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American law turns Canadian banks into tax agents

Here is an issue you might need to keep in mind in the coming months. As it stands, a recent United States tax law will require Canadian banks and other financial institutions  (including credit unions, pension managers, insurance companies, and others) to provide some Canadian (and American) citizens’ information to the American Internal Revenue Service (IRS). The US Foreign Account Tax Compliance Act, which is set to come into effect through 2013 and 2014, aims to catch tax-evading “US persons” living abroad, including those with dual US-Canada citizenship. To this end, the law would demand Canadian banks provide the IRS with the confidential account information of many Canadian citizens and many more non-citizen residents of Canada.

According to Wikipedia, the Act:

…requires foreign banks and financial entities to find any American account holders and disclose their balances, receipts, and withdrawals to the US Internal Revenue Service, or be subject to a 30% withholding tax on income from US financial assets held by the banks or financial entities.

Canadian Finance Minister Jim Flaherty wrote in a public op-ed in 2011 that the law “has far-reaching extraterritorial implications,” and “would turn Canadian banks into extensions of the IRS and raise significant privacy concerns for Canadians.” More recently, however, the Department of Finance has stated that it is negotiating an intergovernmental agreement with the United States on the implementation of FATCA. The government has not publicized the terms of the agreement, but Don Whiteley suggested in the Globe and Mail in January that it would simply transfer the burden of complying with FATCA to the Canada Revenue Agency—to be paid for by all Canadian taxpayers rather than just the banks.

According to the Financial Post, Canadian banks have pressured the IRS to delay the requirement to report on their American clients. Indeed, banks around the world are concerned that complying with the law will make their operations more difficult and costly.

Then there are the privacy and human rights issues. The federal Green Party argues that:

It would be a clear violation of our Charter of Rights and Freedoms to have Canadian banks, under the direction of the IRS, violate the privacy rights of some Canadian citizens or residents based on their current or former ties to another country, namely the United States.

So, for the moment, I guess we’re just waiting to hear what the government has to say.

Adam Gorley
First Reference Editor

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Adam Gorley

Editor at First Reference
Adam Gorley, B.A. (Phil.), is a researcher, content provider and editor. He contributes regularly to First Reference Talks and Internal Control blogs, HRinfodesk and other First Reference publications. His areas of focus include broad human resources issues, corporate social responsibility, corporate governance and government policies, information technology and labour market trends.Read more
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