The Canadian Government, through the Minister of Finance, has tabled legislative proposals and explanatory notes relating to the Canada – United States enhanced tax information exchange agreement, which addresses the Canadian concerns arising from the Fair and Accurate Credit Transaction Act of 2003 (“US FACTA”).
The new legislation will deal with the failure of taxpayers to provide identification numbers, related offenses and punishments, enhanced international information reporting, designation of accounts , identification obligations and reporting and record keeping obligations in addition to specific anti-avoidance provisions.
Draft legislation, technical interpretation and explanatory notes from the Canadian Ministry of finance are available here: Legislative Proposals Relating To the Canada–United States Enhanced Tax Information Exchange Agreement
This legislation has been designed to provide a Canadian legislative regime to address the US FACTA obligations arising from US tax legislation, and the territorial reach of same into the lives of people and businesses in Canada. It is no overstatement to suggest that the reach of the US FACTA legislation affects issues of Canadian sovereignty generally, and may be anti-constitutional and offensive to Canadian privacy law in particular. Beyond that, the US FACTA legislation does not anticipate or adequately provide for the differing basis of taxation as between the US tax system and other tax systems around the world. By way of example, Canada taxes on the basis of residency, while the US taxes on the basis of citizenship.
These are just a few of the problematic areas that arise through US FACTA’s extraterritorial reach.
The Canadian draft legislation referred to above (see link), provides a somewhat reasonable balance in accommodating the US FACTA objectives within the Canadian taxation environment.