What the Canada U.S. FATCA IGA is NOT about
Canada’s FATCA IGA is NOT about information exchange. The United States does NOT exchange information under the FATCA IGAs.
Canada’s FATCA IGA is not about residency. After all the purpose of FATCA is to transfer information from a country where the person DOES actually reside (and is a tax resident) to a country where the person does NOT actually reside (but is deemed to be a tax resident).
What the Canada U.S. FATCA IGA IS about
Canada’s FATCA IGA IS about the Government of Canada surrendering its citizens to the United States (effectively stripping them of their rights as Canadian citizens).
Canada’s FATCA IGA is about assisting the United States in imposing worldwide taxation on Canadian citizens who actually live in Canada, are tax residents of Canada and pay full taxes in Canada. Transition Tax anyone? Do you feel GILTI today? What were you thinking by buying that Canadian mutual fund in Canada?
Canada’s FATCA IGA is NOTHING like the OECD Common Reporting Standard. In simple terms, under the CRS information is transferred from a country where the person does NOT live to a country where he does live. Yes, Canada’s lawyers spent the week of January 28, 2019 to February 1, 2019:
1. Denying each of these obvious points; and
2. Arguing that Canada that Canada has a constitutional right to betray its citizens by turning them over to the United States. Post 1 – February 17, 2019:
The U.S. claim of lifetime tax jurisdiction based ONLY on the fact of having been born in the United States
This is based on a post from March of 2015 which was about the number of so called “Accidental Americans” in the Eastern Townships of Quebec.
Let’s start by listening to the CBC interview with Ali Brunette. Question:
Do these life long residents of the Quebec Eastern Townships (great ski country) seem like U.S. tax evaders to you?
Brilliant! @FinMusings explains how @USTransitionTax allows USA to collect tax on income that never would have resulted in U.S. tax payable! By changing timing and "frontrunning" USA creates a "fictional event" to tax CDN income before Canada can tax it! https://t.co/hnDu6x7y5K
— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) April 4, 2018
Breaking “tax residency” to Canada can be difficult and does NOT automatically happen if one moves from Canada. See this sobering discussion in one of my earlier posts about ceasing to be a tax resident of Canada. (In addition, breaking “tax residency in Canada” can result in being subjected to Canada’s departure tax. I have long maintained that paying Canada’s departure tax is clear evidence of having ceased to be a “tax resident of Canada”.)
Let’s assume that our “friend”, without considering possible “tax treaties” is or may be considered to be “ordinarily resident” in and therefore a “tax resident” of Canada. Would a consideration of possible tax treaties (specifically the “tax treaty residency tiebreaker) make a difference?
This question will be considered in Part 2 – a separate post.
What is the “tax treaty residency tiebreaker”?
It is entirely possible for an individual to be a “tax resident” according to the laws of two (or more countries). This is a disastrous situation for any individual. Fortunately with the exception of “U.S. citizens” (who are always “tax residents of the United States no matter where they live), citizens of most other nations are able to avoid being “tax residents” of more than one country. This is accomplished through a “tax treaty tie breaker” provision. “Treaty tie breakers” are included in many tax treaties. (Q. Why are U.S. citizens always U.S. tax residents? A. U.S. treaties include what is called the “savings clause“). Some thoughts on the “savings clause” First, the “savings clause” ensures that the United States retains the right to impose full taxation on U.S. citizens living abroad (even those who are dual citizens and reside outside the United States in their country of second citizenship). Second, the U.S. insistence on the “savings clause” ensures that other countries agree to allow the United States to impose U.S. taxation on their own citizen/residents who also happen to have U.S. citizenship (generally because of a U.S. place of birth.) Where are “tax treaty tie breakers” found? What do they typically say?
Many countries have “tax treaty tie breaker” provisions in their tax treaties. The purpose is to assign tax residence to one country when a person is a “tax resident” of more than one country.
