Why is FATCA important to Canadians? The role of FATCA and U.S. taxation of Canadian residents
This morning I was asked why FATCA matters to Canadians and why was the Government of Canada wrong to pass legislation making:
“FATCA the law of the land in Canada”
Here is a partial answer.
Why is FATCA important to Canadians? The role of FATCA and U.S. taxation in Canada
A picture/video tells a thousand words. Have a look at the “Rick Mercer FATCA video” in the following tweet:
FATCA is U.S. law which is designed to identify financial assets and people, outside the United States, that the U.S. believes are subject to its tax laws. (It makes no difference whether the person is a Canadian citizen”.)
This includes Canadian citizens and residents who were:
– born in the U.S.
– Green card holders
– people born to U.S. parents in Canada
– “snow birds” who spend too much time in the United States
The Government of Canada is assisting the United State to implement FATCA in Canada. To be specific:
– on February 5, 2014 the Government of Canada formally agreed to change Canadian law to identify “U.S. connected” Canadians in Canada
– in May of 2014, the Government of Canada passed Bill C 31 which contained the implementing legislation
– on July 1, 2014 FATCA became the law in Canada
– since July 1, 2014 many Canadians have received a “FATCA Letter” (can the U.S. claim you as a taxpayer?)
The Alliance For The Defence Of Canadian Sovereignty has sued the Government of Canada in Federal Court on the basis that the participation of the Canadian Government in FATCA, is in violation of the Charter Rights of Canadians. You can keep up with their progress on the Alliance blog” which is here.
FATCA is a tool to enforce “U.S. taxation in Canada”. The result is that more and more Canadian citizen/residents will be forced to pay U.S. taxes. But, U.S. tax rules include much more than tax. They are source of comprehensive information gathering and “information returns”. Typical returns required by U.S. taxpayers in Canada include: FBAR, FATCA Form 8938, Form 5471, Form 3520, Form 3520A and many more.
In addition, U.S. tax rules are different from Canadian tax rules. The most painful example is that when:
– Canada allows a “tax free” capital gain on your principal residence
– the U.S. imposes a 23.8% tax on the sale of your principal residence (you get a $250,000 deduction)
It is, but:
It’s only Canadian citizens with a past “U.S. connection” who will be subject to these taxes. It is estimated that approximately one million Canadians may be subject (as “U.S. Subjects”) to these rules. But, Canadians with a “U.S. connection” are members of families. Therefore, U.S. taxation in Canada will impact all members of a Canadian family which has at least one “U.S. connected” member.
By making “FATCA the law of the land in Canada“, the Government of Canada has turned into any Canadian with a past, unwanted U.S. connection into a “second class citizen”.