Liberals told no action needed on controversial U.S. tax deal

A controversial 2014 tax deal with Washington requires Canadian banks to turn over info on accounts held by Americans to the CRA, which then passes it along to the IRS. An internal document shows the new Liberal minister was advised not to take any action.

Liberal revenue minister advised not to take action on deal giving tax info to U.S.: document

Dean Beeby · CBC News · Posted: Mar 16, 2016 1:27 PM EDT | Last Updated: March 17, 2016

National Revenue Minister Diane Lebouthillier was advised that 'no ministerial engagement' was needed by her on a controversial deal to share tax information with the U.S. Internal Revenue Service. (Chris Wattie/Reuters)

The Canada Revenue Agency advised the new Liberal revenue minister against taking action in a controversial turnover of taxpayer information to the U.S. Internal Revenue Service — partly because court challenges to the practice in both countries have so far been unsuccessful.

"No ministerial engagement is required at this time," says a two-page briefing document provided to Minister of National Revenue Diane Lebouthillier last November.

At issue is a 2014 deal signed by Canada and the U.S. that requires Canadian financial institutions to report to the CRA some accounts in Canada held by U.S. citizens. The agency then must give the information in bulk to the IRS, which taxes American citizens on their world income, not just their domestic income.

Initial tranche of 155,000 slips

The CRA turned over an initial tranche of about 155,000 information slips on Sept. 30 to the U.S. tax agency, as first made public last October. The Americans have also agreed to give Canada financial information about some accounts held in the United States by Canadians.

The Canadian government won a legal challenge to the arrangement at Federal Court last September, and a judge turned down an application for an injunction, though an appeal was launched.

"The U.S. Government has also successfully defended against an injunction in the U.S. Federal Court and has moved to have the U.S. lawsuit dismissed," says the briefing, a copy of which was obtained by CBC News under the Access to Information Act.

The Canada Revenue Agency says court challenges to tax information sharing in Canada and U.S. have failed so far, and that over 100 countries have reach agreements with the U.S. to turn over to the IRS information on accounts held by U.S. citizens. (Susan Walsh/Associated Press)

The note also advised that "over 100 countries have signed or reached an agreement in principle with the U.S. similar to that of Canada's, many of which have confirmed an exchange of information with the U.S., including Australia, New Zealand, the Netherlands, Spain, and the United Kingdom."

The deal was struck by the Conservative government in 2014 as a compromise, after the Foreign Account Tax Compliance Act (FATCA) in the U.S. required Canadian banks and other financial institutions to turn over information on accounts held by U.S. citizens or face significant financial penalties.

Secure favourable outcomes

The deal was an effort to protect Canada's financial institutions and "to avoid potential violations of Canadian privacy laws and secure more favourable outcomes" by having the information flow through the CRA rather than be handed over directly, says the document.

Changes were made to the Income Tax Act, and Federal Court ruled last September that the deal did not violate Section 241, which protects the confidentiality of taxpayer information.

Liberal MPs, including Justin Trudeau, criticized the deal at the time, saying it did not adequately protect the privacy of Canadians who are also U.S. citizens. But the "personal information" plank of the Liberal election platform did not refer to FATCA, only to making it easier for Canadians to access their own personal information from government.

Lebouthillier was not immediately available for comment.

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