Washington and Ottawa have signed a deal that means Canadian banks won't have to report on their American customers to the I-R-S. But that doesn't let those American customers living north of the border, off the hook. The deal means Canada's Revenue agency will collect the information, and then pass it on to its U-S counterparts. And that's not sitting well with many.
For some of the one million or so Americans living in Canada it could mean problems. Washington's new Foreign Account Tax Compliance Act, or FATCA, doesn't take effect until July. But the idea has already stirred resentment and some panic north of border.
"What this is doing is shaking the tree," said Allison Christians, the chair of tax law at Montreal's McGill University.
"Anybody who has U-S status and has money in a Canadian account over a certain amount, the I-R-S wants to know about it," she said.
That includes U-S citizens, those born in the US, who have not revoked or renounced their citizenship, people with Green cards, and even Canadian snowbirds who spend too long in the U-S.
The law is aimed at rooting out tax cheats and even those who don't know they should still be filing tax returns in the U-S.
"I relinquished by U-S citizenship," said Ruth Freeborn, who was born in Oklahoma and came to Canada in the 1980's. Like so many others she's unhappy with FATCA....
"In may case it's not about owing taxes, it violated our charter rights and our privacy. It's not something I had ever thought would happen, that I would have to go this far," she said.
Privacy has been a major issue. The U-S law requires Canadian banks to provide the relevant financial data on their American customers. Failure to do so could result in huge fines and penalties....and Canadian banks do hundreds of millions of dollars in business south of the border each year. But compliance puts those banks in violation of Canada's privacy laws. For individuals a 30-percent withholding tax would kick in from investments and retirement income.
The deal signed this month means the banks will now provide the relevant financial information to the Canada Revenue Agency. It will then share that data with the IRS, but it won't collect any unpaid US taxes for the IRS.
There are a few other concession...no reporting on accounts less than $50,000....and registered retirement savings plans, pension plans and tax free savings accounts are also excluded.
But FATCA is still a sore point, even with the compromise.
Murray Rankin is a Canadian parliamentarian....a member of the opposition New Democratic Party....
"I still find it ridiculous that we were even subjected to this. Canada is not a tax-haven. FATCA is about tax havens," she said.
The Canadian government and the Canadian Bankers Association objected to FATCA from the beginning, trying to convince the Americans that is not a good piece of legislation and does not achieve objectives.
But Washington wouldn't budge. And Canada's five major banks have already about tens of millions of dollars each preparing for the new law.
Banks will have to begin collecting data in July. But the Canada Revenue Agency doesn't expect to begin sharing information with the IRS until 2015.
