Deegan v. Canada (Attorney General)

Deegan v. Canada (Attorney General)
Court (s) Database
Federal Court Decisions
Date
2019-07-22
Neutral citation
2019 FC 960
File numbers
T-1736-14
Notes
Reported Decision A correction was made on September 9, 2020.
Decision Content
Date: 20190722
Docket: T-1736-14
Citation: 2019 FC 960
Ottawa, Ontario, July 22, 2019
PRESENT: The Honourable Madam Justice Mactavish
BETWEEN:
GWENDOLYN LOUISE DEEGAN AND KAZIA HIGHTON
Plaintiffs
and
THE ATTORNEY GENERAL OF CANADA AND THE MINISTER OF NATIONAL REVENUE
Defendants
JUDGMENT AND REASONS
TABLE OF CONTENS
Topic
Para
I. Background
A. The American Income Tax System
8
B. The Enactment of FATCA
20
C. The Concerns for Canada Resulting from the Enactment of FATCA
31
D. The Negotiations with the Government of the United States
40
E. The Canada-U.S. Intergovernmental Agreement and the Impugned Provisions
56
F. The Purpose of the Impugned Provisions
69
G. The Advantages of the Canada-U.S. IGA and the Impugned Provisions over the Requirements of FATCA
90
II. The Plaintiffs’ Situation
108
III. The Evidence of Other Affected Individuals
126
IV. The History of this Litigation
167
V. Issues
173
VI. Do the Plaintiffs have Standing to Bring this Action?
176
A. Does this Case Raise a Serious Justiciable Issue?
198
B. Do the Plaintiffs have a Genuine Interest in this Proceeding?
199
C. Is Granting Public Interest Standing to the Plaintiffs a Reasonable and Effective Way to Bring these Issues Before the Court?
201
VII. Is this Case Appropriate for Determination by Way of a Summary Trial?
209
VIII. Does this Court have Jurisdiction to Grant the Relief Sought by the Plaintiffs?
212
IX. Do the Impugned Provisions Violate Section 8 of the Charter?
241
A. The Plaintiffs’ Arguments
243
B. Analysis
254
(1) The Role of the Courts in Reviewing Government Policy Choices
254
(2) The Section 8 Analytical Framework
259
(3) Do the Plaintiffs and Other Affected Individuals have a Reasonable Expectation of Privacy in Their Banking Information?
286
(4) Is the Seizure of Information under the Impugned Provisions Reasonable?
314
(5) Conclusion with Respect to the Plaintiffs’ Section 8 Claim
353
X. Do the Impugned Provisions Violate Section 15 of the Charter?
356
A. The Plaintiffs’ Arguments
359
B. The Defendants’ Arguments
381
C. Analysis
394
(1) The Law Governing Section 15 Claims
397
(2) Do the Impugned Provisions Draw a Distinction between U.S. Persons and non-U.S. Persons Based on their Citizenship or National Origin?
416
(3) Is any Distinction Drawn by the Impugned Provisions between U.S. Persons and non-U.S. Persons Discriminatory?
426
(4) Conclusion with Respect to the Plaintiffs’ Section 15 Claim
440
XI. Conclusion
442
XII. Costs
443
Appendix
[1] Unlike Canada, which taxes only those individuals who are resident in this country, the United States imposes tax on the worldwide income of its citizens, regardless of where they may reside.
[2] To help ensure compliance with this system, the United States enacted the Foreign Account Tax Compliance Act (FATCA) in 2010. FATCA requires that certain persons (including U.S. citizens) provide financial information to the American Internal Revenue Service (IRS). FATCA further requires that non-American financial institutions enter into direct reporting relationships with the IRS, and that they provide the IRS with account information for customers who may be subject to American tax laws. Financial institutions that do not enter into such agreements or who otherwise fail to comply with FATCA’s reporting obligations will be subject to a 30% withholding tax on a variety of types of payments received from U.S. sources.
[3] The enactment of FATCA led to concerns on the part of the Canadian government as to the potential negative consequences for the Canadian financial sector, its customers and investors, and the Canadian economy as a whole, if Canadian financial institutions were unwilling to comply with the requirements of FATCA. There were, moreover, concerns with respect to the ability of Canadian financial institutions to comply with FATCA, in light of Canadian banking and privacy laws.
