VANCOUVER, B.C. (CN) – Two Canadian women who are considered “US Persons” under U.S. tax law claim in court that the Canadian government unconstitutionally shares bank account information with the Internal Revenue Service.
Virginia Hillis and Gwendolyn Deegan, of Ontario, sued the Attorney General of Canada in Federal Court, claiming the Canada-United States Enhanced Tax Information Exchange Agreement Implementation Act violates their rights guaranteed by Canada’s Charter of Rights and Freedoms.
To be considered a “US Person,” one must be born in that country or outside the country to married U.S. citizens, of whom “at least one parent lived in the United States or its territories prior to the birth,” the claim states.
“The contours of United States citizenship and the definition of US Person are matters of United States law and/or policy and are subject to change by the United States at any time.
“The United States taxes the world income of US Persons regardless whether the US Person lives, works, or earns income in the United States.”
US Persons must declare their income every year even if they don’t make enough to “generate a United states tax liability,” the complaint states. Those who live in Canada can generate tax liabilities south of the border, such as capital gains on personal homes, which is not taxed in Canada, and “can be exposed to very significant tax liability to the United States.”
Furthermore, they can find themselves subjected to double taxation, penalties for failure to file tax returns and even criminal sanction where the U.S. can establish that a US Person willfully failed to file.
Plaintiff Virginia “Ginny” Hillis, a retired attorney, was born to two Canadian citizens in Michigan in 1946, according to the lawsuit. She returned to Canada with her parents and hasn’t lived in America since she was 5 years old. Hillis claims she never declared or paid taxes to the U.S., lacks a taxpayer identification number and American passport, and recently discovered that non-resident U.S. citizens are required to file.
Gwendolyn Deegan was born in Washington state to one Canadian and one U.S. parent. Like Hillis, she stopped living in the country when she was 5 and has never declared or paid taxes in the United States.
When travelling to the United States, Deegan says, border guards have questioned why she doesn’t have a U.S. passport since she was born in the United States, “to which she always replies: ‘because I am a Canadian,'” the complaint states.
Neither Hillis nor Deegan has sought to relinquish their U.S. citizenship, which would require them to file overdue tax returns and provide bank account information for the past five tax years.
Under the Foreign Account Tax Compliance Act, the U.S. government can sanction foreign financial institutions that don’t participate, even though the agreements the foreign banks would have to enter may expose them to sanctions for violating their home countries’ privacy legislation.
In response to FACTA, the Canadian government passed legislation to “cause Canada to act as an intermediary between Canadian Financial Institutions and the IRS: Canadian Financial Institutions provide Accountholder Information of US Persons to Canada, and Canada provides that Accountholder Information to the United States,” according to the complaint.
The plaintiffs claim that the “impugned provisions” of the Canadian legislation create a distinction between Canadian citizens and residents who are considered US Persons and those who aren’t, putting the plaintiffs at a disadvantage. They claim they may be unable to open bank accounts and could have their career progress inhibited. In addition, they claim that the disadvantages “perpetuate prejudice and stereotyping.” They also claim the “impugned provisions seriously interfere with the privacy, liberty, and economic interests of US Persons.”
They seek a declaration that the Canada-United States Enhanced Tax Information Exchange Agreement Implementation Act is unconstitutional and “inconsistent with the unwritten principles of the Constitution, including the principle that Canada will not forfeit its sovereignty to a foreign state.”
Hillis and Deegan are represented by Joseph Arvey and David Gruber with Farris, Vaughan, Wills & Murphy, of Vancouver.
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