Written on behalf of Feigenbaum Consulting
One topic which we have blogged about on a number of occasions in the past is the requirement for dual citizens of the United States and another country to file tax reports in the United States even if they don’t live there. This is a rare policy position, taken only by a couple of countries globally. This means that if someone is a citizen of the United States and Canada, but lives and works in Canada, they have a legal obligation to pay tax in the United States even if they file and pay tax in Canada, and even if they don’t owe any tax money to the US government. It is also the law that Canadian banks would have to provide the IRS with reports on US citizens who own Canadian bank accounts with over $50,000 in them. However, it came to light this week that accounts were reported despite being worth less than $50,000, raising concerns for dual citizens.
Canadian banks must report on accounts held by US citizens
In 2010 the United States enacted the Foreign Account Tax Compliance Act. The law took aim at US citizens who were using offshore tax evasion tactics, but caught innocent people in the mix as well, including those who live, work, and pay taxes in another country. The law requires Canadian financial institutions to send records about accounts held by people who may be US citizens. There had been a grace period in place up until last year, at which time banks were required to let the CRA know which accounts may be subject to US taxation but are missing US Taxpayer Identification Numbers. Last year the CBC reported that the CRA may fine banks who fail to collect that information from their clients.
Excessive banking information is shared
It was reported by CBC earlier in the week that in 2019 the CRA reported hundreds of thousands of bank accounts to the IRS despite them having less than $50,000 in them. In fact, the story states that 615,000 of the 901,000 records sent were under that threshold.
This raised questions about the CRA’s ability to protect the privacy of Canadian citizens. NDP revenue critic, MP Matthew Green, told the CBC. “We have a duty first to our citizens and we have to take seriously the protection of personal information,” adding, “We should never be sharing this information unnecessarily.”
These concerns echo those shared by Privacy Commissioner Daniel Therrien in 2016. He said his office advised the CRA to notify people who may have had their information shared with the IRS.
Ignoring the rules may become difficult for US citizens
The CBC story quotes Kevyn Nightingale, a partner at an accounting firm, who said that banks may start to refuse to open accounts for people who may be subject to US taxation but do not provide a Taxpayer Identification Number. If a number is provided, then it will likely be shared with the IRS, which could begin to send letters to Canadians demanding compliance to US tax laws. He warned that at some point, this may impact the ability of people to enter the United States.
International taxation involving Canada and the United States can be incredibly complicated. At Feigenbaum Law, we offer a wide range of services in this highly niche area, including corporate tax planning and compliance, personal tax planning and compliance, immigration & visa services, cross-border estate planning and services related to tax controversy. To learn more about how our international tax law team can help you, or to make an appointment, contact us online, or call our office toll free at (877) 275-4792.