[4] As a result of these and other concerns, the Canadian government entered into negotiations with the American government in an effort to mitigate the impact of FATCA in this country. These discussions culminated in the conclusion of an intergovernmental agreement between the Governments of Canada and the United States in 2014. This agreement was subsequently implemented into Canadian law through the enactment of the Canada-United States Enhanced Tax Information Exchange Agreement Implementation Act, S.C. 2014, c. 20, s. 99 (the Implementation Act) and sections 263 to 269 of the Income Tax Act, R.S.C. 1985 (5th Supp.), c. 1 (collectively “the Impugned Provisions”), the relevant provisions of which are attached as an appendix to these reasons.
[5] Broadly speaking, the Impugned Provisions cause Canada – specifically the Canada Revenue Agency (CRA) – to act as an intermediary between Canadian financial institutions and the IRS. Canadian financial institutions are now statutorily required to provide the CRA with certain information concerning financial accounts belonging to customers whose account information suggests that they may be “U.S. persons”. The CRA then provides that information to the IRS.
[6] By this action, the Plaintiffs challenge the constitutionality of the Impugned Provisions, asserting that they result in the unreasonable seizure of financial information belonging to U.S. persons in Canada, contrary to section 8 of the Canadian Charter of Rights and Freedoms, Part I of the Constitution Act, 1982, being Schedule B to the Canada Act 1982 (U.K.), 1982, c. 11. The Plaintiffs further assert that the Impugned Provisions impose a burden on such persons because of their citizenship or their national or ethnic origin, contrary to section 15 of the Charter. Finally, the Plaintiffs say that these violations do not constitute reasonable limitations on the privacy and equality rights of affected individuals, as contemplated by section 1 of the Charter.
[7] For the reasons that follow, I have concluded that while the Impugned Provisions allow for the seizure of account information, seizures carried out pursuant to the Impugned Provisions are not unreasonable and thus do not violate section 8 of the Charter. I have further concluded that although the Impugned Provisions draw a distinction based on the enumerated and analogous grounds of national origin and citizenship, any such distinction is not discriminatory and thus does not violate section 15 of the Charter. Consequently, the Plaintiffs’ action will be dismissed.
I. Background
A. The American Income Tax System
[8] The vast majority of countries’ income tax systems are based on the residency of taxpayers. Only the United States and Eritrea utilize a citizenship-based taxation system.
[9] Like Canada, the United States generally automatically grants citizenship to individuals born within its jurisdiction. Other circumstances, such as parentage, can also lead to a person being deemed to be an American citizen by the United States Government, even if the individual was born outside the United States. Indeed, some individuals may be considered to be U.S. citizens by the American Government despite the person never having had any substantive connection to that country.
[10] The United States deems all American citizens to be permanent tax residents in the United States for federal income tax purposes, taxing the worldwide income of “specified U.S. persons” regardless of whether they live, work, or earn income in the United States. The term “specified U.S. persons” is defined under FATCA and relates to persons who are subject to U.S. tax laws. [1] In addition to American citizens, “U.S. persons” subject to U.S. tax laws include other categories of persons who reside in the United States, such as “Green Card” holders.
[11] The result of this is that every Canadian resident who is an American citizen is subject to U.S. federal taxation on all of their income from all sources, wherever that income may be derived, even if he or she is also a Canadian citizen. These individuals are generally required to register for a “taxpayer identification number” (or TIN) and file U.S. income tax returns on an annual basis.
[12] Like the Canadian income tax system, the American income tax system is largely based on self-reporting by taxpayers. The U.S. requires that taxpayers, including non-resident U.S. citizens, file income tax returns, regardless of whether they actually owe any taxes, as long as their income for the taxation year in question meets a specified threshold.
