Transfer of Canadian banking records to U.S. tax agency doubled last year

Documents for thousands of Canadian residents transferred under controversial FATCA legislation
Banking records of more than 315,000 Canadian residents were turned over to the U.S. Internal Revenue Service last year under a controversial information sharing deal, CBC News has learned.

That is double the number transferred in the deal’s first year.

The Canada Revenue Agency transmitted 315,160 banking records to the IRS on Sept. 28, 2016 — a 104 per cent increase over the 154,667 records the agency sent in September 2015.

Lisa Damien, spokeswoman for the CRA, attributed the increase to the fact it was the second year for the Canada-U.S. information sharing deal that was sparked by the U.S. Foreign Account Tax Compliance Act (FATCA).

“The exchange in September 2015 was based on accounts identified by financial institutions at the time,” she said. “The number of reported accounts was expected to increase in 2016, because the financial institutions have had more time to complete their due diligence and identify other reportable accounts.”

The transmission of banking records of Canadian residents is the result of an agreement worked out in 2014 between Canada and the U.S. after the American government adopted FATCA. The U.S. tax compliance act requires financial institutions around the world to reveal information about bank accounts in a bid to crack down on tax evasion by U.S. taxpayers with foreign accounts.

Dual citizens, long-term visitors affected

The deal requires financial institutions to share the banking records of those considered to be “U.S. persons” for tax purposes — regardless of whether they are U.S. citizens.

Among the people who can be considered by the IRS as “U.S. persons” are Canadians born in the U.S., dual citizens or even those who spend more than a certain number of days in the United States each year.

Former prime minister Stephen Harper’s government argued that given the penalties the U.S. was threatening to impose, it had no choice but to negotiate the information sharing deal. The former government said it was able to exempt some types of accounts from the information transfer.

The Canada Revenue Agency triggered controversy after it transferred the first batch of Canadian banking records to the IRS in September 2015 in the midst of the election campaign, without waiting for an assessment by Canada’s privacy commissioner or the outcome of a legal challenge to the agreement’s constitutionality.

Prime Minister Justin Trudeau, Treasury Board President Scott Brison and Public Safety Minister Ralph Goodale have dropped calls to scrap the deal, which they had made before the Liberals came to power.

Watchdog wants proactive notification

Privacy Commissioner Daniel Therrien has raised concerns about the information sharing, questioning whether financial institutions are reporting more accounts than necessary. Under the agreement, financial institutions only have to report accounts belonging to those believed to be U.S. persons if they contain more than $50,000.

Therrien has also suggested the CRA proactively notify individuals that their financial records had been shared with the IRS. However, the CRA has been reluctant to agree to Therrien’s suggestion.

NDP revenue critic Pierre-Luc Dusseault said the increase in the number of files transferred was “surprising,” and he questioned whether financial institutions are only sharing records of accounts worth more than $50,000.

“I don’t see how there would be 150,000 more accounts reportable to the IRS in one year. It is something I will look into.”

Dusseault said the CRA should notify every Canadian resident whose banking records are shared with the IRS.

Lynne Swanson, of the Alliance for the Defence of Canadian Sovereignty, which is challenging the information sharing agreement in Federal Court, said she has no idea why the number of banking records shared with the IRS doubled.

“It still seems low in comparison to the number of Canadians that are affected by this,” she said. “It is estimated that a million Canadians are affected by this.”

Hopes for repeal

Swanson hopes that U.S. President Donald Trump, or Congress — which is now controlled by the Republican Party — will scrap FATCA. The Republican platform pledged to do away with the information collecting legislation.

“FATCA not only allows ‘unreasonable search and seizures’ but also threatens the ability of overseas Americans to lead normal lives,” the platform reads. “We call for its repeal and for a change to residency-based taxation for U.S. citizens overseas.”

Swanson’s group is also hoping the Federal Court of Canada will intervene, although a date has not yet been set for a hearing.

“A foreign government is essentially telling the Canadian government how Canadian citizens and Canadian residents should be treated. It is a violation of the Charter of Rights and Freedoms.”