Last year, Eldad Gerb and I authored a primer on FATCA, the Foreign Account Tax Compliance Act, a relatively new piece of American legislation designed to facilitate the exchange of information between non-American banks and taxation authorities and the IRS. In 2014, the Canadian government incorporated certain provisions of FATCA into the Income Tax Act, facilitating information exchange between Canadian financial institutions, the CRA and the IRS.
September 23, 2015 was a red-letter day is this narrative. On the 23rd, the first ‘transfer of information’ to the IRS took place, with large amounts of information on dual-citizen taxpayers being forwarded south. To say that this information transfer has attracted the ire of critics would be an understatement.
Attempts to halt the impending transfer were numerous and varied. Open letters have been penned by federal politicians, taxpayer groups have taken up the cause and, most recently, the matter has been taken to Court.
In Hillis v Canada, two Canadian citizens caught by FATCA’s web have brought suit to challenge its implementation, arguing that it is inconsistent with terms of the Canada-US tax treaty, that its implementation is beyond the jurisdiction of the federal government, and that it violates the Charter of Rights and Freedoms. In an attempt to halt the transfer of information, they sought a prohibitory injunction. In essence, they argued that, if the transfer of information were to go ahead on the 23rd, their case would be rendered moot as, to use common parlance, the damage would already be done.
In a decision released in the waning hours before the deadline, the federal court refused their injunction. In a decision by Mr. Justice Martineau, the Court held that the collection and automatic disclosure of personal and account information by Canadian banks is authorized by the Income Tax Act and that the plaintiffs had not shown that such was inconsistent with the terms of the Canada-US tax treaty. However, the judge held that his decision was to be without prejudice to the right of the plaintiffs to pursue their Charter claim.
Given that no appeal was taken against the injunction, it is safe to assume that the information in question is now safely in the hands of the IRS. It is unclear whether the plaintiffs will pursue their constitutional claims or whether they would be successful in them. Even if they were, it’s unclear what a court could do in the circumstances now that the information has been shared.
If you have any questions about compliance with FATCA, the Income Tax Act, or any other taxation law matter, please contact the experienced team at Devry Smith Frank LLP.