[13] According to the evidence of Professor Allison Christians, a professor of international and comparative tax law at McGill University, Canada has never been considered by Americans to be a “tax haven”, as it has its own comprehensive and well-regulated income tax system that is
fundamentally similar to the tax system in the United States. Professor Christians states that Canada is also a highly cooperative member of the international community on matters involving tax and information sharing and, in her opinion, individuals seeking to evade taxes would be more likely to hide their assets in jurisdictions with bank secrecy laws. Such individuals would thus not consider Canada to be a favourable destination. Canada and the United States have, moreover, had a deep and long-standing cooperative relationship in tax compliance and enforcement. In Professor Christians’ opinion, individuals seeking to thwart American tax compliance and enforcement efforts would not seek assistance in this effort by moving their assets to Canada.
[14] Indeed, the U.S. government estimates that fewer than 10% of all individuals who file American tax returns from a “tax home” located outside the United States ultimately owe any taxes to the American Government. Regardless of whether any tax is due, however, U.S. law requires extensive financial and asset reporting. Failure to comply with these requirements potentially attracts significant penalties.
[15] The Canada-U.S. Tax Treaty allows U.S. persons who are resident in Canada to receive credit for some taxes paid to the federal and provincial governments in Canada that would otherwise have been owed to the IRS: Convention between Canada and the United States of America with respect to Taxes on Income and on Capital, 26 September 1980, Can. T.S. 1984 No. 15 (as implemented by the Canada-United States Tax Convention Act, 1984, S.C. 1984, c. 20) (the Canada-U.S. Tax Treaty).
[16] U.S. persons are, however, subject to taxation in the United States for certain events that are not taxable in Canada, even if the event in question takes place in Canada. For example, when U.S. persons resident in Canada realize a capital gain on the sale of their personal residence (an event that is not taxable in Canada, but is generally taxable in the United States), they can be exposed to significant tax liability to the IRS. Other examples of matters that are taxable in the United States, but not in Canada, include lottery winnings and strike pay.
[17] Penalties (which can, in some cases, be substantial) may be imposed for failure to comply with the reporting requirements of the U.S. Internal Revenue Code, 26 U.S.C. § 1. That said, taxpayers may have defences where there is a reasonable explanation for their failure to file and it is not due to wilful neglect. There are, moreover, various amnesty programs available to allow taxpayers to become compliant with their U.S. tax obligations with reduced or no penalties.
[18] In addition to the obligations imposed on citizens under American income tax legislation, the U.S. Bank Secrecy Act, Pub. L. No. 91-508, 84 Stat. 1114 (1970) requires that American citizens file “Form 114” reports with the Financial Crimes Enforcement Network of the U.S. Treasury Department with respect to financial accounts held outside the U.S. that exceed $10,000 (USD) in aggregate. These reporting obligations pre-date FATCA. “Form 114” reports are known as Foreign Bank Account Reports or “FBARs”.
[19] Requiring that individuals file reports with tax authorities with respect to property held outside the jurisdiction in question is not unusual. As noted above, the United States has its requirement that American citizens file FBAR reports with respect to financial accounts held outside the U.S. that exceed $10,000. Similarly, section 233 of the Canadian Income Tax Act states that individuals subject to Canadian tax law are required to file “T1135” reports identifying property held in foreign jurisdictions, including bank accounts, foreign trusts and corporations, where the total value of the property in question exceeds $100,000. As is the case where individuals fail to file FBAR reports, penalties can be imposed by Canadian tax authorities for failure to file T1135 reports with respect to foreign property.
B. The Enactment of FATCA
[20] To help ensure compliance with its income tax system, in 2010 the United States enacted FATCA, as part of the Hiring Incentives to Restore Employment Act, Pub. L. No. 111-147, 124 Stat. 71. FATCA now comprises Chapter 4 of Subtitle A of the Internal Revenue Code.
[21] This Court has previously found that the purpose of FATCA was “to improve US tax compliance”, and that “[t]he American authorities were particularly concerned in 2010 with the issue of tax evasion”: Hillis et al v. Canada (Attorney General), 2015 FC 1082 at para. 50, [2016] 2 F.C.R. 235. [2]
[22] In an effort to thwart tax evasion through the use of off-shore bank accounts, FATCA imposed new reporting requirements on certain persons, including U.S. citizens, with respect to financial assets held outside the U.S. These require that affected individuals report the name, address and identifying number for the financial institutions where their accounts are located to the IRS, along with information concerning the account type and number, and the maximum value of the account during the year. These reporting obligations apply to U.S. persons who are resident in Canada, including those who also hold Canadian citizenship, and are in addition to the pre-existing obligation under the U.S. Bank Secrecy Act to report foreign financial accounts to the U.S. Treasury Department through the mechanism of FBAR reports.
