On July 22, 2019, the Federal Court released its reasons for judgement in rejecting a constitutional challenge of sections 263-269 of the Income Tax Act (Canada) (the “ITA”). The full reasons can be found at 2019 FC 960 (“Deegan”).
By way of background, the United States enacted the Foreign Account Tax Compliance Act (FATCA) in 2010. The purpose of FATCA is to, among other things, require foreign financial institutions to provide information to the Internal Revenue Service (the “IRS”) for all customers that the financial institution has a reason to suspect might be a “U.S. Person”, and therefore liable to income tax in the United States. Significant penalties can apply to financial institutions that do not comply with the FATCA.
In Canada, the application of FATCA was modified somewhat to account for Canadian banking and privacy laws. Mechanically, this modification occurred through intergovernmental negotiations which ultimately culminated in legislation to amend the ITA by introducing provisions that required Canadian financial institutions to provide such information to the Canada Revenue Agency, which then provides that information to the IRS.
In Deegan, two Canadian residents who were U.S. citizens by virtue of having been born in the United States challenged the constitutionality of the amended provisions on the basis they violated the Charter of Rights and Freedom. More specifically, the plaintiffs argued that those provisions violated s. 8 of the Charter (unreasonable search and seizure) or in the alternative s.15 (equal rights without discrimination based on, among other things, national origin).
In both cases, the Federal Court held that the amendments to the ITA did not violate the Charter of Rights and Freedom.