AUTHOR: PAUL SPARE, CPA CA
American citizens (and green card holders) in Canada may need to act
If you hold American citizenship or a U.S. green card, your life became more complicated on July 1.
That’s when the U.S. Foreign Account Tax Compliance Act (FATCA) took effect. Its ostensible purpose is to reduce incidents of offshore tax evasion by wealthy Americans. In practice, it impacts any American citizen (or green card holder) living abroad who is already subject to the requirement to annually file a U.S. tax return.
It doesn’t matter if you’re a Baby Boomer millionaire, a student, or someone making $40,000 a year teaching English overseas – the filing requirements under FATCA impact you.
It is estimated that there are roughly one million U.S. citizens residing in Canada. These people may be subject to the onerous reporting requirements that have been brought to light because of the FATCA legislation. Most of these individuals no doubt do meet their tax filing obligations to the Internal Revenue Service (IRS), but some do not. Over the years, the IRS has offered a number of amnesty programs that allow delinquent individuals to come clean without fear of prosecution or penalty.
With FATCA, dozens of countries and thousands of financial institutions globally have signed agreements to submit for the IRS’s review personal and financial information on individuals believed to be U.S. citizens or green card holders. If you have not been filing your annual U.S. tax returns as required, the IRS has now gained additional power beyond the U.S. border to track you down.
In Canada, certain financial institutions are now obligated to report relevant information on accounts of U.S. persons to the Canada Revenue Agency (CRA), which will then exchange this information with the IRS.
What kinds of accounts are subject to the FATCA legislation? Bank, mutual fund, brokerage and custodial accounts, annuity contracts and some life insurance policies that have an investment or savings component. This includes joint accounts with children or spouses, and any accounts over which you have signing authority on behalf of another, or power of attorney. It does not include most registered plans, such as RRSPs, TSFAs, RRIFs and RESPs.
Failure to comply with FATCA’s reporting requirements can result in an initial penalty of up to $10,000, and subsequent penalties of up to $50,000.
If you are delinquent in filing your U.S. tax returns, or have not filed the necessary information on your financial accounts, the sooner you act, the better.
At McCay Duff, we have a team specializing in U.S. tax matters related to the various tax amnesty programs offered by the IRS. Not only can we work with you to ensure you are up-to-date and compliant, we can also assist as your advocate should any issues arise with the IRS.