FACTA: Is The U.S. cracking down on tax evasion or is it an invasion of privacy? Many Canadians are being forced to report U.S. earnings
The Foreign Account Tax Compliance Act came into effect on January 1. It is a little known law that will affect millions around the world including Canadians. It will cost banks and trust unions a large sum while bringing privacy and financial implications for offshore American citizens.
By Mara Paolantonio, Staff Writer
FACTA (Foreign Account Tax Compliance Act) was first introduced as a U.S. law in March 2010, but it will come into effect around the world on July 2014. It will force citizens with offshore accounts of more than $50,000 to report it to the IRS (Internal Revenue Service). The main reason for the law is to find cheating tax citizens who are avoiding paying taxes on their accounts. Critics say innocent people are being followed as well. The main problem is that private information is being shared with U.S. authorities. Also, almost every Canadian is affected by this law, there are many residents who are not aware they are dual citizens. For example, U.S citizenship is automatically given to people born in Canada to U.S. parents or born in the U.S. to Canadian parents (cbc news).
At the last G8 meeting, leaders supported the automatic transfer of financial information to stop global tax evasion. Although it seems vague, Canada supported the statements in the G8 summit to communicate and develop a multilateral standard for the automatic exchange of tax information and that the standard be based on the FACTA model (globe and mail). After the summit, in September 2011, Finance Minister Jim Flaherty sent a letter to U.S. newspapers saying that he understands efforts to crack down on tax evasion, but questioned whether FATCA would achieve that. He said the law would waste resources on “all sides” and raises privacy concerns. “Most of these Canadian citizens, many with only distant links to the United States, have a very limited knowledge of their reporting obligations to the United States,” he wrote.
Despite the agreements, the estimated cost of all this to financial institutions would be at least $100 million dollars. This will raise bank fees for Canadians. The U.S. can also potentially make tax gains on registered savings accounts such as RRSPs, RESPs and TFSAs since they view them as “offshore trusts” and can possibly tax gains in them. Filing income taxes at a low rate would be unheard of according to tax expert Allison Christians, the annual cost of filing U.S. taxes can be quite high. Accounting firms are estimating the cost of filing personal U.S. taxes can be anywhere from $500 to several thousand dollars.
What will happen on July first, is there will be new rules put in place to help identify which accounts are “U.S. reportable accounts.” Between 2014 and 2015, financial institutions will be searching through their accounts to see which ones are owned by a U.S. person or corporation. There will be a system of indicators developed for U.S. connections such as U.S. birthplace, U.S. addresses or phone numbers, an American power of attorney, or standing orders to transfer funds to the U.S. Accounts under $50 000 will not be questioned unless a bank is requests to know if the client has U.S. status. Accounts above $50 000 will get flagged if any electronic data registered indicates U.S. connections. Clients considered U.S. persons will be required to complete a taxpayer identification and certification form.
Beginning in March 2015, banks will start to annually send information about those accounts to the IRS by going either directly to them or through the Canada Revenue Agency, depending on the agreement the federal government signs.
My name is Mara Paolantonio, I just graduated from York University Bachelor of Arts program, I studied Italian and Communication Studies.