[23] The definition of a “U.S. person” under FATCA is intended to capture individuals who are subject to U.S. tax laws. FATCA establishes a series of criteria or indicia that suggest that account holders may be subject to American tax laws. These include the account holder:
Being identified as a U.S. citizen or resident;
Having been born in the United States;
Having a current U.S. residence or mailing address (including a U.S. post office box);
Having a current American telephone number as the only telephone number on file;
Having both a current American telephone number and a non-American telephone number on file;
Having provided standing instructions to wire funds to an account maintained in the United States;
Having a currently effective power of attorney or signatory authority granted to a person with a U.S. address; and
Having provided an “in-care-of” or “hold mail” address as the sole address on file for the account holder.
[24] Reporting is required for all U.S. persons with assets outside of the United States whose value exceeds certain thresholds based on the individuals’ residency and filing status. For U.S. persons living abroad, including those individuals residing in Canada, reporting is required if an individual files as “single” or “married filing separately” and has specified foreign financial assets in excess of $200,000 (USD) on the last day of the tax year, or $300,000 at any point during the year. For U.S. persons living abroad who file a joint tax return (a return that reports the income of both spouses and carries joint and several liability for both spouses), the thresholds are $400,000 (USD) on the last day of the year, or $600,000 (USD) at any point during the year.
[25] Individuals who are not U.S. persons may be affected by the reporting requirements of FATCA, including the non-American spouses of U.S. persons who hold accounts jointly with their spouses. Canadian businesses that have U.S. persons with signing authority on financial accounts may also be subject to FATCA’s reporting requirements.
[26] FATCA also imposes reporting requirements on non-U.S. financial institutions. These include entities that: accept deposits in the ordinary course of a banking or similar business; hold financial assets for the account of others as a substantial portion of their business; or are engaged (or hold themselves out as being engaged) primarily in the business of investing, reinvesting or trading in securities, partnership interests, commodities or have any interest (including a futures or forward contract or option) in such securities, partnership interests, or commodities.
[27] FATCA requires that foreign financial institutions (FFIs) disclose the identity of U.S. persons who are beneficial owners of foreign financial accounts. Reporting FFIs are required to follow prescribed procedures in order to determine whether or not an account holder is in fact a U.S. person. These procedures may differ slightly, depending on whether the account is owned by a natural person or a legal person or “entity” such as a corporation or a trust, and whether the account was opened prior to or after FATCA coming into force.
[28] Once a FFI ascertains that an account holder’s documentation indicates that the individual satisfies one or more of the “U.S. person” criteria, FATCA requires that FFIs contact the account holder in question in order to determine whether or not the individual is in fact a “U.S. person” for the purpose of the Act.
[29] FATCA gives foreign banks the choice of opting in or out of the FATCA regime. Financial institutions that decline to opt into the FATCA regime will be subject to the 30% withholding tax that will be imposed on U.S. source payments. “U.S. source payments” include U.S. source interest payments, dividends, royalties, fixed and determinable annual or periodic payments, and gross proceeds from the sale of any property that produced any U.S. source interest or dividends.
[30] FFIs that opt into the FATCA regime will be required to register with the U.S. authorities and to employ prescribed procedures in order to determine whether account holders qualify as “U.S. persons”. As a general rule, these financial institutions will not be subject to the 30% withholding tax imposed on the U.S. source payments that they receive. They will, however, be required to impose the 30% withholding tax on U.S. source payments that they make to account holders who refuse to provide information regarding their status as U.S. persons (recalcitrant account holders) or to financial institutions that have opted out of the FATCA regime (pass-through payments).
C. The Concerns for Canada Resulting from the Enactment of FATCA
[31] The enactment of FATCA led to concerns on the part of the Government of Canada with respect to the risks that the legislation posed for the Canadian financial sector, its customers and investors, and the Canadian economy as a whole.
