I wrote a lengthy letter to Jim Flaherty in late August concerning the FATCA IGA negotiations. Today, I finally received by email a signed reply from Flaherty. The reply is essentially an update from his letter back in November, 2012 which many of us have received and which has been posted elsewhere on this website, I believe. It included a one-page advisory on what forms US citizens living in Canada are supposed to file, according to the IRS, which advisory repeats the earlier statement that CRA will NOT collect non-filing penalties, nor tax liabilities incurred by persons who were Canadian citizens at the time of the liability, no matter whether they are dual citizens of the US and Canada.
What is new, however, are the following paragraphs:
My understanding of the reference to the Income Tax Convention (aka the joint tax treaty) is that it refers to the exchange of information of, e.g., US residents who have accounts in Canada, and vice-versa. Those, as we know, are the REAL potential “tax cheats” and the REAL “offshore” accounts. The insistence throughout the rest of the letter in referring to the tax treaty provision of non-collection on Canadian soil against Canadian citizens (though not protecting non-Canadian-citizen residents), suggests to me the probable current focus in the negotiations. But it sounds to me like our government is remaining firm on that point.
Please note that a careful reading of the letter and attachment (parts which haven’t changed since last November, as far as I can see) are that, while tax liaibilities per se (e.g., taxes owed following a 1040 filing) may be collected against US residents in Canada who are not Canadian citizens, no penalties pertaining to non-filing for forms (specifically FBAR, which is named in the attachment) will be collected by CRA against anyone, Canadian citizen or not. The mention of the non-collection of filing penalties for FBARs PRECEDES the reference to non-collection of liabilities incurred by persons who were Canadian citizens at the time, so my reading is that the use of “citizen” rather than “resident” or just “Canadian” is specific to actual tax liabilities, rather than filing or non-filing penalties.
I’m not a lawyer (just someone with a couple of decades of professional experience carefully reading legislation and regulations, sometimes under legal guidance from QC legal counsel). Don’t take this to the bank, but I do find this encouraging for at least the persons about whom I personally am most concerned (people who don’t consider themselves to be US citizens, do not reside there, receive no benefits or services from the US, have no US income or property, and have done nothing to “exercise” or even claim US citizenship, regardless of what the US government thinks of them because of the accident of where they were born).
If the principle mentioned in the above quote from the latest letter, coupled with the principles already in the joint tax treaty re tax liabilities, do form the basis of an IGA, personally I would have no objection (depending on what else is in the treaty, of course).
How this all sorts out remains to be seen, of course. But I thought I should call your attention to those latest paragraphs, in the clip above, which I’ve not seen before.
By the way, on the same day I sent the same letter (separate copy, not a cc) to Mulcair, Trudeau, and my own MP. It’s now more than four weeks and none of the SOBs has even sent a robo-acknowledgement of receipt, never mind a reply. I did get a robo-reply by mail from the Finance Correspondence office a week or so after I sent the email; I can understand that Flaherty and Finance wanted to mull things over before saying anything more about the negotiations. But Mulcair, Trudeau and Dewar don’t have that excuse.
It’s a pretty sad commentary on parliamentary democracy when my own MP, and the leader of the party in which I had a paid membership until very recently, won’t even deign to answer my emails or acknowledge they got them. I’ll remember this on election day (and also the excellent Town Hall meeting that Elizabeth May held here in Ottawa last night, which I attended — Deckard asked a question about FATCA, and May basically said she hasn’t heard any more than we have about how the negotiations are going — but she did briefly describe what the US is trying to do, and audience members who obviously hadn’t heard about it yet, were gasping).
My apologies for the tiny print; I did try to get the JPGs sized properly for insertion into the word-processing document which I then cut and pasted into this post. Sorry for the eyestrain …
I’m going to try to attach the three pages of the full letter here, maybe these are more readable …
page one
… here is page two with the new paragraphs, in context
… and finally here is the third page, the attachment probably most of you have already seen, which doesn’t seem to have changed since the last version I saw
For any of these pages, just double-click on the image and it should be big enough.
… sorry forgot the page three attachment above …
here it is
I find if I open the JPGs in another browser tab they are full size and easy to read.
This is encouraging. Thanks so much for sharing it, schubert. We’ll see; we’ll see.
I agree that the change in wording has some significance. Is it possible that the U.S. has actually tried to be reasonable with another country?
Yes, we’ll see.
I am encouraged by one sentence in the letter:
Most of the information reinforces what Flaherty has already said. There’s one sentence that is different from earlier letters and earlier statements:
The “principle” he is talking about is using the exsisting bilateral Income Tax Convention for exhange of tax information. That convention exchanges based on residence, not citizenship.
I know I could be reading more into this than Flaherty intended. But the fact he is saying “The US has accepted” instead of “We are negotiating” or We are trying” or “We are pleased US seems to be listening” as he has said in earlier letters or statements is encouraging. He is usually a man who chooses his word carefully.
In addition, he is reinforcing his earlier statements about CRA will not collect FBAR penalties for any Canadian citizens or residents and will not collect IRS taxes for any Canadian citizen.
As the Finance Minister, he can’tsay what Steven Mopsick and Joe Smith said: i.e.”Do Nothing.” But, I personally think that’s exactly the message he is trying to give to us. I don’t think we need to read between the lines. I think we just have to read the lines, which he has written over and over.
At the same time, we need to keep up the pressure so he knows we’re not going away until this is resolved and our rights are protected.
I agree with everything Blaze says above, and I especially reinforce her last two paragraphs. See also my comment below about writing to Flaherty.
