Paying the price, twice

Thomas Jefferson is famously believed to have defined the price of freedom as eternal vigilance. The price of freedom from Uncle Sam is a lot steeper.

Thomas Jefferson is famously believed to have defined the price of freedom as eternal vigilance.

The price of freedom from Uncle Sam is a lot steeper.

Faced with a historic number of Americans renouncing their U.S. citizenship, Washington has decided to grab some cash from their one-time citizens on their way out, raising the processing cost to sever ties from US$450 to US$2,350.

It appears a fivefold increase will not slow the stampede.

At the U.S. consulate in Toronto, where an appointment to renounce citizenship was usually available within two-to-four weeks, the next opening is now mid-February 2015.

This move to cut the string is not based on U.S. foreign policy, its feckless gun laws or any of its social ills.

It’s all about taxes and the long reach of Washington, the only nation that taxes its citizens regardless of where they live or where they earned their income.

And in Canada, it is fuelled by a tax grab known as the Foreign Account Tax Compliance Act (FATCA), a policy that came into effect July 1, not only aided and abetted by the Conservative government, but enshrined in Canadian legislation.

Under the Canada-U.S. agreement, Canadian banks will provide account information on anyone deemed an American “person” to the Canada Revenue Agency, which will in turn pass it on to the U.S. Internal Revenue Service.

It will affect an estimated million persons in this country, a number that includes dual citizens, but also “border babies” whose mothers gave birth across the 49th parallel (once a routine referral in parts of this country), those who have American spouses, those who may have returned to Canada with Canadian parents as toddlers but never worked or lived in the U.S. or ever had a U.S. passport.

The American reach is worldwide, with more than 70,000 financial institutions in more than 80 countries complying with Washington’s wishes, under threat of harsh penalties if they don’t dance to D.C.’s tune.

But Canadian expatriates are fighting back. A challenge to the Canada-U.S. agreement has been filed in Federal Court in Vancouver by constitutional lawyer Joe Arvay.

Arvay argues the legislation forfeits Canadian sovereignty to a foreign state, breaches the privacy rights of those affected and discriminates against them based on ethnic origin.

The plaintiffs are Ginny Hillis, a 68-year-old retired lawyer who lives in Windsor, and Gwen Deegan, a 52-year-old graphic designer from Toronto.

Hillis was born in the U.S. to two Canadian citizens but she moved to Canada at age five when her parents returned from Michigan.

She never worked in the U.S. or held a U.S. passport and is married to a Canadian, but since she was born in Michigan, she and her spouse’s financial holdings are deemed taxable by the U.S.

Deegan was born in Washington State, to an American and a Canadian, and also returned to Canada at age five. She never worked in the U.S., never paid taxes in the U.S. and never held a U.S. passport, because, she says, “I am Canadian.”

Ottawa has maintained that the privacy concerns should have been allayed with its insistence that Canadian institutions relay the banking information to the CRA and not directly to the IRS.

But more and more Canadians with American ties are merely checking out. In 2010, worldwide, 1,534 Americans renounced their citizenship. That number almost doubled to 2,999 in 2013 and the number appears set to easily surpass 3,000 this year.

Close to 8,000 Americans renounced over the past five years. In the previous decade, the number was fewer than 5,000.

A U.S. State Department official said he could only rely on anecdotal evidence to explain the surge, but did cite the cost of preparing and filing U.S. tax returns.

Washington says demand for the service has jacked up the cost.

“I was emotional about it because I never thought I would have to go in and document this,’’ said Chris, a Toronto businessman who asked that his last name not be used.

He moved to Toronto from New Jersey to attend university, became a Canadian citizen in 1993 and relinquished his U.S. ties in 2013.

“I have a lot of attachment to the culture and the people of the United States.”

But Chris is free and clear.

As more dual citizens renounce their American ties, they are finding it not only costlier, but the backlog has now forced them into another year of double taxation and invasive snooping on personal accounts from a U.S. government intent on vacuuming up every penny it can find.

Tim Harper is a syndicated Toronto Star national affairs writer. He can be reached at tharper@thestar.ca.

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