The Federal Court of Appeal confirmed the constitutionality of the legislation that allows sharing account information held by Canadian financial institutions with U.S. authorities.

Two women born in the United States and now living in Canada, Gwendolyn Louise Deegan and Kasia Highton, challenged the Canadian provisions implementing the 2014 agreement between the two countries, which makes information exchange possible.

The two also unsuccessfully argued in the Federal Court that the provisions violate the Charter of Rights and Freedoms which guarantees protection against unreasonable seizure, prompting them to take their case to the Court of Appeal.

The United States considers all U.S. citizens as permanent residents for tax purposes in the U.S. for federal income tax purposes, and taxes worldwide income for "specified persons in the United States" regardless of whether they live, work, or earn income in the U.S.

The Foreign Account Tax Compliance Act, known as FATCA, requires banks and other institutions outside the United States to report information about accounts held by U.S. persons, including Canadians with dual citizenship.

Also, under the resulting tax arrangements, Canadian financial institutions are legally required to provide the Canada Revenue Agency with data related to accounts belonging to clients whose information indicates they may hold U.S. citizenship, and then the Revenue Agency delivers the information to the U.S. Internal Revenue Service.

Among the information coming from Canada and shared with the United States are the names and addresses of account holders, account numbers, account balances, and details such as interest, dividends, and other income.

In her 2019 decision, Federal Court Justice Anne MacTavish concluded that although the Canadian provisions lead to the seizure of banking information of Americans in Canada, the affected individuals have only a "limited expectation of privacy" in their data.

Deegan and Highton said in their memorandum to the Court of Appeal that banks provide a "conduit function" in collecting and delivering information, which the U.S. revenue service can use according to U.S. law, including criminal prosecution.

The Canadian government also told the Court of Appeal that non-compliance with U.S. measures would have serious effects on the financial sector in Canada, its clients, and the broader economy.

Financial institutions that do not comply with reporting obligations under FATCA are subject to a 30 percent withholding tax on various types of payments received from U.S. sources, which the Department of Finance felt could cause "serious instability in the Canadian financial system."

A panel of three judges of the Court of Appeal found no reason to overturn MacTavish’s conclusion that the Canadian provisions are constitutional, as the judges rejected in their reasons any suggestion that the provisions are harsh or burdensome. Justice Judith Woods, who wrote on behalf of the panel, said the provisions are an example of international cooperation in administering income tax laws.