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What Canadians need to know about FATCA

//What Canadians need to know about FATCA

What Canadians need to know about FATCA

FATCA will directly affect many Canadians and Freeman Tax Law has experience to help clients understand their U.S. Tax obligations.

Jeffrey S. Freeman, J.D., LL.M

The United States taxation policy is unique – it is one of two countries in the world that taxes people based on citizenship and not their country of residence. Dual citizens in Canada must comply with U.S. taxation rules and file taxes each year on their global income. It is estimated that the U.S. economy suffers a $500 billion loss annually due to tax evasion on foreign source income and assets hidden outside the country. This estimate triggered the creation of the Foreign Account Tax Compliance Act (FATCA).

FATCA will require foreign financial institutions (banks, insurers, and investment funds) to send the IRS information about offshore accounts of Americans. The U.S. considers savings accounts like RDSPs, RESPs and TFSAs as “offshore trusts” and therefore can potentially tax gains in them. Businesses that fail to comply will be subject to a 30-percent withholding tax on U.S. source income.

FATCA is set to go into effect July 1, 2014. Many developed countries (UK, Germany, France, Denmark, Mexico, Costa Rica, and the Cayman Islands) have already entered into Inter-Governmental Agreements with the United States where their banks will give information about U.S. related accounts to their national tax authorities, which will then be passed to the IRS for review. Japan and Switzerland entered into slightly different agreements with the United States allowing direct turnover of information to the IRS. Canada is still exploring its options, though experts are stating that no country or bank will be left untouched.

Canada already has an existing tax treaty with the United States exchanging basic information relevant to authorities trying to find tax cheats. Under FATCA the information sharing will increase. Financial institutions will be required to share information on accounts that are owned by a U.S. person or business. They will use several criteria to determine if an account should be reported under FATCA (U.S. birthplace, U.S. addresses or phone numbers, an American power of attorney, or standing orders to transfer funds to the U.S.). Accounts above $50,000 will be flagged if any data points to U.S. connections.

FATCA places considerable burden on Canadian financial institutions to develop systems to comb through client accounts. However, Canadians with U.S. citizenship need to also be aware of the impact of not filing U.S. taxes. The cost of filing U.S. taxes can range from $500 to several thousand dollars. But, with the new information sharing under FATCA the U.S. government is seeking out those that that violated the income tax law on their global income and handing out hefty monetary penalties and even imprisonment.

Right now is the time to take advantage of the currently open amnesty program which is offering lighter consequences. If you have any concerns regarding FATCA and your tax responsibilities contact Freeman Tax Law today.

About Freeman Tax Law

Freeman Tax Law is a boutique tax law firm with national exposure equipped to handle all domestic and international tax law matters. At Freeman Tax Law, the attorneys and professional staff have vast experience with foreign tax compliance, international tax planning, and resolving tax controversies involving offshore banking matters. Freeman Tax Law helps taxpayers and foreign entities become in compliance with laws such as Foreign Account Tax Compliance Act (FATCA) and Offshore Voluntary Disclosure Program (OVDP). In addition to handling complex tax controversies, the Freeman Tax Law team has extensive expertise in assisting clients with wealth management and estate planning.

Freeman Tax Law

(855) 935-5945

info@freemantaxlaw.com

www.freemantaxlaw.com

By | 2017-01-01T11:28:29+00:00 March 13th, 2014|Freeman Tax Law|Comments Off on What Canadians need to know about FATCA