NDP Position on the US Foreign Account Tax Compliance Act (FATCA)

Background

By its own estimates, the United States Treasury loses more than $100 billion a year to off-shore tax evasion and avoidance. Canada loses approximately a tenth of that amount or $10 billion a year.

The Foreign Account Tax Compliance Act (FATCA) will require foreign banks to report and disclose US interests in foreign financial institutions.  In addition, any United States person who has a financial interest in or signature authority or other authority over any financial account in a foreign country, is required to file under the Foreign Bank Account Report (FBAR), if the aggregate value of these accounts exceeds $10,000 at any time during the calendar year.

Unfortunately, as part of an admirable attempt by US authorities to crack down on off-shore tax avoidance and evasion (an effort Canada would be advised to emulate), small Canadian stakeholders and innocent bystanders are being caught, unnecessarily, in an unjust and costly bureaucratic tangle.  Approximately 600,000 to 1 million Canadians with American citizenship are at risk of facing steep penalties for not filing their annual US income tax returns.

It is likely that this over-reaching by the US Internal Revenue Service is contrary to the spirit, if not the law, embodied in the main tax treaty between Canada and the US: the Convention Between Canada and the United States of America With Respect to Taxes on Income and on Capital and the Protocol Amending the Convention Between Canada and the United States of America With Respect to Taxes on Income and Capital (2007).

The NDP Position

The NDP has advocated higher investment by the Canada Revenue Agency in sufficient investigative and forensic accounting capacity to ensure that off-shore accounts do not go untaxed. We have also called on our government to collaborate with other governments around the world to adopt joint measures to eliminate safe havens for tax dodgers globally.

To that end, we have called for robust tax treaties that require banks in other countries that help Canadians avoid taxes abroad to cooperate by opening those accounts to Canadian authorities for tax assessment purposes. Such transparency is essential if growing tax evasion is to be halted. Naturally, the same laws of privacy apply in such investigation as apply to domestic tax audits.

The NDP strongly supports measures to crack down on off-shore tax evasion and avoidance, but believes that such efforts must target criminal behaviour and not innocent, law-abiding citizens and small stakeholders. We urge the Canadian government to immediately enter into discussions with its US counterparts with the following objectives:

  • That the Canadian and U.S. government must first ensure that their citizens know their tax obligations;
  • That negotiations include an exemption for Canadian citizens from filing US tax returns in circumstances where those citizens have no US income or assets, or have no real connection with the United States;
  • That negotiations include a true amnesty that allows Canadian citizens to file US tax returns, with a reasonable retroactive component, free of any forfeiture or penalties save the taxes owed, if any, along with reasonable interest;
  • That the Canadian government should assess the extent to which the actions by US authorities comply, or fail to comply, with the provisions and spirit of the Convention Between Canada and the United States of America With Respect to Taxes on Income and on Capital, and its amending Protocol (2007);
  • That the US must refine their reporting criteria to differentiate between those US citizens they claim to target, who deliberately engage in activity to evade US taxation, and Canadians who annually report their income and financial accounts to the Canadian Revenue Agency;
  • That US authorities be advised that it is unacceptable for tens (perhaps hundreds) of thousands of law-abiding Canadian citizens to be threatened with bureaucratic harassment and inappropriate requirements to comply with legislation intended to expose law-breakers; and
  • That the Canadian government must ensure that the Canadian Revenue Agency will not act on behalf of the US Internal Revenue Service to collect revenue and penalties.

Denise Savoie

970 Blanshard Street, Victoria, BC
V8W 2H3
Tel: 250-363-3600
Email: [email protected]