Tax

CRA-IRS information sharing has 'no direct effect' for most taxpayers

By AdvocateDaily.com Staff

Although most taxpayers will not be directly affected by the Canada Revenue Agency (CRA)’s move to share millions of banking records with the U.S. over the last five years, there is a risk of audit for those who may not have complied with American reporting requirements, Canadian tax lawyer David J. Rotfleisch tells AdvocateDaily.com.

As CBC News reports, the CRA has shared more than 1.6 million Canadian banking records with the U.S. Internal Revenue Service (IRS) since 2014, when the two countries entered into an information-sharing agreement negotiated in conjunction with the American government's adoption of the Foreign Account Tax Compliance Act (FATCA).

As the article notes, the Act was adopted in an effort to curb offshore tax evasion and obliges foreign financial institutions to report information about accounts held by those who could be subject to U.S. taxes.

As part of the agreement, Canadian financial institutions share account information — such as the names and addresses of account holders, account numbers, balances and information about certain payments such as interest, dividends or other income — of clients with U.S. “indicia” with the CRA once a year, which sends it to the IRS.

In 2014, the CRA sent the IRS information on 150,000 bank accounts, 300,000 in 2014 and 600,000 accounts in each of 2016 and 2017, says CBC News.

However, given how many U.S. citizens live in Canada, Rotfleisch, founding tax lawyer with Rotfleisch & Samulovitch Professional Corporation, says he would have expected the number of accounts shared to be higher.

“Remember that the U.S. taxes on a citizenship basis so all citizens regardless of country of residence have to file tax returns. This is the impetus behind the U.S. adoption of FATCA and their aggressive international pursuit of U.S. citizens who are not resident in the U.S. Hence the agreement with Canada that the CRA will provide this information to the IRS,” he says.

Generally, for most Canadian taxpayers, the information-sharing agreement has no direct effect other than an ongoing obligation to advise Canadian financial institutions that they are not subject to FATCA, says Rotfleisch.

However, he adds, “For U.S. citizens who are resident in Canada, there is a huge risk of an IRS audit if they do not comply with their reporting obligations.”

Although individuals are not notified when an information transfer occurs as the CRA has no obligation to do so, Rotfleisch adds that “they will, as a matter of policy, respond to any inquiries by individual taxpayers about this issue.”

Ultimately, he says, any affected Canadian resident U.S. citizens should look into retaining U.S. accountants and lawyers.

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