[32] Evidence with respect to these concerns was provided by Kevin Shoom. Mr. Shoom is the Director of International Taxation within the Business Income Tax Division of the Department of Finance. He was involved in the negotiations with the U.S. Government that followed the enactment of FATCA. [3]
[33] According to Mr. Shoom, the Department of Finance was concerned that a broad application of FATCA would have serious negative consequences for the Canadian financial system and for the Canadians who rely upon it. Although FATCA applies to financial institutions around the globe (as long as those financial institutions do business in the U.S.), the Department of Finance determined that Canada likely faced the highest level of exposure to the negative consequences of FATCA as a result of the very high degree of interconnection between the Canadian economy and that of the United States.
[34] Mr. Shoom states that the 30% withholding requirements of FATCA “put at risk all Canadian and Canadian financial institution (FI) participation in US markets of all types”. He
notes that according to information provided by the Canadian Bankers’ Association, in 2008, Canadians held $322 billion (CDN) worth of U.S. securities and received U.S. source income of $27 billion (USD) that would be subject to the 30% withholding tax if Canadian financial institutions did not comply with FATCA’s reporting requirements.
[35] Mr. Shoom says that this could have caused “serious instability in the financial system and therefore to all Canadians who had investments in the US, who relied on pensions which invest in the US, or who borrowed money from or otherwise had financial relationships with Canadian FIs”. He further estimates that the negative impact of FATCA on the Canadian financial system and economy “would be severe and long lasting”.
[36] Concerns also arose as to whether Canadian financial institutions’ compliance with FATCA’s reporting requirements would bring them into conflict with Canadian law.
[37] In particular, the Government of Canada was concerned that Canadian privacy legislation may have prohibited the direct reporting of accountholder information to the IRS by Canadian financial institutions, absent the consent of the accountholders.
[38] A further concern arose out of Canadian banking legislation. In order to remain compliant with FATCA, Canadian financial institutions would, in some circumstances, be required to close the accounts of recalcitrant accountholders who refused to co-operate in providing the information necessary to determine whether or not they were “U.S. persons”. However, Canadians have a right to basic banking services under the Access to Basic Banking Services Regulations, SOR/2003-184. These regulations require that Canadian banks provide retail depository accounts to individuals who can provide identification in all but exceptional cases (where, for example, the account is to be used for illegal or fraudulent purposes, misrepresentation, or danger to other customers or employees).
[39] Despite these concerns, Mr. Shoom says that the Department of Finance recognized that “an enhanced exchange of information regime” could also potentially offer benefits for the Canadian tax system. Consequently, representatives of the Canadian government decided to enter into negotiations with their American counterparts, in the hope of mitigating the effect of FATCA on the Canadian economy and Canadians.
D. The Negotiations with the Government of the United States
[40] The Hiring Incentives to Restore Employment Act (of which FATCA was a part) was signed into law in 2010. While the provisions of FATCA were initially not scheduled to come into effect until 2013, the effective date for FATCA was subsequently pushed back to 2014.
[41] After determining that there was no appetite for a co-ordinated international response to the American legislation, the Department of Finance decided to work as closely as possible with its American counterparts in an effort to reduce, to the extent possible, the risk posed by FATCA to Canadians, the Canadian financial system, and the Canadian economy.
[42] Numerous meetings and telephone calls took place between Canadian and American officials in the years between 2010 and 2014. In light of the long and mutually beneficial history of the automatic exchange of tax information between the CRA and the IRS, Canada initially attempted to mitigate the impact of FATCA by negotiating a “carve out” or blanket exemption for Canadian residents. American officials were, however, unwilling to entertain the possibility of creating any such an exemption on the basis that citizenship-based taxation was part of American tax legislation, and the U.S. Government was obliged to administer its domestic tax laws as drafted.
[43] Having determined that a blanket exemption from the reporting requirements of FATCA was simply not possible, Canadian officials then decided to explore whether the Americans would be amenable to building on existing government-to-government arrangements for the exchange of tax information, rather than having Canadian financial institutions enter into direct reporting relationships with the IRS, as required under FATCA. The Department of Finance was of the view that a government-to-government approach would be less burdensome for Canadian financial institutions and financial consumers than full compliance with FATCA. A government-to-government approach would also avoid the potential conflict with Canadian privacy laws.
