Evidence of meeting #34 for Finance in the 41st Parliament, 2nd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was fatca.
A video is available from Parliament.
3:55 p.m.
NDP
Murray Rankin NDP Victoria, BC
Okay, and you think it can be done? The amendment would be to carve out those people who happen to be Canadian citizens—
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Professor, H. Heward Stikeman Chair in Tax Law, McGill University, As an Individual
No, that's one—
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NDP
Murray Rankin NDP Victoria, BC
But there are other ways in which this drafting can be done, in other words.
3:55 p.m.
Professor, H. Heward Stikeman Chair in Tax Law, McGill University, As an Individual
One option is to argue about who should be defined in what law.
The other is to invoke an established precedent, an established rule that we have, which is about what the CRA will do, not what the Canadian financial institutions will do—they will do what FATCA says—but what the CRA will commit to doing vis-à-vis the IRS.
3:55 p.m.
NDP
Murray Rankin NDP Victoria, BC
I think you also said in your remarks that there could be potential legal liability for those Canadians, and CRA for example, who share information abroad without due protection.
3:55 p.m.
Professor, H. Heward Stikeman Chair in Tax Law, McGill University, As an Individual
There is no authorization in the act then there is no reason that I can see why you would not be risking potential liability.
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Conservative
3:55 p.m.
Conservative
Andrew Saxton Conservative North Vancouver, BC
Thank you, Chair.
Thanks to our witnesses for being here today, or being on video as the case may be.
My first question is for Ian Russell, president and CEO of the Investment Industry Association of Canada. Mr. Russell, due to the fact that FATCA was going to come into force regardless if there were an IGA or not....
I understand that the U.S. made several concessions for Canadians that they have not done for other countries, in part because of the intense negotiating work by the late Minister of Finance. This includes exempting a large number of accounts from FATCA, including registered retirement savings plans, registered retirement income funds, registered disability savings plans, and tax-free savings accounts.
Do you agree that these exemptions will help to protect the financial information of U.S.-Canadian dual citizens?
3:55 p.m.
President and Chief Executive Officer, Investment Industry Association of Canada
Yes I do. I think that the intergovernmental agreement and the efforts that the Canadian government made to obtain the most effective tax gathering mechanism possible within the constraints of the FATCA legislation is a credit to a lot of people. I certainly would give a lot of credit to the Minister of Finance to provide the carve-out you talked about, to provide phased-in reporting, to provide clemency provisions for financial institutions to get onboard, and also to provide for this overarching agreement that facilitates a way to provide this information and not abridge the privacy laws.
3:55 p.m.
Conservative
Andrew Saxton Conservative North Vancouver, BC
Thank you.
My next question is for Mr. Pigeon.
Mr. Pigeon, under the original FATCA legislation, all credit unions would have been subject to reporting requirements. Thanks to the IGA, smaller credit unions, those with assets of less than $175 million, will no longer be subject to FATCA. In fact, they will be exempted.
How will this benefit these institutions and their customers?
3:55 p.m.
Director, Financial Sector Policy, Credit Union Central of Canada
Thank you for the question.
We've spoken to our members, and it does benefit a fair number of them. Potentially upwards of 60% of our members could benefit from this exemption. It will really be up to them if they want to take advantage of this or not.
In terms of the benefits, clearly one major benefit for our smaller credit unions is of course the regulatory burden challenge that this would pose otherwise. I mentioned earlier that I know of a credit union with 10 employees. They're already taxed to the limit by CRA rules, FINTRAC rules, and every time they do something to meet those standards, it means taking something away from their members, some community service, some kind of benefit that they could provide otherwise. So it's a major advantage in that sense.
There is one challenge potentially related to that exemption, which is that we might see some people targeting those smaller institutions to move their moneys there. That could be a bit of a challenge from an asset liability management perspective. You've suddenly got a flow of funds that you have to invest and ensure that there's a nice spread between those two things. Overall, we're quite happy with that exemption as well as the local client-based institutions exemptions as well.
Thank you.
4 p.m.
Conservative
Andrew Saxton Conservative North Vancouver, BC
Okay. Thank you.
Now, when Darren Hannah, a top CBA official, was before a Senate committee last week, he said:
Clearly there's a lot at stake, so from our perspective, it's very important that the intergovernmental agreement be brought into effect in order to avoid the consequences that would otherwise befall us.... [T]he economic consequences of non compliance would dwarf any economic cost associated with compliance.... Unfortunately, despite worldwide efforts by the CBA and others, U.S. officials have no intention of repealing FATCA; and simply ignoring FATCA is not an option.
Can you explain what he meant by that?
4 p.m.
Director, Financial Sector Policy, Credit Union Central of Canada
It's a bit challenging perhaps to put myself in his shoes, but I think we would probably express similar views. We have an international trade association called the World Council of Credit Unions that similarly has been lobbying internationally the U.S. and others to try to stop this from happening. I think we've come to the perspective where we feel it's going to happen, and we will respect the rules. We're quite pleased with the exemptions that we've received. We feel this is the best of a bad lot.
4 p.m.
Conservative
4 p.m.
Conservative
4 p.m.
Liberal
Scott Brison Liberal Kings—Hants, NS
Thank you very much.
Mr. Russell, Ian, it's good to have you back before the committee. In a news release responding to FATCA, your organization suggested that registered savings accounts like RESPs and RDSPs are exempt from the scope of FATCA. These accounts are deemed non-reportable in the IGA.
Just to be clear, individuals are still required to report them to the IRS if they are one of the million dual citizens, Canada-U.S. citizens. I just want to make that clear. Individuals still have to report, are obligated to the U.S. authorities to report any earnings, within or those accounts ultimately.
4 p.m.
President and Chief Executive Officer, Investment Industry Association of Canada
Yes, you're right, Mr. Brison. There is an exemption for those registered accounts under the FATCA legislation, but those individuals who are dual citizens will have to register with the IRS. Their financial details, their income, and their investment income would be reported on their U.S. tax returns.
4 p.m.
Liberal
Scott Brison Liberal Kings—Hants, NS
It wouldn't just be their investment income on the contributions they have made, but their income derived from the Canadian taxpayer-funded contributions to those accounts would also be considered taxable income by the IRS.
4 p.m.
President and Chief Executive Officer, Investment Industry Association of Canada
I think you're probably right on that, Mr. Brison, maybe under U.S. tax law.
4 p.m.
Liberal
Scott Brison Liberal Kings—Hants, NS
Do you feel it important to communicate that message to Canadians, such that Canadian-U.S. dual citizens don't somehow feel they don't have to report this? I think there's a risk in the government's communication, and if I may say so respectfully, your organization's communication that in fact these accounts are non-reportable, when in fact the only exemption is for the financial institutions to not to report to the IRS.
4 p.m.
President and Chief Executive Officer, Investment Industry Association of Canada
Yes. I'm not sure how the IRS or the U.S. tax authorities would actually treat the income in those registered accounts for tax purposes.
4 p.m.
Liberal
Scott Brison Liberal Kings—Hants, NS
We have concerns that earnings from RESPs, and RDSPs, and contributions made by the Canadian taxpayer to those accounts were not intended to go into the U.S. treasury. Those contributions from the Canadian government were supposed to help people get an education, or help people with disabilities.
4:05 p.m.
President and Chief Executive Officer, Investment Industry Association of Canada
The only point I would add to that, though, is that issue you raised is not really a FATCA issue. It's an issue that would apply to any dual citizen in Canada who is in fact filing a U.S. tax return.
