Canadian residents with US citizenship face the closure of their bank accounts in the coming months as the end of the FATCA grace period means they must provide a US identification number.
With the conclusion of a grace period on Jan. 1, Canadian banking institutions are required to attain US identification numbers for Canadian clients under FATCA or face fines.
Experts say that in some cases, financial institutions may close accounts rather than face fines for not providing US social security or taxpayer identification numbers for clients who could be subject to US income tax, such as dual citizens, Canadian national news broadcaster CBC reported.
It may prevent certain people from accessing financial services"
That means the stakes are about to get higher for those who have not been filing returns and for 'accidental Canadians', who did not realise that, as American citizens, they are required to file US tax returns.
Grace Pereira, a senior counsel with the BLG law firm in Toronto specialising in advising investment funds, told CBC the stakes are higher in Canada than in most countries.
"We did have the largest number of accounts with missing TINs," she said. "I think we're in this lull where we don't know what is going to happen to those particular account holders.
"I have a lot of empathy for the financial institutions because, at the end of the day, how can they force somebody to get a Taxpayer Identification Number? ... Which is essentially sticking up your hand and saying, 'Yeah, I've not been complying for all these years."
"It may prevent certain people from accessing financial services," she added.
The Canada Revenue Agency will be enforcing the requirement and levying any fines for non-compliance, though it can also exercise discretion. Officers said that there would be an 18-month hold off prior to the CRA issued a observe of non-compliance to a financial institution.
The CRA expects the records it receives from banks, mutual funds, credit unions and other institutions for the 2020 tax year to include that information. Those records will be sent to the IRS in September, 2021.
Since 2014, details of over 2.6 million bank accounts have been sent from Canada to the US under FATCA for the purpose of the IRS finding out who could be subject to US taxes, as reported by International Investment.
Kevyn Nightingale, a partner with the accounting firm MNP said he expects banks to start refusing to open accounts for those who may be subject to US income tax but who cannot provide a taxpayer identification number.
"The big guys, to my understanding, have not turned people away yet, but I wouldn't be surprised if that's ultimately where they go because it's just easier to do that than deal with the hassle of a recalcitrant US taxpayer," he said.
The CRA and financial institutions are not obliged to inform account holders before their records are shared with the IRS.