The United States has two tools to get information on accounts held by its citizens: FATCA and FBAR.
Lots of attention has been paid to FATCA less to FBAR (Foreign Bank Account Reporting). Its rules have been around since the 1970s. FBAR targets accounts that US citizens own, as well as accounts over which US citizens have signing authority. The ownership piece is pretty straightforward. US citizens in Canada are obliged to file an FBAR form if they have an ownership interest in foreign (i.e. outside the United States) bank accounts that have a cumulative value of USD $10,000 or more. All accounts should be listed on this form.
The signatory authority provisions are more complicated. All US citizens must report all foreign accounts worth USD $10,000 or more (even those owned by non-Americans) over which they have signing authority (i.e. the ability to move money in and out of the account), even if they don t have a financial interest in the account. Many different types of accounts have to be reported, including bank accounts, accounts that hold securities, certain insurance accounts that have a cash value, accounts with a mutual fund, and commodity brokerage accounts. The few exceptions to the FBAR rules are unlikely to apply to any Canadian institutions.
The implications of these rules are maddening. Take this example. Fred is a US citizen who is a Toronto-based broker who manages money for hundreds of Canadian clients. Because he has the power to move money in and out of different accounts, he may be considered to have signing authority over them. Thus he would have to report all of these accounts to the IRS on his annual FBAR form.
Take another example. Jill is a US citizen who serves on the board of a non-profit organization. Because she has the power to sign cheques on behalf of the organization, Jill would have to report the account on her FBAR form.
Or consider Jenny, a lawyer and a US citizen who has signing authority over the trust accounts which hold client funds. Jenny may have to list all these accounts on her FBAR form.
All three of these individuals are in a tight spot. US law requires them to report this information, but Canadian privacy law may prevent them from doing so. The problem is exacerbated by the FBAR fines, which range from USD $10,000 per account to USD $100,000, or 50% of the total value of the account if the failure to file is willful. FBAR fines can be excused if there were good reasons why the form could not be filed. Importantly, the CRA has indicated that it will not help the IRS collect the FBAR fines. And, to date, the IRS has not been enforcing the FBAR requirements rigorously. But even if the risk is remote, the potential fines are large.
There are some solutions. The most obvious is to check to see if the signing authority you have over bank accounts is sufficient to necessitate their reporting on an FBAR form. There is an amnesty program for delinquent FBAR forms. A riskier option is to include a letter with your FBAR form indicating why, under Canadian law, you cannot report certain accounts. US citizens with signing authority over many accounts should likely talk to a US tax professional to figure out how to deal with the FBAR rules.
Written by Max Reed The standard solution to the PFIC problem offered by certain banks and investment funds is that a US investor in a PFIC should rely on the.
Written by Max Reed The US Foreign Account Tax Compliance Act (FATCA) has made waves in Canada since the 2014 federal budget made it Canadian law. It obliges financial institutions.
Written by Max Reed Many US citizens in Canada want to be rid of their citizenship to avoid being subject to American tax rules. Let s use an example. John is.