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FATCA Inquisition For Canadians Applying For Life Insurance

John Richardson

Sad but true. It’s quite understandable that from a “U.S. Worldview” that a life insurance policy is nothing but a “sacred instrument of tax deferral” (and therefore of tax evasion). U.S. citizens are the most highly regulated people in the world. As such it is no surprise that the possible purchase of life insurance could trigger FATCA scrutiny. (In that “Shining city on the hill” those who purchase life insurance are clearly “up to no good” – “no good at all!”)

Think of it! A Canadian citizen who resides in Canada is now being asked the most important biographical question of the 21st century:

“Where were you born? Are you or have you ever been an American citizen?”

(Given the dangers of interacting with U.S. citizens, one’s citizenship status should be required information on every profile…)

So, what led up to this post…

Last night, I received an email from a man in his seventies (fear of U.S. citizenship takes place 24 hours a day). In order to provide for his wife—should he die—he was in the process of applying for a life insurance policy. Now (if it matters), I am not entirely clear on what kind of life insurance policy he was seeking (and unfortunately neither was he). (The policy very likely had a “cash value” component.) That said, shouldn’t a normal person be allowed to apply for a life insurance policy without being accused of being – the only “carbon life form” not deserving of human rights – an American?

The question, “Where were you born?” is interesting. Some overpaid lawyer in the company’s legal department obviously thought that a “U.S. place of birth” was proof positive of “U.S.-ness”. Well, no. It’s proof that somebody was born a U.S. citizen. The U.S. has always used “citizenship as a weapon”. In fact, almost all of the law of U.S. citizenship is a study of the U.S. Government forcibly stripping people of their citizenship – AKA the law of relinquishment. But, I digress…

Bottom line: it was and continues to be possible for people born in the United States to relinquish U.S. citizenship.

In this case, say it isn’t so, this poor guy had actually been born in that great museum to freedom and opposition to “taxation without representation” – the state of Massachusetts. You know, of Boston Tea Party fame and assorted other historical shrines to liberty. Fortunately, the poor guy had overcome his disabilities triggered by birth (being born American) and had (many years ago) voluntarily naturalized as a Canadian citizen with the full intent of relinquishing U.S. citizenship. Of course he did NOT follow up this liberating event by receiving a CLN (who knew they existed at that time). He therefore, proudly “self-certified” the fact of his “non-U.S.-ness” and presumably will avoid becoming a FATCA victim.

In any case, I thought it might be important to make people aware, that even the simple act of applying for a life insurance policy can now subject people to the FATCA inquisition. I have decided to NOT identify the company in question. But, I promise you that it is a rather large (is there a small one) Canadian life insurance company. You would know them. And of course:

To know, know, know them … is to avoid, avoid, avoid them” – as the song goes!“

(All Canadian insurance companies presumably operate in the same way.)

Casualty Insurance and the American Abroad …

Speaking of insurance in general. Let me remind you Americans living outside the United States that:

Although you are allowed to purchase a home or automobile insurance policy from a non-U.S. company that you are subject to a special excise tax for buying that policy.

You will find this in Section 4371 of the Internal Revenue Code which talks about “Policies issued by FOREIGN insurers” and is in the broader section on “Miscellaneous excise taxes.”


Spread the word! You can now be FATCA’d by attempting to provide for your family by applying for life insurance. Oh and by the wife. Policies with a cash value are likely PFICs!

The Reality of U.S. Citizenship Abroad

My name is John Richardson. I am a Toronto based lawyer – member of the Bar of Ontario. This means that, any counselling session you have with me will be governed by the rules of “lawyer client” privilege. This means that:

“What’s said in my office, stays in my office.”

The U.S. imposes complex rules and life restrictions on its citizens wherever they live. These restrictions are becoming more and more difficult for those U.S. citizens who choose to live outside the United States.

FATCA is the mechanism to enforce those “complex rules and life restrictions” on Americans abroad. As a result, many U.S. citizens abroad are renouncing their U.S. citizenship. Although this is very sad. It is also the reality.


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5 thoughts on “FATCA Inquisition For Canadians Applying For Life Insurance

  1. Ed Dwyer, CPA MS-Tax, Fairhope AL says:

    Our tax laws here in the US are certainly harsh enough without persons making them sound even more Draconion than they already are. Three points in your article demand comment:1. A life policy is a Contract. It cannot therefore also be a Corporation

    • Shovel says:

      “Our tax laws here in the US are certainly harsh….”

      Did you say “here in the U.S.”?

      Many of us who are exclusively citizens and residents of non-U.S. countries profoundly resent the U.S. unilaterally imposing via extortion some of the “harshness” of its tax laws upon us and our families.

      Quibble with Richardson all you want on details…. the point is that the U.S. hasn’t kept its harsh (and yes, Draconian) tax laws at home.

      • Ed Dwyer, CPA MS-Tax says:

        Mr. Shovel- I don’t disagree with you that the US tax rules are over broad as they relate to technical US citizens whose economic ties to the US are at often at best remote, and quite often “accidental” as Mr. Richardson notes. My beef with him is his apparent animus vis a vis the US (a common affliction of Canadians) and more so his penchant for half-truths and misinformation as evidenced by his frequent sensationalizing of the actual U.S. tax rules. that is what my three points were attempting to address. And a more recent example is his post today concerning the Canadian rules on exempting the sale of a personal residence. He cynically notes that the Draconian US tax rules nevertheless would grab that gain and run it through their tax clutches. Again, there is an element of half-truth to that statement, as the US tax rules would tax some such gains, BUT ONLY THAT AMOUNT in excess of US$250,000 ($500,000 if the sellers are married and the residence has been their principal one for the requisite number of years). But in his once again apparent interest in sensationalism, he conveniently fails to mention this most import, tax neutralizing feature of the US tax law because it does not fit his narrative. As an aside, I would certainly take the US individual tax burden, in the aggregate, over the Canadian one any day, considering the Canadian tax rates, Provincial combined with National, and don’t forget the added GST/HSTyou have there.

  2. Ed Dwyer, CPAn MS-Tax, Fairhope AL says:

    Continuing from above– so how can a contract also be a PFIC? The policy can be a reportable asset as a specified foreign financial asset for information reporting by a US person but no one ever asserted let alone implied it’s owner was a tax evader.

  3. Ed Dwyer, CPAn MS-Tax, Fairhope AL says:

    Continuing–2. For the Sec 4371 excise tax on foreign property risks to apply, the risk insured must be with respect to propetty that is US Located. Therefore a US citizen or resident insuring their foreign located properate is outside it’s scope.3. It looks like YOU CAN make this stuff up.

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