A considerable increase from year to year
The introduction of a controversial information-sharing agreement following the introduction of the Foreign Account Tax Compliance Act (FACTA) in the United States is becoming increasingly tangible. This law, whose primary purpose is to avoid tax evasion, requires banks in other countries to share information about client accounts that may be subject to US taxation.
If less than 150,000 bank records were initially transferred in the first year of this agreement in 2014, the volume of Canadian files landing in the hands of the US tax authorities continues to increase. The Canada Revenue Agency sent 900,000 additional Canadian bank records to the IRS in September, almost a third more than in the previous year. All these files relate to fiscal year 2018.
To date, 2.6M of Canadian files have been sent to the US Treasury. All targeted Canadians could therefore be subject to taxation south of the border.
Some people wonder whether gambling winnings made in the United States and taxed right at the casino can lead to such data sharing. It is important to understand that gambling winnings are not taxable in Canada. While it is certainly possible to recover US taxes paid on gambling winnings, there is no information exchanged between the Canadian and US governments for this purpose. The tax on gambling paid in the United States is recovered in the United States and the same win, no matter where it was made, is simply not taxable in Canada. Here is the logic behind refunds of gambling taxes.
What the story does not tell is the use made of these records by the IRS. Getting information that is relevant is one thing, but are more Canadians being contacted by the US tax authorities regarding their US tax responsibilities? No statistics for this purpose can confirm this.
Etienne Biram, a spokesperson for the Canada Revenue Agency, says he does not know why the number of accounts targeted by Canadian banking institutions is growing rapidly. “The CRA is currently analyzing the data to gain a better understanding of the fluctuations in the number of records being reported to the CRA.”
It must be remembered that unlike the majority of countries in the world, the United States uses the principle of citizenship rather than residency regarding the country’s tax laws. Several expatriates still having US citizenship could therefore be targeted by such measures.
People affected by this sharing of information are not necessarily informed. The CRA also refuses to disclose how many cases it receives in return from the IRS.
This simple sharing measure has encouraged many Canadians with a financial or citizenship relationship with the United States to learn about their tax obligations, creating an increase in tax returns filed by those same Canadians in the United States.