9 responses to “Why Does U.S. Congress and IRS Want a Canadian Cop?”

1. 

   badger

   July 8, 2014

   Another great article, very articulately written and to the point. Thanks once again Lynne!

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2. 

   JC

   July 9, 2014

   I am not figuring out why my comment was removed from Lynne Swanson’s blog:
   Lynne – The Canadian government has given consent to what the U.S. calls “a fair share” of U.S. taxes from Canadians (what Canadians consider outrageous extra taxes beyond what they already pay to Canada) – by not stating otherwise – in the Canada-U.S. tax treaty that Canada signed. Thus the Canadian government has allowed this creation of and discrimination against a 2nd class of Canadian who happens to have US citizenship.
   FATCA amplifies the weaknesses of the Canadian-US tax treaty (the parts that actually do not prevent double taxation – especially for U.S. taxes that Canada does not have) through the Canadian government agreement to make Canadian law (IGA) the reporting to the IRS of financial information on Canadians who have U.S. citizenship.
   What is needed: It would be nice if the U.S. changed its laws from citizen based taxation to residence based taxation (like all other countries currently except the US and Eritrea). Or, at least implement major exemptions especially for those tax resident in relatively high tax countries. The U.S. also needs to consider the considerable resource drain in time and tax advice expense for its compliance: overseas citizen vs US. based US citizen, and the Constitutionality of it all.
   Canada should end its discrimination and exert their sovereign right for self determination in a revised Canadian-U.S. tax treaty that provides clarity, and certainty and actually prevents double taxation on retirement accounts, the family home, small business, life insurance payouts, death tax, and with a generous blanket exemption from taxation for the vast majority – so that the best Canadian tax breaks and incentives do not get cancelled out by the IRS. Plus the crazy penalties for noncompliance need to be blocked.
   One might expect respect from the U.S. if Canada exercises its right for self determination for Canadians to free them from interference from an outside sovereign (the U.S.) – to help fulfil the wishes of Canadians with US citizenship for the U.S. government to leave them alone.

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3. 

   Hazy

   July 9, 2014

   I’ll just repeat Badger’s comment- great article. Thanks.
   I just took a professional webinar on the Canada-U.S. tax treaty. The presenter stated at the start, that very few provisions of the treaty apply to U.S. citizens in Canada. So, besides all the other disadvantages of being a U.S. citizen, many of the treaty provisions regarding double taxation don’t apply because of the “saving clause: The ‘”saving clause” is found in paragraph 2 of Article XXIX
   Here’s the first part of Article XXIX
   1. The provisions of this Convention shall not restrict in any manner any exclusion, exemption, deduction, credit or other allowance now or hereafter accorded by the laws of a Contracting State in the determination of the tax imposed by that State.
   2. (a) Except to the extent provided in paragraph 3, this Convention shall not affect the taxation by a Contracting State of its residents (as determined under Article IV (Residence)) and, in the case of the United States, its citizens and companies electing to be treated as domestic corporations.
   (b) Notwithstanding the other provisions of this Convention, a former citizen or former long-term resident of the United States, may, for the period of ten years following the loss of such status, be taxed in accordance with the laws of the United States with respect to income from sources within the United States (including income deemed under the domestic law of the United States to arise from such sources).

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   1. 

      Lynne Swanson

      July 9, 2014

      @Hazy:a  What the heck does that mean in lay language? Could yo do a post on it?

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4. 

   Hazy

   July 9, 2014

   @ Lynne
   I likely can’t give an absolutely proper explanation of the sections I cited.
   Here is an explanation from a Technical Discussion issued at the same time the treaty was signed: Substitute Income Tax Act or Internal Revenue Code for “code”. Substitute Treaty for Convention. Substitute Canada or United States for Contracting State
   “Paragraph 1 states that the provisions of the Convention do not restrict in any manner any exclusion, exemption, deduction, credit, or other allowance accorded by the laws of a Contracting State in the determination of the tax imposed by that State. Thus, if a deduction would be allowed for an item in computing the taxable income of a Canadian resident under the Code, such deduction is available to such person in computing taxable income under the Convention. Paragraph 1 does not, however, authorize a taxpayer to make inconsistent choices between rules of the Code and rules of the Convention. For example, if a resident of Canada desires to claim the benefits of the “attributable to” rule of paragraphs 1 and 7 of Article VII (Business Profits) with respect to the taxation of business profits of a permanent establishment, such person must use the “attributable to” concept consistently for all items of income and deductions and may not rely upon the “effectively connected” rules of the Code to avoid U.S. tax on other items of attributable income. In no event are the rules of the Convention to increase overall U.S. tax liability from what liability would be if there were no convention.
   Paragraph 2 provides a “saving clause” pursuant to which Canada and the United States may each tax its residents, as determined under Article IV (Residence), and the United States may tax its citizens (including any former citizen whose loss of citizenship had as one of its principal purposes the avoidance of tax, but only for a period of 10 years following such loss) and companies electing under Code section 1504(d) to be treated as domestic corporations, as if there were no convention between the United States and Canada with respect to taxes on income and capital”
   So, among other things, Paragraph 1 states that if Canada allows a deduction for something, then the Treaty doesn’t override the Income tax Act. Para 1 also states that if a certain kind of business income is treated for tax purposes by the taxpayer on his or her Canadian tax return in a certain way, then the treatment on a U.S. return must be consistent with the Canadian return and vice versa.
   Para 2, the savings clause, gives the U.S. the right to tax U.S. citizens living in Canada, who are not considered to be U.S. residents. For some reason I keep thinking of this as the “slavery clause”.

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5. 

   ArcticGrayling

   July 10, 2014

   IRS commissioner Koskinen is quoted in the article. This is the same guy who so obviously lied to congress about the “lost emails”. With the backup systems that are in place, there’s no way they are lost. We should also remember that there is another computer out there that has the email, as does, most likely, the NSA.
   I also recall reading somewhere that he is a long time supporter of the Democrats. Interesting connection there.

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6. 

   JC

   July 10, 2014

   @Hazy – sounds very technical.
   Do you know of any other articles or initiatives to get a change of the Canadian-US tax treaty to exempt from U.S. taxation Canadian pension plans, the Canadian family home, Canadian life insurance, and obscene “noncompliance” penalties. + more. ?

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7. 

   Hazy

   July 11, 2014

   @ JC
   All tax treaties are very technical. Not exactly bed time reading. I don’t posses any expertise in the Canada-U.S treaty, so I won’t try to explain it any further.
   I do not know of any present attempts to amend the treaty ( amendments are called a Protocol) although it very clear from the FATCA IGA hearings and all the discussion here and at Brock that a new Protocol should have been negotiated as part of the IGA negotiations. Obviously the IGA hearings showed how little understanding Canadian elected and unelected representatives had of the difference between between the reporting exemptions in the IGA and U.S. tax reporting requirements of U.S. citizens in Canada

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8. 

   JC

   July 12, 2014

   @ Hazy – What you say makes some sense. Perhaps that there were those in the Canadian government who that that since retirement accounts were exempt from FATCA reporting, that then there would not be taxation on them. However, 8938 and FBAR are required and there is double taxation on them.

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