Taxing Matters

A plan for this weekend is to turn date night into tax preparation night--doesn't that sound appealing?--but it hasn't happened yet, so perhaps we can procrastinate just a little longer. There's not much time left, though. 
The osprey have returned to nest atop platforms specially built for them high above the Otonabee River, and three of the biggest crows I've ever seen landed in our yard for a loud conference this afternoon, while a tiny chickadee flew in and out of the birdhouse hanging from the apple tree outside my kitchen window. Spring has arrived, and with it, tax season.

Other birds we might speak of in this regard are snowbirds--Canadians who migrate to Florida and Arizona for the winter--some of whom might end up jailbirds under the new US Foreign Account Tax Compliance Act (FATCA, which I can't help always reading as "fatcat"--it stuck in my brain that way when media reports of FATCA began circulating a year or so ago, and now I can't get rid of it, the way you can't stop humming the music from Les Miserables once you hear it--and no need to thank me for that earworm: you're welcome). Also concerned are the estimated million American citizens resident in Canada. Some were born in the US but left in childhood and no longer maintain any US ties. They don't consider themselves American at all, but legally they are.

Of course I don't mean jailbird as in JAIL, but the penalties for non-compliance with FATCA might make the citizenry wish for a cozy lockup: first a $10,000 fine and then up to $50,000 for continued failure to report after IRS notification, PLUS up to 40% of non-disclosed financial assets. 40%! So, imagine a stereotypically polite Canadian, a community volunteer (probably took her kids to the freezing arena for dawn hockey practice for years and years), someone who has worked her whole life, lived frugally and avoided debt, diligently socking away her maximum annual RRSP contribution--in other words, Jim Flaherty's kind of person. If she happens, through no fault of her own--an accident of birth, say, or an ill-advised love match--to be dual US-Canadian and had no idea she was required to report her Canadian income to the IRS as well as Revenue Canada, too bad for her: 40% of her life savings can now be sucked into the US Treasury.

Anyone who holds US citizenship, even if they live in another country, is supposed to file a US tax return annually. Forever and ever. This has always been the case, but FATCA requires more reporting and represents stepped-up enforcement. By the way, the US is the only country in the developed world to make its citizens abroad file returns. (In fact, an expatriate lobby group is actively fighting FATCA on grounds that it treats citizens outside the country worse than citizens at home, among other issues.) If you must know all the gory details, see IRS Rules and Forms and FBAR form and rules, but fair warning: caffeinate first.

FATCA first emerged in 2012 as a news item mostly confined to the business pages. The bank reporting rules have not yet been fully implemented pending regulations (now finalized) and an intergovernmental agreement (in the works), but the rules affecting taxpayers were already in place in time to file tax year 2011. The Canadian financial industry objects to the law because of its extraterritorial reach--it essentially turns Canadian (and all non-US) banks into IRS agents, forcing them to report accounts held by US citizens. (They don't want to play this role, but rest assured, they will. The alternative is exiting the US market, and that is not happening.) Minister Flaherty himself objected to the law when it was proposed, commenting that Canada's not generally known as a tax haven. I love that dry Canadian sense of humour--even the Finance Minister has it. Anyone who has forked over 13% HST on items that used to be exempt from the old 8% GST can appreciate the irony in his remark.

Last year at this time, Americans-in-Canada were trying to figure out the rules and the risks. Financial advisors were sending their clients cautious CYA letters. The Globe and Mail ran more than a few stories--this one, a glimmer of hope, about a US watchdog slamming the government for "terrifying" ordinary people; and that one, offering delinquent taxpayers five easy ways to come out to the IRS. It was also reported that the US Consulate in Toronto had begun holding mass citizenship renunciation parties.

As a dual citizen, I've resigned myself to double filing, but I can still be grumpy, no?

And curious, always. It's helpful to compare notes. I want to understand the impact of FATCA on the many colleagues and friends I've encountered over the years who have US connections of some sort. Beyond my own contacts (I stopped counting when the list reached 50 people), how are the multitudes, the million hidden AMCITS, coping?

Now I hope to find out. Friends, exciting news: I've created my first online poll. It's completely anonymous and takes very little time to complete. Please, if you find yourself in the unfortunate situation described above, take my Can-Am Games: Tax Survey--just nine easy questions to answer. I promise to share the results with the world.