[44] The Department of Finance was also concerned that as a result of FATCA’s reporting requirements, the IRS could become aware of taxpayers residing in Canada who had not previously been filing tax returns with the IRS, who could then face potentially onerous penalties for their failure to file. To address this concern, the Department of Finance sought to broaden its negotiations with the U.S. Government to include discussions with respect to the possible expansion of voluntary disclosure programs to provide potential relief from IRS penalties for these taxpayers.
[45] In early 2012, while discussions between Canadian and American officials were ongoing, the United States announced that it was negotiating intergovernmental agreements with the United Kingdom, France, Germany, Italy and Spain. These proposed agreements (which became known as “Model I” agreements) contemplated government-to-government reporting relationships along the lines that had been proposed by Canadian negotiators.
[46] In mid-2012, the U.S. Treasury released a draft template Model I agreement. Under this type of agreement, financial institutions would report accountholders whose banking records included U.S. person indicia to the tax authority in the country where the taxpayer was resident. The domestic tax authority would then forward this information to the IRS under exchange of information arrangements between the U.S. Government and the country in question.
[47] Once the draft template Model I agreement had been developed, Department of Finance officials began discussions with officials from the U.S. Treasury Department with respect to the specific text of a Canada-U.S. intergovernmental agreement.
[48] At the same time, the Department of Finance sought input from the public with respect to these matters, and Mr. Shoom was the individual tasked with dealing with the public. He states that many of the comments that he received related to concerns with respect to the impact that U.S. tax laws and filing requirements would have for the affected individuals. Frustration was also expressed with respect to the additional tax that these individuals may have to pay, as well as the high cost of retaining advisors who could assist affected individuals in complying with their U.S. tax obligations. Concerns were also expressed with respect to the challenges that affected individuals would face in making use of tax-deferral plans such as tax-free savings accounts (TFSAs) and Registered Disability Savings Plans (RDSPs).
[49] In early 2013, the IRS released the final version of the FATCA regulations. According to Mr. Shoom, Canada’s input was reflected in some of the regulations, resulting in the removal of the requirement that documentation be provided under penalty of perjury, and modifications being made to the requirement that documentation with respect to accounts had to be updated every three years.
[50] The FATCA regulations would govern financial institutions in countries that had not concluded intergovernmental agreements with the United States. However, it was expected that in countries that had negotiated intergovernmental agreements with the U.S., the terms of the intergovernmental agreement in question would largely supplant the requirements of the FATCA regulations.
[51] According to Mr. Shoom, the promulgation of the FATCA regulations gave Canadian negotiators a “clear picture of the bottom line application of the FATCA provisions”. Once that “bottom line” had been established, Canadian negotiators could continue pushing to have a better arrangement for Canada incorporated into an intergovernmental agreement.
[52] These negotiations culminated in the conclusion of a Canada-U.S. intergovernmental agreement on February 5, 2014: Agreement between the Government of Canada and the Government of the United States of America to Improve International Tax Compliance through Enhanced Exchange of Information under the Convention between Canada and the United States of America with Respect to Taxes on Income and on Capital, 5 February 2014, Can. T.S. 2014 No. 16 (the Canada-U.S. IGA).
[53] Like the intergovernmental agreements negotiated between the United States and the United Kingdom, France, Germany, Italy and Spain, the Canada-U.S. IGA involves a government-to-government approach, which Mr. Shoom describes as “the most crucial achievement of Canada and the international community”. At this point, approximately 100 other countries have entered into intergovernmental agreements with the U.S., which agreements are similar to the Canada-U.S. IGA.
[54] The conclusion of the Canada-U.S. IGA was announced to the public on February 5, 2014. This announcement was accompanied by a call for comments on the detailed draft legislative proposals and accompanying explanatory notes in respect of proposed changes to the Income Tax Act that would implement the agreement. The deadline for comments was March 10, 2014.
