. requires its citizens abroad to file income tax returns and reports on their financial status, regardless of where they earned the income. The law has been on the books for many years, but it’s only recently that the Internal Revenue Service has begun to pursue expatriates zealously. Some expatriates and dual citizens are aware of this; many are not.
Basically, if the taxes you pay on income earned in Canada exceed what you would pay in the U.S. on the same income, you don’t have to pay Uncle Sam. If the taxes are lower than would be paid in the U.S., you have to cough up the difference. Generally, Canadian tax rates are higher than in the U.S., but it costs a big pile of money to figure that out, if you get an accountant to fill out the 30 or so pages of forms required. It’s a challenge to do it yourself — it’s a complex and confusing process, bureaucracy gone amok.
But FATCA goes much further. Passed in the U.S. in 2010, the legislation is aimed at discovering those who are hiding their fortunes abroad to avoid paying U.S. income taxes. Canada a tax haven? Who would have thought? Move over, the Bahamas and the Cayman Islands!
You can’t fault the Americans for going after rich people who try to hide their wealth abroad. What galls is that they treat everyone as tax cheats, guilty until proven innocent, and the burden of proof is onerous. The legislation requires Canadian financial institutions to report on any customers with U.S. dealings. Failure to do so would result in a 30 per cent holding tax on any payments from U.S. sources, which would be crippling for institutions that do business in the U.S. (and most do).
Ours is a dual-citizen family. It has been handy being able to go back and forth across the border for education and career opportunities without worrying about visas. But the downside is that, regardless of where we live, regardless of being Canadian citizens first, we can never escape the long reach of the IRS. Renouncing U.S. citizenship isn’t much of an option — it’s an expensive process that would take years, and would involve a detailed examination of assets to ensure no one is trying to hide anything.
And it wouldn’t change much. It’s that “U.S. persons” thing. It could include people whose mothers gave birth in the U.S. for medical reasons, Canadians who go south as snowbirds, Canadians who have returned to Canada after having lived in the U.S. as permanent residents or someone who has always lived in Canada but was born to an American parent.
The legislation, which the Conservatives have embedded in their budget bill, allows the IRS to dig into financial information of a Canadian who holds a joint account with a U.S.-born spouse. It doesn’t stop there — Times Colonist photographer Darren Stone showed me documents he received from his bank requiring him to produce documents explaining his U.S. connections. He isn’t aware of any.
A lot of us are bycatch in the wide net the U.S. is spreading for tax cheats, and the federal government hasn’t done much to protect its citizens.
Prime Minister Stephen Harper tried to stir up enthusiasm for commemorating the War of 1812, celebrating the fact that Canadians (although Canada was not yet a country) fought off the American invaders.
Too bad he couldn’t show the same enthusiasm in turning back the Americans in 2014.
