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As I noted in my blog September 5, 2014, FATCA is not your Enemy, Canada and the United States negotiated an Inter-governmental Agreement (IGA) to share banking information, pursuant to the U.S. Foreign Account Tax Compliance Act (FATCA). The purpose of the IGA is to reduce tax evasion.
Tax information is provided by Canadian banks to CRA, and CRA provides it to other revenue authorities under exchange-of-information agreements. The IGA is merely an extension of this long-established practice.
FATCA is an information-gathering protocol. It doesn't change the way people are taxed. But for a long time, many Americans in Canada (who are subject to U.S. taxation of worldwide income) did not file U.S. returns. And without meaningful information, the IRS couldn't chase them down. With the IGA, it's very hard to hide. Now these people are having to come clean.
Some people think that they shouldn't be in the net to begin with and to put back the shield that previously existed, they sued the Canadian government (spoiler alert: They lost).
Gwen Deegan and Ginny Hillis are U.S. citizens living in Canada. They sued the Attorney General for Canada, arguing that the IGA is unconstitutional because:
The decisionAs I predicted in my earlier blog, and for substantially the same reasons, the plaintiffs lost and the IGA was upheld on September 16.
The judge had some sympathy for the plaintiffs, who effectively crowd-funded the lawsuit. He said: "This is a case where, in view of the nature of the issues and the public interest involved in clarifying the scope of novel provisions affecting hundreds of thousands of Canadian citizens, no costs should be ordered against the losing parties."
The judge did not decide whether the IGA and related provisions were unconstitutional. That decision should arrive prior to the end of September.
This is a good decision
As I said in my previous blog, this is not only the right decision, it is the best outcome for Canada. A decision to strike down the IGA would have created chaos in Canada's financial sector, because it is tremendously integrated with the U.S. system.
The real problem: Citizenship-based taxation
As I've said before, the real problem is citizenship-based taxation. The United States is the only advanced nation that taxes its citizens regardless of where they live. But solving that problem is another matter altogether.
Related Topics:U.S. Tax; FATCA
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