[55] As was noted earlier, the Canada-U.S. IGA was subsequently implemented into Canadian law through the Impugned Provisions. Canadian financial institutions are bound to comply with the requirements of the agreement, and cannot choose to opt out of the IGA regime. With the Canada-U.S. IGA in place, Canadian financial institutions are deemed to be compliant with the requirements of FATCA if they comply with the provisions of the agreement: Implementation Act, section 99, Schedule 3; Canada-U.S. IGA, Article 4.
E. The Canada-U.S. Intergovernmental Agreement and the Impugned Provisions
[56] Mr. Shoom states that “[t]o the greatest extent possible in the circumstances”, the Canada-U.S. IGA “improved the position of Canada, Canadian [financial institutions] and their customers”. He further asserts that “[c]rucially, the [Canada-U.S. IGA] put in place a system that reduced the likelihood that withholding taxes would be applied, thereby mitigating the worst of the risks to the Canadian economy”.
[57] Insofar as individual taxpayers are concerned, generally speaking, the Canada-U.S. IGA and the Impugned Provisions require that the CRA collect information about some types of accounts maintained by certain Canadian financial institutions that are held by one or more individuals where the financial institution has specific types of information linking the accountholder to the United States. The types of information in question are set out in the Canada-U.S. IGA, and are referred to as “U.S. Person Indicia”.
[58] Similar to the requirements of FATCA, “U.S. Person Indicia” include any of the following information when it appears in a record relating to an account held by an individual at a Canadian financial institution: identification of the accountholder as a United States citizen or resident; unambiguous identification of a place of birth in the United States; current United States mailing or residence address; current United States telephone number; standing instructions to transfer funds to an account maintained in the United States; currently effective power of attorney or signatory authority granted to a person with a United States address; or an “in-care-of” or “hold mail” address that is the sole address relating to the account.
[59] The Canada-U.S. IGA and the Impugned Provisions also require the reporting of accounts that are held by a legal arrangement or legal person (such as a corporation or a trust) that is controlled by one or more U.S. Persons.
[60] With respect to each account that is required to be reported (“U.S. Reportable Accounts”), the information that the CRA must collect from Canadian financial institutions includes:
the name and address of each U.S. Person that is an account holder;
the taxpayer identifying number (“TIN”) of each U.S. Person, or if the TIN is not in the records of the Canadian financial institution, the accountholder’s birth date;
the name and identifying number of the Canadian financial institution;
the account number and balance and/or value of the account; and
the gross amount of interest, dividends, and other income generated by the account or the assets held in the account, including the gross proceeds from the sale or redemption of any property held in the accounts.
(collectively, the “Accountholder Information”).
[61] Whether or not an account is a “U.S. Reportable Account” is determined by Canadian financial institutions by following the due diligence procedures set out in an Annex to the Canada-U.S. IGA and in the Impugned Provisions (the “Due Diligence Procedures”). Certain kinds of accounts (such as TFSAs, Registered Retirement Savings Plans (RRSPs), and Registered Education Savings Plans (RESPs) are excluded from the operation of the Canada-U.S. IGA and are not considered to be “U.S. Reportable Accounts” under the IGA and the Impugned Provisions.
[62] Different Due Diligence Procedures apply to accounts opened before and after June 30, 2014, and to Low Value Accounts (accounts with a balance or value of less than $50,000 USD, or a cash value insurance contract or annuity contract with a value of less than $250,000 USD), Lower Value Accounts (an account with a value of between $50,000 USD and $1,000,000 USD, or a cash value insurance contract or annuity contract with a value between $250,000 USD and $1,000,000 USD), and High Value Accounts (an account with a value of more than $1,000,000 USD).
[63] In accordance with the Canada-U.S. IGA and the Impugned Provisions, the Due Diligence Procedures to be followed by Canadian financial institutions with respect to pre‑existing individual accounts requires them to search their records for accountholders with U.S. Person Indicia. If a Canadian financial institution does not detect any U.S. Person Indicia associated with an account, it need not take any other steps with respect to that account unless and until there is a change of circumstances that results in one or more U.S. Person Indicia being associated with the account.
[64] For pre-existing accounts that were not previously reportable, the Impugned Provisions only mandate ongoing review and reporting if the account balance exceeds $1 million (USD) at a later date. FATCA has an additional requirement that no longer applies in Canada: namely that such accounts also be reviewed for changes in circumstance which may indicate the accountholder is a U.S. person.
