Canadian Finance Minister Jim Flaherty has written a letter to several U.S. newspapers about his concerns over recent efforts by the U.S. government to force banks into disclosing the financial information of dual U.S. and Canadian citizens and other Canadians.

In the letter, he noted concerns about the Foreign Account Tax Compliance Act, or FATCA, which was included in the HIRE Act last year (see FATCA Isn’t Just for Fat Cats). “We appreciate efforts to combat tax evasion,” Flaherty wrote last Friday to The New York Times, Wall Street Journal and the Washington Post. “In fact, our two jurisdictions co-operate to prevent it. But FATCA has far-reaching extraterritorial implications. It would turn Canadian banks into extensions of the IRS and would raise significant privacy concerns for Canadians.”

Flaherty noted that Canada respects the right of the U.S. to determine its own tax legislation and combat tax evasion, but he added, “Canada is not a tax haven.” The country actually has a higher individual tax rate than the U.S. He added that Canada already has a tax treaty with the U.S.

“People do not flock to Canada to avoid paying taxes,” he wrote. “In addition, we have existing ways of addressing these issues with the United States through our Bilateral Tax Information Exchange Agreement. As I said, we share the same goal of fighting tax evasion and we already have a system that works. To rigidly impose FATCA on our citizens and financial institutions would not accomplish anything except waste resources on all sides.”

Flaherty also took issue with the IRS’s filing requirements for the Foreign Bank Account Report, or FBAR, and its effect on dual U.S.-Canadian citizens.

“Most of these Canadian citizens, many with only distant links to the United States, have a very limited knowledge of their tax reporting obligations to the United States,” he wrote. “These are honest and law-abiding people, including many senior citizens now caught in a nerve-wracking situation. Moreover, because they work and pay taxes in Canada, they generally do not owe any taxes in the United States in any event. Their only transgression is failing to file the IRS paperwork they were never aware they were required to file.”

Flaherty noted that many of them are not trying to evade taxes. “These are not high rollers with offshore bank accounts,” he wrote. “These are people who have made innocent errors of omission that deserve to be looked upon with leniency. Rather, these people are typically hard-working citizens of our two great countries. Faced with the knowledge that they do have an obligation to file U.S. tax returns (even if they most often do not actually owe any taxes) they want to do the right thing. But the threat of prohibitive fines for simply failing to file a return they were unaware they had to file, is a frightening prospect that is causing unnecessary stress and fear among law abiding hardworking dual citizens.”

In some instances, Canadians are being threatened with penalties of up to 25 percent on all of their bank accounts for failing to file the FBAR, according to the Toronto Globe and Mail, threatening to wipe out a large chunk of the savings of a number of Canadians.

“We support efforts to crack down on legitimate tax evasion,” wrote Flaherty. “These measures, however, do not achieve that goal.”

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