Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Principal Issues: Whether US FBAR penalties are included in "revenue claims" defined in Art.XXVI-A(1) of the Canada-US Treaty.
Reasons: FBAR penalties are not civil penalties in respect of taxes covered under Art.II of the Treaty.
July 25, 2012
Re: Civil Penalties and Article XXVI-A
We are writing in response to your letter of November 7, 2011, in which you asked for our comments in respect of the application of Article XXVI-A of the Canada-United States Tax Convention (1980) (Treaty).
You have described a hypothetical situation involving an individual who is a citizen of the United States (U.S.) by right of birth, and a Canadian citizen by way of naturalization prior to 1995. The individual is a resident of Canada for purposes of the Income Tax Act (Act) and the Treaty. We are to assume that the individual has failed to file Form TD F90-22.1 Report of Foreign Bank and Financial Accounts with the U.S. Department of the Treasury as required under the U.S. Bank Secrecy Act. As such, the individual has been assessed a civil penalty (FBAR Penalty) in the U.S. for the failure to file Form F90-22.1.
In this regard, you have asked whether the FBAR Penalty could be considered a civil penalty that is included in a revenue claim as defined at paragraph 1 of Article XXVI-A of the Treaty, and if so, whether paragraph 8 of Article XXVI-A would preclude the collection of the FBAR Penalty by the Canada Revenue Agency (CRA) on behalf of the U.S. Government.
The CRA has previously indicated that Canada would assist the U.S. Government in the collection of interest and penalty in respect of U.S. taxes owing pursuant to Article XXVI-A of the Treaty. However, paragraph 8 of Article XXVI-A provides that Canada will not assist in the collection of a revenue claim from the U.S. Government in respect of an individual who is a Canadian citizen, such as the individual described in your hypothetical situation.
In addition, we are of the view that a civil penalty, such as the FBAR Penalty, which is imposed under the U.S. Bank Secrecy Act, is not a penalty in respect of U.S. taxes owing. Therefore, it is our view that an FBAR Penalty is not an amount that would be considered a revenue claim pursuant to the definition at paragraph 1 of Article XXVI-A.
We trust that our comments will be of assistance.
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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