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View Point - Apple Trees for the Future

Our most recent view point article comes from: Frank Driscoll, of the PEIACL on the topic is Registered Disability Savings Plans (RDSP)

Frank Driscol

The RDSP program was introduced by the Government of Canada in 2008 to help Canadians with disabilities save for the future. The program is good for people with intellectual disabilities, it’s good for their families, and it’s good for Canadian companies. I think that many of our member families can benefit from this program. Here’s why. One of the main issues facing people with disabilities is poverty. The RDSP addresses the poverty issue by putting money directly in the bank accounts of people with disabilities and their families. The RDSP is a good tool for people with disabilities to invest for their future. It’s like planting an apple tree and harvesting apples. We plant the apple tree today. We don’t get apples right away, but if we plant our tree on fertile soil and look after it, we can start harvesting apples in a few years.
Having your own investment fund is good for a number of reasons.  A savings plan like an RDSP can build a sense of dignity for the person with a disability and their family because they have control over the money. They control how it is invested, and they control how it is spent. It is empowering to have money in the bank! People can have hope and hope is food for the soul!
Setting up an RDSP is generally easy. Most of Canada’s major Banks are organized to set up & maintain RDSP’s for Canadians with disabilities. People with low to modest incomes can participate.  If your income is less than $24,183 you do not even have to put a single dollar of your own money into the plan in order to get started. The money invested in an RDSP is generally exempt from claw back from other Federal & Provincial government benefits. Where does the money come from? The Government of Canada puts the money in for you. Persons with disabilities and their families can also contribute if they are able. For example a low income family with a 10 year old Downs Syndrome child is eligible to create an RDSP for their child and can receive a $1,000 contribution (called a Canada Disability Savings Bond) every year for the next 17 years.
Where does the money go and how does it work to make more money for the downs syndrome child? The family invests the money in a Mutual fund of their choosing… like planting an apple tree. Low risk investors may choose a bond fund so the interest on the bonds gets added to the investment tax free. A higher risk investor may invest in a Mutual fund where the money is invested in shares of Canadian companies that pay dividends from their profits. The dividends then go into the RDSP tax free. The end result is Corporate Canada is helping people with disabilities, and people with disabilities get money with dignity. It’s the same idea as planting an apple orchard. You plant the trees & after a while you harvest apples.


RDSP and US Persons in Canada

Thank you for your wonderful piece on the RDSP. Do you know it is not a good thing for ALL Canadian citizens with disabilities?

For those with a United States connection (an estimated one million Canadian households affected), the RDSP is considered a "foreign trust" by the US IRS. The US, with one other country, Eritrea, taxes on citizenship rather than residence. All US Persons in Canada above a basic low income must file US tax returns and Foreign Bank Account Reports (if their accounts total more than $10,000 in aggregate). Gains and contributions by the Canadian Government are taxable if a US Person (either Holder or Beneficiary), with costly further reporting of such on IRS Forms 3520 and 3520A. This is not something the average person can do themselves.

My son born in Canada, raised in Canada, never registered with the US, never had any benefit from the US is a US citizen because I, his mother, was born in the US (though a Canadian citizen since 1975). The US Consulate informs that a Parent, Guardian or Trustee of a developmentally disabled child (of whatever age) or any other mental incapacity (including things like dementia) does not have the RIGHT to renounce that US citizenship on behalf of their family member for whom they make daily life and death and financial and legal decisions, unless there is a "compelling reason" (which is none other than life or death, which it isn't for someone in Canada). My son is a second-class citizen (or likely a fourth-class citizen (see comment below) by virtue of his US citizenship which he cannot renounce.

Last night I was again awake, almost to the low depths of my ups and downs. I talked with my Washington, DC immigration / nationality lawyer, a wind-up conversation on Tuesday. What an outstanding human being he is. But, he can do nothing for my son. He has unofficially had conversations with those high in Department of State, especially regarding a situation for someone like my son and another more profound case where there is no communication on the part of the disabled person, but there is some comprehension. We discussed my two options – go through with trying to “teach” my son everything they could ask him regarding his knowledge of what citizenship means, what US citizenship means for him; what renunciation of US citizenship means for him – what he would be giving up. Did he have any influence from anyone? Of course he would have – a very strong minded mother.