[65] In addition, customers opening accounts at a new bank (other than those financial institutions that are exempted from FATCA’s reporting requirements under the Canada-U.S. IGA) will now have to certify their tax residency, both for the purpose of the Common Reporting Standard (which will be discussed further on in these reasons) and for the purpose of the Canada-U.S. IGA. This requirement does not, however, apply to customers who simply want to open a new account at their existing bank.
[66] Low Value Accounts do not have to be reviewed, identified or reported as U.S. reportable accounts, but financial institutions have the discretion to elect to treat these accounts as U.S. Reportable Accounts. Indeed, certain individuals with Low Value Accounts have had their accounts frozen, and have been told that their accounts will not be reopened unless and until they present a Certificate of Loss of Nationality.
[67] If a financial institution discovers U.S. Person Indicia associated with a Lower Value or High Value Account, it must attempt to obtain or review information and documents that would clarify whether or not the accountholder is in fact a U.S. Person. If the Canadian financial institution cannot obtain or review the necessary information for an account associated with U.S. Person Indicia, the Canadian financial institution must treat the account as a U.S. Reportable Account.
[68] Article 2 of the Canada-U.S. IGA requires Canada to collect Accountholder Information about U.S. Reportable Accounts from Canadian financial institutions and then provide that information to the United States. Article 2 of the Canada-U.S. IGA further provides that Canada’s disclosure of the Accountholder Information is to occur annually and on an automatic basis pursuant to the provisions of Article XXVII of the Canada-U.S. Tax Treaty.
F. The Purpose of the Impugned Provisions
[69] It is necessary to identify the purpose of the Impugned Provisions in order to assess the reasonableness of seizures of accountholder information carried out in accordance with the Impugned Provisions, and whether they violate section 8 of the Charter.
[70] As the Plaintiffs observe, the Supreme Court has stated that in identifying the purpose of legislation, “courts should be cautious to articulate the legislative objective in a way that is firmly anchored in the legislative text, considered in its full context”: R. v. Moriarty, 2015 SCC 55 at para. 32, [2015] 3 S.C.R. 485.
[71] In identifying the purpose of the Impugned Provisions, the starting point must be the rationale underlying the enactment of FATCA itself.
[72] I agree with the Defendants that while the American government was undoubtedly concerned with the issue of tax evasion, the purpose underlying the enactment of FATCA was its desire to improve U.S. tax compliance. Indeed, Justice Martineau found that “[t]he stated purpose of FATCA is to improve US tax compliance by obtaining information from foreign financial institutions about accounts maintained by US taxpayers, directly or through intermediary entities”: Hillis, above at para. 50.
[73] Insofar as the purpose of the Canada-U.S. IGA is concerned, Justice Martineau found that the Canada-U.S. IGA was concluded “for the purpose of implementing the obligations to obtain and exchange information with respect to reportable accounts”: Hillis, above at para. 27. He further found that the intention of the two governments was clear from the wording of the Canada-U.S. IGA: namely that “they agree to obtain and exchange annually on an automatic basis all relevant information respecting reportable accounts subject to the confidentiality and other provisions of the Canada-US Tax Treaty”: Hillis, above at para. 66.
[74] While the purposes identified by Justice Martineau may be true as far as they go, the Plaintiffs and the Defendants have each identified other purposes for the Canada-U.S. IGA.
[75] Referring to the recitals in the Canada-U.S. IGA, the Plaintiffs submit that the purpose of the Impugned Provisions is to assist the American government in implementing FATCA and finding American tax evaders and cheats. The Plaintiffs further contend that assisting the United States in catching tax cheats can hardly be considered to be a pressing and substantial issue for the Canadian Government, or for Canadians themselves, submitting that the scheme envisaged by the Canada-U.S. IGA is nothing more than a fishing expedition.
[76] The Defendants contend that it is an oversimplification to say that the purpose of the Impugned Provisions is simply to assist the American government in finding “tax evaders and cheats”.
[77] According to the Defendants, Canada’s purposes in ent