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American And Canadian FlagsPaul Vasarhelyi

A pair of Canadian dual citizens have launched a legal challenge against a federal law that allows their banking information to be shared with American authorities.

The lawsuit, filed Monday in Federal court against Justice Minister and Attorney General Peter MacKay, amounts largely to a Charter challenge against the Canadian government's implementation of the United States Foreign Account Tax Compliance Act, or FATCA, which is designed to collect taxes from Americans living abroad.

The law, in short, makes it easier for American tax authorities to go after citizens living in Canada and other countries. Canada implemented FATCA provisions in its budget bill, C-31, earlier this year, a deal that will force large Canadian banks to hand over account information for Americans living in Canada, sending the information through the Canadian government's hands and to the American Internal Revenue Service, or IRS.

The Canadian government has said it got the best deal it could, including exemptions for accounts such as RRSPs and TFSAs, during FATCA talks. Credit unions and small lenders are also exempt. The deal will nonetheless expose dual citizens to stiff penalties south of the border, including those who moved to Canada as children.

The lawsuit was prepared by a group called Alliance for the Defence of Canadian Sovereignty, but was filed Monday on behalf of two Canadian women, Gwen Deegan and Virginia Hillis.

Ms. Deegan was born in Washington in 1962 to one American and one Canadian, according to the lawsuit. She moved to Canada at age five, and has not lived in the U.S. since, nor has she worked there or held a U.S. passport, according to the lawsuit.

Ms. Hillis was born in the U.S. in 1946 to two Canadians, and also moved to Canada at age five, having never lived in the U.S. since then, according to the lawsuit. She also has not worked in the U.S. or held a U.S. passport, according to the lawsuit.

American authorities nonetheless would consider each a citizen and will presumably target them for tax repayment, as neither has gone through the process of forfeiting citizenship, which can be costly and require years of tax filing, though the United States announced certain amnesty provisions leading up to FATCA's implementation last month.

The lawsuit alleges the Canadian government has, in implementing its end of FATCA in Bill C-31, violated the Constitution Act as well as sections one, seven, eight and 15 of the Charter. C-31 exposes the plaintiffs "to a deprivation of their liberty and security of the persons," the suit alleges.

The suit is seeking a ruling that the Canadian provisions violates law and are "of no force and effect" or, alternatively, a ruling that the provisions don't apply to provincially regulated lenders.

The government has previously said that, had the Canadian government rebuffed the U.S., FATCA would have been implemented unilaterally south of the border. That would have forced "banks to report information to [U.S. tax authorities] and subjecting Canadians to unnecessary taxes," a June Department of Finance statement said.

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