DOS persons he talked with on an informal basis have “sympathy” for such cases. However, the developmentally disabled person will have to have FULL understanding of what he’s doing; if any question of lack of comprehension and grasping meaning and importance of ramifications, they could NOT approve such a case. From DOS point of view, US citizenship is precious and they have therefore established fundamental requirements for “compelling reason”. Even though there is the risk that a person’s financial resources could run out before his/her life was over, they will never approve a renunciation for financial / economic reasons. DOS has NEVER had such a renunciation case approved due to “compelling circumstances”. Bottom line: “compelling reason” in their regulations is not helpful to my son’s case. I could sue – persons he talked with at DOS are SURE no one would ever win such a case as the courts view the discretionary action that DOS has would take precedence.

I told him that I had made up my mind, but that doesn’t mean I might have to change it, “Don’t Ask / Don’t Tell” – I will not register my son with the US; I will not get a social security number for him; I will not file back US tax returns and 3520 and 3520As on his behalf. All to be able to take the chance that DOS would accept his renunciation (not mine on his behalf). My recurring nightmare is having the bank ask me if I am lying when I say that my son is Canadian. Is he also US? Are you his mother? Why do you say he is not US? We will have to close his RDSP and you will have to pay back to the Government of Canada all of their contributions.

This US lawyer is closing my account and will refund some of my $6,000 that he was going to work up to. He says he has the answer in less time. I told him I’d like him to keep the balance to use for some other like person who has no funds to pay him. He indicated that he has learned so much from me and he will now take similar cases on a “knowledge fee” rather than an hourly rate. Although he has closed my file, he encourages me to contact him if I change my mind on any of this.

I feel I have made so many, many stupid mistakes along my road, have paid much too much money to US tax lawyers and accountants and that this could have been an easier process for me – had I known then what I know now. I don’t feel sorry for myself; I’m just so mad sometimes that I can’t see straight.

And, I feel that I am being gagged on talking about my son’s situation and me losing the ability to maintain an RDSP for him. Every parent with a family member who is “disabled” in some way fear the day they will be gone and their child, whatever age, will then be on their own. I have also imposed upon myself and my son “the dreaded Reed Amendment”. I don’t have to be threatened by the US that they will do this – it’s already done by my inaction and decision not to cross the border.

…you may break those affected by FATCA down into three classes of Canadians:

1) First-Class Canadians (or any other country citizens) (shouldn’t we all be such?)

2) Second-Class Canadians (or any other country citizens) (Canadian citizens and permanent residents who are also US Persons, thereby losing their rights with FATCA)

3) Third-Class Canadians (or any other country citizens) (FATCA in fact creates three classes of Canadians, the third being a class of Canadian citizen or permanent resident who are US persons but have no indicia of US personhood and thus are able to fly under the radar with impunity — unless turned in through a “Whistleblower” program. These will include “Accidental Americans” as my adult son who happens to have a developmental disability (born and raised in Canada, never registered with the US, never lived in or had any benefit from the US). The US Consulates in Canada advise that a Parent, Guardian or Trustee of such person or any other with a mental incapacity (such as dementia) does not have the RIGHT to renounce citizenship on behalf of that person they make other life, death, financial and legal decisions for, even with a court order, unless there is a “compelling reason” (like life or death, which of course there isn’t for those in Canada).

Maybe my adult son with a developmental disability falls into a fourth category; I don’t know.

… and what I guess it boils down to:

I have caused this for my son who I am supposed to somehow protect. It is absolutely no fault of my son that he was born to a US citizen parent(s). The loss of control of a very independent person (me) is not a pleasant thing to see or experience, especially for my poor husband (who is not my son’s father – his father is deceased). Can I hurt my son any more than I already have?

The wasted human energy in all of this is also profound.

PS - How I hope this will be a hot topic in 2013 as it was certainly hushed in 2012:

The likely surrender of Canada’s sovereignty with FATCA, the fact that the media has ignored this history-changing issue, and that Canadians don’t seem to care!!

Canada’s Finance Minister James Flaherty met with provincial Finance Ministers on Monday, Dec. 17, 2012. Was there decision, or even discussion, on Canada standing strong and refusing to surrender to the United States the Country’s sovereignty and privacy laws in signing an Intergovernmental Agreement to circumvent that law and the rights of 3% of its citizens and residents? This will be to comply with the US extra-territorial Foreign Account Tax Compliance Act (FATCA).

If the media does not adequately highlight this important story to the Canadian public, it is complicit. It will be a huge part of this problem. Continuation of Canadian media’s ignoring or hushing this issue is, in my view, obstructionist.

