Bank accounts having over $50,000 will be reported.
By Deepak Chitnis
WASHINGTON, DC: The United States Internal Revenue Service (IRS) and the government of Canada have entered into an agreement through which they will share tax information in order to catch potential tax dodgers, which has been an important fight that President Barack Obama has championed.
The deal, which is officially entitled the Foreign Account Tax Compliance Act (FATCA), will take effect on July 1 of this year. Under the guidelines of the agreement, Canadian bank accounts in the names of American citizens that contain any amount of money over $50,000 will have to have that information shared with the IRS. Any foreign businesses that are caught withholding such information from the US government are subject to a stiff 30% tax.
FATCA was initially enacted in 2010, but its powers and reach have been the subject of much criticism. Over the past several months, the US has entered into similar agreements with 22 other countries, with the intention of cracking down on US taxpayers who create off-shore bank accounts that they can hide from the government, thereby avoiding paying taxes on them.
The July 1 start date is when the Canadian Revenue Service (CRS) will begin collecting the pertinent information regarding such bank accounts in its country. Starting in 2015, routine sharing of information between the two nations will commence, at which point government crackdowns will effectively begin. The Canadian government will not be collecting anything from the US taxes and penalties; rather, it will be the US government finding people and accounts in Canada and penalizing them for avoiding taxes.
The FATCA implementation will also likely affect the roughly 1 million US citizens that current live in Canada, who are now being urged to update all their financial information lest they incur exorbitant fees and fines. Critics of the FATCA deal are saying that it violates personal finance statutes, and that it’s an example of the Obama administration’s increasingly “big government” mentality which is undermining personal privacy.
However, there are exceptions to the agreement. Accounts that contain registered retirement savings plans, tax-free savings accounts, registered retirement income funds and registered education savings plans will not have to report themselves nor be subject to fines, and any credit unions with less than $175 million in reported assets will also be exempt from FATCA. Relatively small institutions that have a vast majority of Canadian patrons will also be free from the FATCA legislation.
In addition to Canada, the US has FATCA agreements with Bermuda, the Cayman Islands (which is considered by many an off-short banking haven), Denmark, France, Hungary, Ireland, Italy, Switzerland (another banking hotspot), and the UK. But the Canadian agreement is considered to be a landmark one simply because of how many Americans are in Canada and how much potential lost revenue the IRS stands to get back now.
To contact the author, email to deepakchitnis@americanbazaaronline.com