The first transfer of Canadian banking information to the Internal Revenue Service was completed September 30. That was the result of a September 16 appeal in which Honourable Mr.Justice Martineau of the Canadian Federal Court in Vancouver ruled that the U.S. Foreign Account Tax Compliance Act (FATCA) legislation is both legal under Canadian law and not inconsistent with the U.S./Canada Tax Treaty. Therefore injunctive relief was not provided and the implementation of the information transfer went ahead.
The judge’s ruling confirmed that all the due diligence has been completed by the Canadian government and they would proceed with the exchange of information. However the judge did dismiss the case without prejudice so if the plaintiffs decide to continue the fight they may file again in a higher court.
This inter-governmental agreement requires that Canadian banks conduct an electronic scan of their databases to look for information that will help to identify Americans (ex. Birth in the U.S., U.S. phone numbers, money transfers to the U.S.) when one of these pops up the bank will request self-certification from the account holder that they are not a U.S. citizen/resident and also documents to support the claim. If the account holder can’t prove non-U.S. status then release of information will occur.
FATCA is not completely one-sided. Canada will also receive banking information of Canadians in the U.S. So snowbirds and other investors need to make sure they are claiming all their income as well as reporting on Form T1135 when the threshold is met.
The IRS has been on a mission to collect revenues from tax evaders they also understand that Canada is not a tax haven and that many honest people are caught up in the regulations that require disclosure of their foreign accounts and other assets. Because of this they have created guidelines and programs to allow non-filers to come into full compliance with no penalties.
The Streamlined Foreign Offshore Program entails the filing of three years of tax and information returns and six years of Foreign Bank Account Reports (FBAR) in addition to certain other forms and statements. This program can be closed at any time without notice, so if you are considering coming clean before the IRS finds you, don’t wait too long.