As explained by Wayne Bewick and Todd Trowbridge of Trowbridge Professional Corporation (writing in the context of Canadian tax treaties): Continue reading →
— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) December 21, 2016
Let’s begin with the law as stated in the Income Tax Act of Canada …
Taxation in Canada is governed by the Income Tax Act of Canada. Sections 1 and 2 of the Act read in part as follows:
1 This Act may be cited as the Income Tax Act.
PART I Income Tax
DIVISION A Liability for Tax
2 (1) An income tax shall be paid, as required by this Act, on the taxable income for each taxation year of every person resident in Canada at any time in the year.
(This does NOT say that ONLY those “resident in Canada” are required to pay Canadian tax. In fact there are circumstances under which nonresidents of Canada are also required to pay different kinds of Canadian tax.) Searching for the meaning of “resident in Canada” …
“Tax Residency” is becoming an increasingly important topic. Every country has its own rules for determining who is and who is not a “tax resident” of that country. The advent of the OCED CRS (“Common Reporting Standard”) has made the determination of “tax residence” increasingly important.
At the risk of oversimplification, a determination of “tax residency” can be based on a “deeming provision” or decided by a determination “based on the facts”. Some countries base “tax residency” on both “deeming provisions” and a “facts and circumstances” test. Tax Residency in Canada – “Deemed residence” or “ordinary residence based on the facts” … Continue reading →
An introduction to “tax residency” …
Most people equate residency with physical presence. They assume that where you are physically presence determines where you live. They further assume that where you live is where you pay your taxes. Conclusion: The country where you live is the country where you must be “tax resident”. Not necessarily!
There is no necessary correlation between where one lives and where one is a “tax resident”. In fact, “residency for tax purposes” may be only minimally related to “residency for immigration (where you live) purposes”. It is possible for people to live in only one country and be a tax resident of multiple countries. The most obvious example is “U.S. citizens residing outside the United States”.
The concept of “tax residency” is fundamental to all systems of taxation. The fundamental question, at the root of all tax systems is:
“what kind of connection to a country is required to assume tax jurisdiction over an “individual”, over “property” or over an “entity”?” Continue reading →
Introducing this “guest post”
This guest post is written by Dominic Ferszt of Cape Town, South Africa. I first became aware of Mr. Ferszt when, in October of 2014, his post: “The Accidental Tax Invasion” was published in Forbes. I have discussed various aspects of “citizenship-based taxation” with him since. I am very pleased that he has accepted my invitation to write this “guest post” for publication at Citizenship Solutions. His post exposes an aspect of “citizenship taxation” and the S. 877A U.S. expatriation tax that has not (as far as I am aware) been discussed before. Those who did NOT acquire “dual citizenship” at birth because of discriminatory laws (example British and Canadian laws saying that citizenship could be passed down from the father but not from the mother) will find this post extremely interesting and relevant.
Without further adieu …
___________________________________________________________________________ Apartheid and the Accidental Taxpayer How the United States Congress has passed legislation which imposes a tax obligation in accordance with the discriminatory policies of foreign nations; and how this might offer a glimmer of hope to millions around the world who feel unjustly targeted by FATCA or the IRS. By Dominic Ferszt, Cape Town Continue reading →
The above tweet references an article from Stikeman Elliot which includes:
For CRS purposes, the term “reportable person” generally refers to a natural person or entity that is resident in a reportable jurisdiction (excluding Canada and the United States) under the tax laws of that jurisdiction, or an estate of an individual who was a resident of a reportable jurisdiction under the tax laws of that jurisdiction immediately before death, other than: (i) a corporation the stock of which is regularly traded on one or more established securities markets; (ii) any corporation that is a related entity of a corporation described in clause (i); (iii) a governmental entity; (iv) an international organization; (v) a central bank; or (vi) a financial institution. See definitional subsection ITA 270 (1).
This morning I received an email that included the following question: My friend lives and works in country A, and has bank accounts in Country B. He is a permanent resident of Canada. Will the banks in either Country A or Country B, report his accounts to the Canada Revenue Agency? Country A (where he resides) has no income tax system. This is common in Gulf Countries. Country A has not signed on to Common Reporting Standard. Country B (a European country) has signed on to the Common Reporting Standard. Continue reading →