Two dual citizens are suing the Canadian government for complying with new U.S. tax laws. (Adrian Wyld/Canadian Press)
Two women in Ontario are suing the federal government for complying with a new U.S. law that forces banks to turn over financial information of Canadian citizens to the IRS upon request.
The women are American-born dual citizens of Canada and the U.S who left the states in childhood and have lived in Canada for decades. They argue the recently enacted Foreign Account Tax Compliance Act violates their rights as Canadians under the Charter Of Rights And Freedoms.
Windsor, Ont., resident Virginia Hillis, 68, and Torontonian Gwendolyn Louise Deegan, 52, stepped up as the figureheads of a fight that has hundreds of thousands of Canadian residents fuming.
Both women were born in the U.S. but have never worked south of the border, and as such have never paid or filed U.S. taxes.
But under the agreement that Ottawa agreed to comply with in February, Canadian banks are now obliged to hand over names and account numbers to the IRS of any clients that Uncle Sam suspects are U.S citizens.
If they don't, their banks are subject to a stiff 30 per cent tax penalty on their U.S. investments, which would collectively be in the billions of dollars.
Generally speaking, U.S. citizens abroad are exempt from paying tax on their first $95,000 of income if they pay foreign taxes on it. But because of a law dating back to the Civil War, the U.S. is one of few countries that requires expat citizens to file domestic taxes, even if they didn't earn or spend any money in the U.S., and can prove they already filed and paid taxes where they live.
According to official U.S. data, as many as six million U.S. citizens currently live outside the U.S. Conservative estimates based on Canadian data suggest at least hundreds of thousands of them live in Canada.
Official U.S. data shows a record number of Americans have started renouncing their citizenship in recent months, possibly in anticipation of having to pay taxes on decades worth of foreign income.
The lawsuit alleges FATCA is against Canadian law by violating Sections 7 and 8 of Canada's charter — which protects "life, liberty and security of the person" and forbids "unreasonable search or seizure" — and section 15, which prohibits "discrimination based on race, national or ethnic origin."
"If a person considered by the United States to be a citizen or resident is established to have wilfully failed to file a return, to provide required information or to pay tax, she or he can be subject to criminal sanction, including imprisonment," the lawsuit says.
The case has a docket number of F173614 and was filed in the Federal Court of Canada in Vancouver.
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