Thank you very much for the invitation to be appear before you. I just want to say at the outset that my views are my own and are not associated with my employer.
I'm a Canadian-trained lawyer and I currently practice U.S. tax law at White&Case LLP, an international law firm based in New York City. I'm a co-author with Richard Pound of a book called A Tax Guide for American Citizens in Canada, which tries to explain in as plain a language as possible how the one million American citizens in Canada should comply with their U.S. tax reporting obligations.
So, what I want to talk to you about today are the tax compliance issues that FATCA exacerbates—and I wanted to pause here and say that because of these issues, because the U.S. has had citizen-based taxation for a very long time.... But FATCA makes these issues worse for approximately one million citizens of Canada. There are four issues that I want to go through.
The first, to be frank, is that FATCA frightens people. American citizens in Canada read articles in the newspaper saying that they all of a sudden have tax reporting requirements to the IRS, an institution most of them are unfamiliar with, and they don't know what to do. I get a reasonable number of emails, because of my work on this book, asking me what the potential liabilities are and asking for my help so some of these American citizens can comply with their reporting obligations. These people are scared and FATCA exacerbates their fear.
The second point is that by exacerbating their fear, FATCA and citizenship-based taxation is going to cost Canadians money. Imagine if you will that you are a U.S. citizen living in Canada and you have a salary of about $70,000. You're never going to owe the IRS money. You're not going to owe the U.S. government money, but you're going to have to fill out quite an extensive amount of paperwork in order to report your income to them. To hire H&R Block to do this—H&R Block being the most common franchised tax preparer in Canada—costs you at least $500 a year. That's at the lowest end for the simplest return.
For a specialist cross-border accountant, you're looking at a cost of $2,500 a year, and that's just for your current tax year. If you're like many of the U.S. citizens in Canada and you've never thought about this issue before reading about it in the newspapers, it's going to cost you thousands of dollars more to comply with your prior tax filing obligations and to file the form that instructs the IRS not to tax your RRSP and those sort of issues.
Because of the complexity of international tax law, it's very difficult for the average U.S. citizen in Canada to do this themselves. Let me give you just one example. Everyone in Canada is familiar with the tax-free savings account. Well, the U.S. government may or may not, because we just don't know, treat the tax-free savings account as something akin to a Cayman Islands trust. You can imagine the amount of paperwork that comes with disclosing your Cayman Islands trust. That paperwork may or may not apply, because we don't know yet, to the tax-free savings account as well. The tax-free savings account doesn't function the way it's supposed to. It doesn't protect your dividend or capital gains income that accrues on the money that's inside of it from U.S. tax. It basically renders the tax-free savings account expensive and useless.
Another aspect where FATCA and U.S. citizenship-based taxation is going cost the average Canadian more money—and this is all Canadians, not just these one million people—is that the compliance costs imposed on large financial institutions may be passed down to consumers.
Third, FATCA may, and we have seen elsewhere, impact the ability of U.S. citizens in Canada to access proper financial services. Members of the committee may be familiar with the story of—