A FATCA information session took place at the University of Toronto on December 15. Those attending are among the first Canadians to come to the realization that Canada is under attack; its financial system is threatened with a 30% deduction of transactions coming from the US if they do not release to the US all accounts and transactions of US Persons in Canada. The IGA that it was reported by the G&M that Canada will sign by the end of the year, but now likely delayed, will enable confiscation of “USP” Canadian legal bank savings and pensions and the ability to send to a foreign government, circumventing the direct transmission from Canada’s financial institutions to the United States to the transmission of this data first to the Canada Revenue Agency and then CRA transmission to the United States.

Should this not be a wake-up call for ALL Canadians, a matter of ignoring the Canadian Constitution and the Charter of Rights and Freedoms?

Many who have been paying attention are fearful for ourselves, for our families, for other “US Person” families and for the country we now call home – Canada. Here is a summary written for a local newspaper by one concerned, courageous Canadian, David Querbach. With his permission:

The next time you open a bank account or buy a mutual fund, you’ll probably be asked “Are you a U.S. Person?”

Perhaps you were born in the United States, or one of your parents was. Maybe you worked in the States for a while, but never gave back your green card. Or maybe you even just spend four months a year in Arizona or Florida. If any of these apply, the United States considers you a “U.S. Person” who is required to file income taxes with the IRS each year. If so, you’re in good company; about one million other Canadians are in your situation too.

So why are the banks asking this question? It’s because of a recent U.S. law called the Foreign Account Tax Compliance Act, or “FATCA”. FATCA was originally intended to help the IRS find untaxed money hidden in offshore accounts, but its implications are much wider.

FATCA attempts to force every financial institution in the world to search its records to identify accounts of U.S. Persons, and then to report to the IRS each year the account numbers, the balances, and the total deposits and withdrawals. FATCA requires this reporting regardless of any privacy or discrimination laws in the country where the account is held.

Under FATCA, should a foreign financial institution (like your local bank) fail to comply with this demand for information, the United States will deduct 30% of any payments made from anywhere in the U.S. to that bank or to its clients. This deduction applies not only to income, dividend or capital gain payments, but also confiscates 30% of returned principal as well.

Yes, you read that correctly. FATCA confiscates 30% of any money flowing out of the U.S. to a bank and its customers if the bank fails to turn over your private account information to the IRS.

Keep in mind that we’re talking about money in accounts held in Canadian banks, by Canadian citizens or landed immigrants, resident in Canada, on which taxes have already been paid to the Canadian government. But the U.S. doesn’t care about this. If you’re a U.S. Person, the IRS considers your accounts “offshore”, and considers any money in them to be illegal obtained, unless you file with the IRS.

Our Minister of Finance has said, “Canada is not a tax haven. No one moves to Canada to escape taxes”, yet U.S. persons here are treated by the U.S. as tax cheats, even though in most cases (due to various tax credits), they don’t owe any tax even if they do file.

Obviously, releasing private banking information to anyone, especially a foreign state, violates all sorts of laws in Canada. This has put the banks in a pretty tight spot — either they stand up to the IRS and get nailed with a 30% “deduction” on everything coming out of the States, or they roll over, give up your private information, and get prosecuted here.

Actually, the U.S. Treasury seems to know this won’t fly, so it’s trying an end-run — it’s right now negotiating an agreement that would require the Canadian government to pass laws forcing the banks to give the information to the Canadian government, which would then pass it on to the IRS. Minister Flaherty has said that he hopes to finalize the agreement by the end of the year.

To put it bluntly, the U.S. government is pushing the Canadian government to create two classes of Canadian citizens and residents. The first class: those who have a right to private banking information, and a right to not be discriminated against because of their national origin. The second class: Canadian citizens and permanent residents who are also U.S. Persons, who would lose these rights.

What’s worse is that even the selection of the people for the second class (in other words, who is a “U.S. Person”) is made in a foreign capital, not by our elected representatives in Ottawa.

Yes, the Government of Canada could probably pass laws making this discrimination legal, but it would remain highly offensive to Canadian values to discriminate against Canadian citizens and permanent residents based solely on their national origin.

All you have to do is substitute China, Syria, or Iran for the United States to see the implications. Once Canada has thrown its dual Canadian/U.S. citizens under the bus, how can it say “no” when China comes calling?

The Canadian government must tell the Americans that while we fully support the fight against offshore tax evasion, we will not sacrifice the hard-won Charter rights of our citizens and residents.

Canadian laws should be made in Canada, and the Canadian government needs to stand up and protect Canada from this incursion by a foreign power.

US citizens in Canada (including "Accidental Americans" such as my son) must be made aware of this anomoly of an otherwise awesome Canadian benefit for their disabled family member.

Thank you.