A number of constituents have contacted my office expressing concerns arising from correspondence they have received from the United States Revenue Agency. The United States is one of few countries where income tax is based on citizenship; whereas most countries base income tax on residency. A Canadian working in a foreign country pays income tax in the country where the income was earned. Residency is based on six months plus a day in the country where the income is earned.
If you are born in the United States, even if you have immigrated to another country and taken up citizenship there, you are required by the US Revenue Agency to file income tax. The Foreign Account Tax Compliance Act, or FATCA was implemented to deter income tax evasion by those that move abroad to avoid paying taxes to the US government.
An example: one of my constituent’s parents went from Saskatchewan to the US where his father played professional hockey. He was born in the US but his parents returned to Canada when he was only one. Canada has provided his education, healthcare and other services for which he and his parents paid taxes to provide but now the US government wants him to file a tax return in the USA because he was born there. Penalties are outrageous and logic is wanting.
The Honourable James Flaherty, Minister of Finance, has submitted articles to several American papers expressing concerns over FATCA, making it very clear that Canada is not a tax haven for US citizens. In fact, our two jurisdictions co-operate to prevent it.
Most Canadian citizens, many with only distant links to the US, have very limited knowledge of their tax reporting obligation to the US. These honest and law-abiding people, including senior citizens, now find themselves caught in a nerve-wracking situation. Moreover, because they work and pay taxes in Canada, they generally do not owe taxes in the US. Their only transgression is failing to file the IRS paperwork they were never aware they were required to file.
But, as Minister Flaherty has said, and I agree, the threat of prohibitive fines for simply failing to file a return they were unaware they had to file, is a frightening prospect that is causing unnecessary stress and fear among law abiding hardworking dual citizens.
We support efforts to crack down on legitimate tax evasion. These measures, however, do not achieve that goal.
Colin Mayes, MP