Over the past two years and even more so in the past several months, a popular topic of discussion among tax professionals has been FATCA – the US Foreign Account Tax Compliance Act.

As the US has determined that finding US persons living outside the US for taxation purposes is a priority, new legislation has been put forward to complement the reporting of Report of Foreign Bank and Financial Accounts (TD D 90-22.1), commonly referred to as “FBAR.” This new legislation comes in the form of FATCA. 

Originally, FATCA would have obliged Canadian banks to disclose personal information of their American clients to the Internal Revenue Service (IRS). This obligation has raised many concerns by the banks as they would be in violation of Canada’s privacy policies. If banks choose to not report on their American clients, the alternative would be to implement a 30% withholding tax on all of their US transactions, which in turn was rumored to have potentially very damaging consequences on the Canadian economy.

Recent negotiations by the Canadian government and the decision made on February 5, 2014 has changed FATCA to allow for Canadian banks to notify the Canada Revenue Agency instead of the IRS of such US citizen clients. As the reporting would be within Canada, the privacy policies would be respected and there would be an opportunity for said US persons who were wrongly flagged to appeal their US person status.

For US persons living in Canada who are tax compliant, there is nothing to be concerned with.

However, if you are (or think you might be) American and are living in Canada and have not filed US taxes, you are not in compliance with the IRS and it is essential that you become compliant. We encourage you to speak with your team of cross border professionals to assist you to become compliant as soon as possible.

For more information on this, you can refer to the announcement by the Canadian Department of Finance’s announcement.