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A stack of loonies sit on American dollar bills on Thursday Sept. 20, 2007 in Montreal, Que.Ryan Remiorz/The Canadian Press

A constitutional challenge is in the offing for a Conservative government budget bill that will allow some Canadians' bank information to be shared with American authorities.

The Foreign Account Tax Compliance Act (FATCA), an American law, takes effect Tuesday and essentially allows the U.S. Internal Revenue Service to pursue "non-compliant" Americans abroad on tax-related issues, including those who haven't filed returns.

That includes Americans in Canada and dual citizens. The Canadian government implemented FATCA with Bill C-31, an omnibus budget bill that became law on June 19. C-31 requires major Canadian banks to gather tax information from American account holders with at least $50,000, information that will be handed over to the Canada Revenue Agency and eventually to the IRS. The U.S. requires its citizens to file tax returns, regardless of where they live.

FATCA now has some Canadian dual citizens fearing hefty penalties for not filing, or facing a back-tax bill on Canadian assets.

A legal challenge is being prepared by a group called Alliance for the Defence of Canadian Sovereignty (ADCS). The legal challenge, which has not yet been filed, will in part allege Bill C-31 violates the Charter, namely Section 15, which guarantees equal rights regardless of national or ethnic origin.

"The thing is an unbelievable joke," said John C. Richardson, a Toronto lawyer who serves as ADCS co-chair. "… I am very confident in our legal position … , no ifs, ands or buts about it. In fact, if [C-31] is not a violation of the Charter, then the Charter doesn't mean anything at all."

A spokesman for Canada's Department of Finance sent a written statement saying Canada "obtained a number of concessions" in talks over implementing FATCA, including tax exemptions for RRSPs, TFSAs and other funds, as well an exemption for smaller lenders, like a credit union. "Without an agreement in place, FATCA would have been imposed unilaterally, forcing banks to report information to the IRS, and subjecting Canadians to unnecessary taxes," the statement said.

FATCA applies to anyone with citizenship, even those who've lived in Canada for decades. Kate, a 52-year-old Canadian, was born in Texas to Canadian-born parents, and was brought back to Canada at age one. She says she's now facing penalties for a life of not filing taxes – she didn't know she had to – in the United States.

"I've never worked there, I've never been to school there, I've rarely travelled there,"said Kate, who is supporting ADCS and spoke on condition her last name would not be published. She said she feels betrayed by Canada.

"I would like other Canadians to realize that their rights and freedoms aren't any safer than my rights and freedoms are. I haven't done anything wrong. I was just born in the wrong country. And the Canadian government is having no problems just deciding that a foreign country can have my information. So if my rights and freedoms can be thrown under the bus, then all Canadians' can be. That's why I think people should be concerned about it."

American officials have offered an amnesty program to entice people to get their taxes in order. Financial institutions are required, beginning this week, to share information with the CRA, which will hand it over to Americans beginning in 2015.