US Expats in Canada Sue Canadian Govt Over FATCA

FATCA is one of the most far reaching tax laws to be passed in recent years and implemented with a global impact that could end up changing the entire world’s taxation system.

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It’s definitely a very powerful and effective tool for the IRS to collect taxes on the overseas assets and income of U.S. citizens parked in opaque banking systems such as those in Switzerland.

On the other hand, it’s a pain in the neck for countries like Canada which don’t have anything to hide other than a large numbers of U.S. expats with dual citizenship.  

Canada has more than a million residents who are also U.S. citizens, and their FATCA inter-governmental agreement with the U.S. that forces banks to share these residents’ banking information is causing a lot of angst north of the border.

The five largest banks in Canada have been forced to spend around $687 million to ensure FATCA compliance.

It’s causing a large number of varied problems to Canadians holding dual citizenship, and has led to a flood of people renouncing their U.S. citizenship rather than face IRS scrutiny.

In a bid to get the Canadian Government to back off from the agreement, a group called the Alliance for the Defence of Canadian Sovereignty is backing a lawsuit filed against the Government of Canada by plaintiffs Virginia Hillis, 68 and Gwendolyn Louise Deegan, 52.

They claim that the FATCA agreement the government has entered into with the U.S. is in violation of the Canadian Constitution and violates their rights under the Charter Of Rights And Freedoms.

Both plaintiffs were born in the U.S. but have lived in Canada since childhood. They have never worked or filed taxes in the U.S., and neither of them holds a U.S. passport.

The organization explains the issue nicely and in detail on their website, but many of the people they represent aren’t quite as diplomatic.

Here’s what one retiree from Alberta is quoted as saying - “I CHOSE to be a Canadian. I CHOSE to raise my family in Canada. I detest having myself or my children, born and raised in Canada, being referred to as ‘a US citizen residing in Canada’ or ‘a US taxpayer residing in Canada’… Is the Canadian Charter of Rights and Freedoms a worthless rag that we have been lulled into believing protects ALL Canadians?”

The lawsuit filed in the Federal Court of Canada in Vancouver (docket number F173614) earlier this week is costing the Alliance a huge amount of money. They need to raise and spend $400,000 CAD over the next year to pay for the legal costs just for getting the case through this first court.

This doesn’t include their organizational costs and the future expenses associated with the likely appeals process in the Federal Court of Appeal and then the Supreme Court of Canada.  

Photo credit – adcs-adsc.ca

They call it “Tax Inversion” - we call it yet another example of corporate greed! 
Go to: Burger King FB page and tell them that you will never eat there again if they follow through on their shameless plan to move to Canada on paper just to avoid paying US taxes. 

You can also voice your concerns by calling their toll-free customer complaints line at: 1 (866) 394-2493

Image by Occupy Democrats

Potato Salad Debate Over Kickstarter and Crowdfunding Taxes

There’s an ongoing debate about exactly how money raised on crowdfunding sites such as Kickstarter and Indiegogo will be taxed. It’s not so serious that the IRS needs to step in with guidance, but it is big enough a topic and prominent tax law experts have stepped in to offer their own two cents.

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The whole thing began with an analysis of a Kickstarter crowdfunding campaign posted on the Tax Foundation By Scott Eastman.

The campaign was Zack Brown’s potato salad, who started the campaign as a sort of joke with a $10 goal for making potato salad. The more than 5,000 pledges quickly pushed the campaign up past $70,000.

Eastman’s calculations of the federal income tax, payroll tax and state and local taxes pegged Brown’s tax liability at around $21,000. The post was widely picked up and Zack Brown’s potato salad campaign and his potential tax bill even ended up on TIME.

Then Kickstarter brought down the pledged amount to about $48,000 because a lot of it were apparently fake pledges. Leaving that aside, let’s focus on the main issue – What is the tax treatment for funds raised on Kickstarter and other crowdfunding sites?

Kickstarter provides the following guidelines, while noting that they are not giving tax advice.      

“In general, in the US, funds raised on Kickstarter are considered income. In general, a creator can offset the income from their Kickstarter project with deductible expenses that are related to the project and accounted for in the same tax year. For example, if a creator receives $1,000 in funding and spends $1,000 on their project in the same tax year, then their expenses could fully offset their Kickstarter funding for federal income tax purposes. If a creator receives funding in one year and spends money on their project in a later year, consider whether their expenses can still offset their Kickstarter funding using the accrual method of accounting.”

Of course, not all funds raised on Kickstarter need be considered income. Some of it may be a non-taxable gift, depending on the type of campaign and what (if anything) has been promised by the creator to backers in return for their pledges.

The question that is being debated now is whether the money raised by Brown’s potato salad kind of campaign qualifies as income or a non-taxable gift. Backers who pledge $1 will get a thank you and have their name read aloud when Brown is making the potato salad.

Others pledging higher amounts get more swag (a photo, bite of the salad, chance to in Brown’s kitchen, hat, t-shirt, etc,). A lot of this could easily be ignored to make it a gift. He’s not actually selling anything to anyone through Kickstarter, and whatever the backers are getting doesn’t have value commensurate to the amount they paid. 

Eastman, however, classifies it all as income. Forbes’ Kelly Phillips Erb says she’s not so sure, noting that intent and value have a crucial role to play here.

Bottomline – don’t depend on Kickstarter or anyone else to decide whether the money you raise is income or a gift. Let your accountant take a look at it and decide how each pledge should be classified and taxed.

Photo credit – Kickstarter.com 

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