The wording of these letters has been remarkably consistent, and when something is added, I pay close attention. Not for nothing does it take four weeks for a revision to a letter of this nature to be finished and sent off. Flaherty chooses his wording carefully, and believe me, so do his staff at Finance and in his own office. They don’t stay in those jobs long, if they aren’t careful.
Unlike some people at PMO. They aren’t professionals; the Finance folks are, always have been, and so is Flaherty.
I am worried about the wording.
Wasn’t the US trying to portray the FATCA IGAs as just an extension of already existing tax treaties – like the one that Canada and the US already have – which already contains the ‘savings clause’ and the ‘last in time rule’ that the US includes in all their tax treaties? So the wording here may still be referring to a FATCA IGA – but Canada and the US may choose to characterize it as just an ‘extension’ of the already existing treaty. Who knows what the FATCA terms might bind Canada to do – Prof Allison Christians has noted that if the US views this as an executive agreement, any terms would be subject to unilateral change by the US, and US laws enacted subsequently (last in time rule) would also override it. The US would not recognize any Canadian law as binding on a FATCA IGA. It is the other country which is expected to realign its own laws and constitution to comply with FATCA. She noted that in a parliamentary system, a FATCA IGA would bind Canada – as a treaty – in a way that it would not bind the US as an ‘executive agreement’?
ex. she said;
…”the IRS has been very quietly implying that the IGAs interpret existing treaties. I don’t agree on the merits that this could possibly be true, but the IRS needs it to be true because if it is not true, the only alternative is that the IGAs are sole executive agreements entered into by the executive branch with no congressional oversight whatsoever. That puts them on the most precarious legal ground in terms of foreign policy power in the US, and by this statement Eggert pushes them closer in that direction….”
…”the IRS is saying that not only does the “last in time” rule apply to IGAs (as they would to any US international agreement), but we’ll apply the last in time rule to other countries too (even if under their own laws the treaty would override later-enacted domestic laws); moreover the last-in-time rule is now extended to treasury regulations (a unilateral law that will be used to “interpret” a bilateral agreement, yet another controversial treaty interpretation position), and finally we are going to make it the treaty partner’s choice to pick among the regimes to get the best result (which treats treaty partners not as negotiators in a bilateral agreement but rather in the same way as taxpayers subject to an elective regime)….”
http://www.lexisnexis.com/legalnewsroom/tax-law/b/fatcacentral/archive/2013/03/05/irs-brushes-aside-the-constitution-to-make-way-for-fatca.aspx
As we know, the existing treaty has many gaps that allow for the double extraterritorial taxation of Canadians by the US, does not prevent the US taxation of our registered accounts, capital gains on our Canadian principal residence and does not protect us from new taxes imposed on those the US deems ‘US taxable persons’ – like the new investment tax adjunct to Obamacare.
Duals will still not be able to renounce unwanted US citizenship without facing the exit tax and 8854 (certifying 5 years US tax compliance) jeopardy. Those who cannot satisfy the US might get a CLN from the State department (unless they make that still more difficult – as the US continues to try to) but not be able to completely get rid of their lifelong US taxable person status. This would continue to dog the children born here in Canada of parents who were not then able to completely renounce.
Badger points out towards the end of his posting that even with the present tax treaty those who are still US persons abroad suffer from double taxation, Obamacare surtax, capital gains on sale of our family residence,—no “foreign” mutual funds, no RDSPs, RESPs etc., and we have those yearly ever increasing accountant fees — and face a punitive expatriation tax and 8854 should we think of renouncing.
What then in Flaherty’s letter will make any of the above go away?
I’ve quoted the Flaherty letter in full. I’ve given my interpretation of what it means.
With respect, I suggest if there are doubts or questions about this in your own case — don’t ask me. I don’t have the answers. I’m not sure Flaherty has all the answers yet either, and he won’t until something is signed and approved in Parliament, or whatever else happens.
Do as I did. Write to Flaherty and ask him. Or tell him what exactly your concerns are. He, or his staff, do eventually reply, in my experience.
Or wait and see what gets announced, if and when, and deal with it as needed at that time.
I generally agree with Blaze but think we must remain extremely cautious and vigilant. The Department of Finance remains under extraordinary pressure from the banks to enter into any old agreement. One positive aspect of the US government shutdown is all FATCA negotiations have stopped for now(In case of Canada though it is unknown how much was going on during prorogation.)
Flaherty as I understand is still scheduled to visit Washington on October 10th and 11th. I wonder if he will take a swing around Capital Hill. Checkup on the US government shutdown.
I like to repeat something I posted in “The elephant in the room”. The financial industry has been told by CRA to expect “slim” guidance. Slim in relation to the UK guidance, which I believe is about 140 pages long.
Maybe this is an indication that the IGA may just be an extension of the QI rules that FIs already work under. Maybe, the Canada IGA will be a unique Model 3 agreement.
Maybe there is too much tea leaf reading going on. The people at Finance are certainly keeping their cards close to their chests as even the Canadian financial industry does not have any clear indications yet as to what will be in the IGA (which doesn’t make them happy at all).
@Hazy and Others: Tea Leaf Reading for Beginners.
A definite must read!!!!!
Found on the web:
http://www.clhia.ca/domino/html/clhia/CLHIA_LP4W_LND_Webstation.nsf/page/06A7E6DA85F3446885257B34006CD347/$file/Joint_Comments_FATCA_IGA.pdf
‘Joint FI Industry Comments to Finance re FATCA IGA February11, 2013 The following comments include concerns identified by Canadian FI associations (CLHIA, CBA, IFIC and IIAC) with respect to the implementation of FATCA under a Canadian IGA.’
‘Adoption of a Risk-Based Approach for FATCA Implementation in Canada’