CRA should tell people when their banking records are shared with U.S., say critics

Opposition critics are calling on the Canada Revenue Agency to proactively advise Canadian residents that their banking records have been shared with the U.S. Internal Revenue Service.

Conservative Revenue Critic Marty Morantz said he is troubled by what he sees as a lack of transparency.

"I think that it is one of the most massive intrusions on personal privacy of Canadians and their banking in the history of the CRA, really in the history of the country, with little transparency or any proactive outreach to the citizens that are or may be affected," he said.

Morantz said he would like to see a parliamentary committee take a closer look at the record-sharing arrangement and try to determine why the number of Canadian financial institution records being shared with the IRS has risen sharply in recent years.

NDP Revenue Critic Matthew Green said those whose records are being shared should have a chance to defend themselves or rectify the situation.

"They should be well informed and then have the ability to then follow due process that allows for them to appeal or adequately address the situation before hefty fines are imposed by their own domestic government in favour of a foreign interest," he said.

Green also questioned why the CRA is collecting the information being sought by the United States in the first place.

"Our CRA is being used as free labour by the U.S. tax system and I think we have enough work for the CRA to do here, like conducting audits and recovering taxes from those named in the Panama Papers," he said. "So they shouldn't be forced to do the legwork for the IRS."

The comments came after CBC News reported Tuesday that many Canadian residents with U.S. or dual citizenship could have problems with their banks and other financial institutions in the coming months unless they provide them with U.S. identification numbers.

Experts warn that in some cases, financial institutions may close bank or investment accounts rather than face the prospect of fines for not providing a U.S. social security or taxpayer identification number for clients who could be subject to U.S. income tax, such as dual citizens.

The changes won't affect those who are already filing income tax returns to both Canada and the United States and who have already provided their financial institutions with a U.S. identification number.

Moreover, it won't be the U.S. Internal Revenue Service enforcing the requirement and levying fines. Instead, that will be done by the Canada Revenue Agency.

It's the latest development in a complicated saga that began in 2010, when the United States adopted the controversial Foreign Account Tax Compliance Act (FATCA) in a bid to curb offshore tax evasion.

Under FATCA, financial institutions outside the United States are obliged to search their files for customers who could be subject to U.S. income tax and report information about those accounts.

Rather than have the U.S. impose FATCA and its penalties directly on Canadian financial institutions, Stephen Harper's government negotiated an intergovernmental agreement with former U.S. President Barack Obama's administration that tasks the Canada Revenue Agency with collecting the information from banks and other financial institutions and sending it to the IRS.

Last year, the CRA sent 900,000 records from banks and financial institutions to the IRS. The CRA has refused in the past to proactively tell Canadians when their financial account records have been shared.

"Since the information is provided to the CRA by Canadian financial institutions, reaching out proactively to account holders using this third-party information could present a high risk for a privacy breach," said CRA spokesman Christopher Doody.

"For example, the CRA would not be able to rely on the address information provided by the financial institution to notify the account holder, as the CRA in many instances has no way to confirm if the address is correct."

John Richardson is a Toronto lawyer and a member of a group that is arguing before the Federal Court of Appeal that the application of FATCA's provisions in Canada is unconstitutional. He said the suggestion that Canadian account holders could face fines or threats to close their accounts could help make their case before the court.

Richardson said federal government lawyers have argued that the information transfer would not have any consequences.

Richardson said he would like to see the Canadian government advocate for a change in the regime to exempt from its provisions anyone who also has Canadian citizenship.

Elizabeth Thompson can be reached at [email protected]