February 6, 2014 Update: Yesterday Canada’s Finance Minister announced Canada has signed a FATCA Intergovernmental Agreement with the United States. That may or may not change some of the information provided here. We will update as we learn more about what this may mean.
One thing we can confirm is that Canada’s Minister of National Revenue reconfirmed:

The CRA does not collect the U.S. tax liability of a Canadian citizen if the individual was a Canadian citizen at the time the liability arose. This includes dual Canada-U.S. citizens. That will not change under this agreement.”a Revenue Agency will not collect tax liabilities for the IRS for a Canadian citizen.
 

In addition, Finance Canada in a Q and A has again confirmed CRA will not collect penalties for IRS for a Canadian resident or citizen.

For example, the CRA will not assist in the collection of U.S. penalties associated with the Report on Foreign Bank and Financial Accounts (commonly known as the FBAR),

A few months ago, I had an article published in The Money Guide: Canadian Protections from IRS. The Money Guide is no longer publishing and the article is no longer available there. I am now posting it here as a resource. Please note, I am not a lawyer or accountant and this is not intended a professional advice.
CANADIAN PROTECTIONS FROM IRS
Canadians, Uncle Sam wants you. Actually, he doesn’t want you. He just wants your money. The money you earned, saved, invested and paid taxes on in Canada. Uncle Sam thinks he has a right to know all about your money just because you were born in his country.
For more than two years, honest Canadians with some connection to United States have lived a nightmare. Many have had sleepless nights, health challenges and strained marriages to non-US spouses. Some have spent small or large fortunes on accountants and lawyers to report zero amount owing to IRS. Others have had health challenges and difficulties at work. Some have even considered suicide.
Canadian media articles have told these Canadian citizens and residents with no income from United States they must “come clean” to IRS, file income tax returns to a foreign government “before it is too late” or face dire consequences.  They have told these Canadians they could face draconian penalties of up to 50% of the value of each of their accounts or $100,000, whichever is greater.
This is because United States taxes its citizens based on citizenship, no matter where they live. The United States shares this distinction with only one other country. Eritrea.
Many of these Canadians have been Canadian citizens for decades or even for life. Many have every reason to believe they relinquished U.S. citizenship when they became Canadian citizens three, four or five decades ago because that’s exactly what U.S. Consulate told them. Others were born in U.S. to Canadian parents who brought them home to Canada as infants. They have always believed they were Canadian only until the media storm about the IRS.
There has been little mention in the Canadian media of the protections Canadians have because they are Canadian citizens and–to a lesser degree–Canadian residents.
Canadian Finance Minister Jim Flaherty wrote to many Canadians who contacted him. In numerous responses, he has been clear that Canada Revenue Agency will not collect penalties for IRS for any Canadian resident.

“Furthermore,” Flaherty insists “CRA does not and will not collect the U.S. tax liability of a Canadian citizen if the individual was a Canadian citizen at the time the liability arose (whether or not that individual was also a U.S. citizen at the time.)”

This is not just a federal Cabinet Minister making political promises. That is a clear provision in Canada-United States Income Tax Convention.  In addition, IRS has no legal jurisdiction in Canada, a fact that was upheld by Canadian courts when IRS tried to seize money from other Canadians in the past.
So, IRS has no way to collect from penalties from either Canadian citizens or residents and no way to collect taxes for Canadian citizens for periods when they were Canadian citizens.
The other nightmare hanging over the heads of Canadians is U.S. Foreign Account Tax Compliance Act (FATCA).  This American law, passed by United States Congress in 2009, will require banks and other financial institutions around the world to report on the accounts of “US persons.” This may include anyone born in U.S. who has not renounced U.S. citizenship, Green card holders and possibly some Canadian “snowbirds” who spend winters in U.S. (“substantial presence”).
The information demanded by FATCA goes far beyond income from those accounts. It includes account balances, total assets, transactions, account numbers and other personal identifying information, including joint accounts held with non-US spouses. If Canadians refuse consent for this information to be transmitted to a foreign government, IRS expects banks to declare the customer “recalcitrant” and close the person’s legal accounts.
FATCA violates Canadian banking, privacy and human rights laws and Canadian Charter of Rights and Freedoms.  Canadian banks cannot ask where a person was born or ask about any other citizenship. How can Canadian banks close long-standing accounts of loyal customers on the dictate of a foreign government?
Flaherty called FATCA “extraterritorial” and “unwarranted” He said FATCA “would turn Canadian banks into extensions of the IRS and would raise significant privacy concerns for Canadians.”
In objecting to FATCA, Flaherty stated the obvious.

“Canada is not a tax haven. People do not flock to Canada to avoid paying taxes.”

He stressed Canada and United States have a long history of cooperation to prevent tax evasion.
That cooperation includes a bilateral Tax Information Exchange Agreement, which makes Canada unique in sharing information with United States on residents of the other country. For this reason, Flaherty says “we strongly believe that to impose FATCA on our citizens and financial institutions would not accomplish anything except waste resources on both sides.”
Yet, Canada is negotiating with U.S. to find “a solution both countries will find agreeable.” At a news conference on September 9, 2014, Flaherty said:

“We’ve made some progress. We do not have an agreement yet, but they clearly understand the Canadian position that we want to avoid any disadvantages to persons who happen to be citizens of both countries.”

Banks are hoping for an Intergovernmental Agreement (IGA) that would have them report to Canada Revenue Agency (CRA) on Canadian citizens and residents whom the U.S. deems “US persons. CRA would, in turn, report to IRS. Banks believe this would resolve privacy and human rights issues. It won’t.
Peter Hogg, a leading Canadian constitutional lawyer, scholar and former dean of Osgoode Law School wrote to Finance Canada expressing his legal opinion that FATCA violates the Canadian Charter of Rights and Freedoms and would not be upheld in Canadian courts even with an Intergovernmental Agreement (IGA).  He concluded:

For these reasons, I would urge the government not to negotiate an IGA that is based on the measures proposed in the U.S. model IGA. The answer to the American government is surely a compelling one. The legislation needed to implement your IGA would be contrary to our Charter.

Canadian Civil Liberties Association also wrote to Finance Canada with legal objections.Some Canadians have consulted another Canadian constitutional lawyer and are prepared to take whatever legal action they must to protect their rights to be free from a foreign government if FATCA proceeds in Canada as the IRS demands.
So, Canadians facing Uncle Sam’s invasion of their financial lives are not alone.  They have protections under Canadian laws and the Charter of Rights and Freedoms.  They may have a fight on their hands, but they will fight it together.
For Canadians who want even greater protection, people who became Canadian citizens with the voluntary intent of relinquishing U.S. citizenship can apply to a U.S. Consulate for a backdated Certificate of Loss of Nationality (CLN). Others can renounce U.S. citizenship by doing so at a U.S. Consulate, but may be expected to contact IRS and file back returns. You can learn more about Relinquish or Renounce  on threads here or at isaacbrocksociety.com
Note:  This information is not legal or acccounting advice. It is based on what the writer has learned over the past two years through contact with others and research.