American expats are mounting a legal challenge against the Canadian government because they are enraged that their financial secrets are being turned over to the US Internal Revenue Service (IRS) under the new Foreign Account Tax Compliance Act (FATCA).
FATCA came into force on July 1, 2014, and Canada was one of the late signatories to a treaty with the US allowing the country’s financial institutions to hand over details of bank accounts and investments held by US taxpayers to the IRS.
Still venting their anger at the Canadian government after losing a long-running anti-FATCA campaign, a group of US expats has filed a law suit in the Federal Court of Canada, Vancouver.
The court papers include claims that the Canadian government has broken the country’s laws by breaching the Constitution Act of 1867 and the 1982 Canadian Charter of Rights and Freedoms.
One of the plaintiffs, graphic designer Gwendolyn Deegan, 52, of Toronto, alleges disclosing confidential financial information to the IRS breaches her privacy rights.
Bitter lobbying campaign
However the government hinted the challenge is doomed to fail.
“The necessary laws were passed to make the exchange of information legal and the processes that were put in place conform to all existing laws,” said a government spokesman.
More than 100 countries have signed up to the FATCA tax information exchange network.
Campaigners in Canada carried on a bitter lobbying campaign against the government agreeing to join FATCA.
FATCA does not require US taxpayers to take any action, but instead obligates foreign financial institutions to report the details of bank accounts and investments controlled by US taxpayers.
In essence, these taxpayers should already be reporting their overseas holdings to the IRS as part of their annual tax return.
Largest US expat population
The issue for some taxpayers is they have failed to report this cash for some years and now face an inquiry from the IRS when their tax returns are compared to the financial information provided by overseas financial institutions.
Canada has the largest American population outside the USA – with an estimated 1 million US nationals living across the northern border.
US tax law requires expats as well as tax residents should report their worldwide income and earnings from investments. As such the US is one of only two countries in the world with this requirement on expats who are no longer tax resident.
“In essence, these taxpayers should already be reporting their overseas holdings to the IRS as part of their annual tax return.”
Annual tax return? Why would I be filing tax returns to the US? I haven’t earned a penny from the US since I moved to Canada in 1993. I file and pay taxes in Canada. The US and Eritrea are the only two rogue outliers who try to tax their ex-pats long after they have ex-patriated.
Cradle to grave health care? That’s Canada. Cradle to grave taxation? Welcome to the world of the US ex-pat.
As far as I have understood it, laws were passed that go against the Canadian Charter of Rights. Thats worth fighting for, I would think.