Finance Minister Jim Flaherty says he’s “glad” the United States has delayed by a year a tax-evasion crackdown that Ottawa has complained violates Canadian privacy laws and goes too far in rooting out cheats.
The U.S. Internal Revenue Service announced Thursday that it’s delaying until 2014 a law that will require foreign financial institutions to identify their U.S. account holders to tax authorities in Washington.
But Mr. Flaherty suggested a delay is not enough. Canada is home to an estimated one million Americans and dual U.S.-Canadian citizens, who could be denied banking services or forced to pay steep penalties when the law takes effect.
“Canada is obviously not a tax haven,” Mr. Flaherty said in a statement. “While this is a step in the right direction, Canada will continue to work with our American neighbours on a solution that both countries will find agreeable.”
Under Canadian law, financial institutions don’t require customers to prove their immigration status or citizenship, only that they are residents.
The law, enacted last year and initially slated to come into force in 2013, has become a cause célèbreamong Americans living abroad and foreign financial institutions, including banks, insurers, brokers and mutual funds. The Foreign Account Tax Compliance Act, or FATCA, will now require banks to put a 30-per-cent withhold on U.S. customers who refuse to comply, starting Jan. 1, 2014.
The U.S. move is a “helpful reprieve,” said Terry Campbell, president and CEO of the Canadian Bankers Association.
“It relieves some of the time pressure associated with implementing the most difficult parts of FATCA by 2013,” he said.
But like Mr. Flaherty, he said the law remains “highly problematic and places a significant burden on banks and their customers around the world.” And he said compliance will “very difficult and costly” for Canadian banks, whenever it goes into effect.