Finance Committee on May 14th, 2014

[Chantal Bernier]

I would urge you, in your studying of this bill, to ask for a demonstration of the necessity of the provision whereby an official out of the Canada Revenue Agency could provide to law enforcement authorities without a warrant information about a taxpayer on the basis of reasons to believe that perhaps there was criminal activity. That is exceptional and therefore should be buttressed by an empirical demonstration of necessity, and I would encourage you to seek it.

[The Chair, Conservative, James Rajotte]

You have one minute.

[Scott Brison, Liberal, Kings—Hants, NS]

Okay.

There's an issue.... I'm just taking this from your testimony, Mr. Hannah.

For financial institutions, non-compliant would effectively mean that they would no longer be able to do business in “the U.S. capital markets or with any institutions that do business...”. Those were your words. Are our banks not significantly important to U.S. capital markets? Do they not, particularly post-financial crisis, carry significant weight within the U.S. capital markets and the oversight of the U.S. capital markets? Do we not have significant influence as a result of that?

[The Chair, Conservative, James Rajotte]

A brief response, please.

[Darren Hannah]

Are we significant players? Yes. Are we significant enough players to get the U.S. to change its mind? No.

[Scott Brison, Liberal, Kings—Hants, NS]

If they did what you were saying they would do, it would effectively compromise and shut down large parts of their capital markets. Do you really think they would do that?

[Darren Hannah]

Well, let me answer it this way. There are 33 OECD countries and 30 of them have taken a look at the same math we've looked at and come to the conclusion that it is the best course of action to engage to get an intergovernmental agreement—

[Scott Brison, Liberal, Kings—Hants, NS]

One of them is the global use of banking in Canada—

[The Chair, Conservative, James Rajotte]

Okay, we'll have to follow that on another round.

We'll go now to Mr. Keddy, please.

[Gerald Keddy, Conservative, South Shore—St. Margaret's, NS]

Thank you, Mr. Chairman.

Welcome to our witnesses.

There have been a number of interesting points and facts raised here today, Mr. Chairman, but I have a couple of specific questions.

Mr. Hannah, you mentioned—and I think Mr. Kingston mentioned it as well—that Canada is not a tax haven, and that Americans, quite frankly, don't move here to avoid their taxes. I'd say that most people around this table agree with that statement.

There seems to be some discussion, though, about who actually is an American citizen, and there is some confusion on the opposition benches on who an American citizen is. I've never heard the term “American person” before. You're either an American citizen or you're not an American citizen, or you're a foreign entity working in the United States with a green card.

But quite frankly, the idea that somehow this is new is incorrect. American citizens have always had a tax liability due to their citizenship and, quite frankly, we can't change that. All we can do is put some parameters and some rules around it, and that is what FATCA has done.

Mr. Brison started to ask the question, and really didn't follow up on it, about whether Canada is better positioned under this agreement or not, so I'm going to ask you that question.

[Darren Hannah]

Absolutely. From our perspective, the IGA allows us to void the application of FATCA. It gives us greater control. It allows us to provide information to the Canada Revenue Agency and then exchange it on a state-to-state basis, as opposed to trying to enforce a relationship to send information from a financial institution in Canada to a tax regulator in the U.S. It frees us from the restrictions in the FATCA legislation that would have required account closure in some instances. It carves out a large number of registered products. It puts us in a much better position and gives us much more control than we otherwise would have had.

[Gerald Keddy, Conservative, South Shore—St. Margaret's, NS]

However, I want to go back to my original point. What it does not change is the fact that American citizens have always had a tax liability to the IRS.

[Darren Hannah]

That's absolutely correct. It's about the exchange of tax information. It has nothing to do with the underlying tax liability. That comes from the Internal Revenue Service and the U.S. tax code and has been in place for the better part of 100 years, as far as I know.

[Gerald Keddy, Conservative, South Shore—St. Margaret's, NS]

I guess the third part of that question is on Canadian citizenship. Canadian citizens have no obligation unless they own property or assets in the U.S. to report any information to the IRS, but they do have an obligation if they are dual citizens.

[Darren Hannah]

Yes, if you're a U.S. person, a U.S. citizen, who happens to be a Canadian citizen as well, you are then captured by the U.S. tax law. That is correct.

[Gerald Keddy, Conservative, South Shore—St. Margaret's, NS]

Thank you.

Mr. Richardson, you made a statement that I need to follow up on a bit. It was about the fact that U.S. citizenship is decided by the U.S. and it could change tomorrow. Do you want to go through the process of someone actually abandoning their U.S. citizenship and how much time it takes?

[John Richardson]

Oh my God, to abandon U.S. citizenship voluntarily is called a “relinquishment” under U.S. law, specifically, section 349 of the Immigration and Nationality Act. The practical effect of it, since 2008, has been that a large number of people who are deemed U.S. citizens will actually be subject to an exit tax, whereby all of their world assets are, first, identified, and then second, there is a deemed sale of those assets and they have to pay a capital gain on money they've never received. That's only for the property. If it's a pension plan or something, the full thing is valued and deemed paid out.

That's not for everybody, but applies to people who are called “covered expatriates”, those who have a net worth of over $2 million, which realistically is an awful lot of people in major urban areas who are in their fifties and sixties. Or, significantly, these are people who cannot demonstrate five years of U.S. tax compliance. Since a lot of these people didn't even know they were U.S. citizens, they're obviously not tax compliant, so they're hit with the absolutely horrendous cost of that five years of tax compliance, which may be more than taxes and penalties.

It is an unbelievably expensive undertaking. You do not leave U.S. citizenship for free—

[Gerald Keddy, Conservative, South Shore—St. Margaret's, NS]

My point being—

[The Chair, Conservative, James Rajotte]

You're right out of time, unfortunately.

[A voice]

I'll make your point, though.

[Voices]

Oh, oh!

[The Chair, Conservative, James Rajotte]

All right. Thank you.

Thank you, Mr. Keddy.

Mr. Caron, you have the floor. Five minutes.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Thank you very much, Mr. Chair.

I'd like to begin with Mr. Hannah.

I want to be sure I understood what you said in response to a question from my colleague, Mr. Rankin. If someone the U.S. believes to be an American says that they are not, that is the end of it. Is that what you said? It’s a process of self-identification. If the person says they're not American, the financial institutions do not move forward with the process. Is that correct?

[Darren Hannah]

Well, no, what I said was that if you have an account and there is no indication in your account file, based on the information already present, that you are a U.S. person, then there is no further obligation on the part of the institution to go through and look for additional indicators.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Take someone who has lived in Canada for 40 years, for example, someone who has always paid taxes in Canada, who has a residence in Canada and who has no other indicators that they are American. If American public servants feel that there are certain aspects of the file that suggest that the individual is still American, they'll ask you to transfer the file to them. I don't see how a bank, under the agreement, could have the final say over whether the file should be transferred.