Canada: New, Far-Reaching US Tax Requirements under FATCA

Earlier this year, the United States enacted the Hiring Incentives to Restore Employment Act of 2010, which amended the Internal Revenue Code of 1986 to add provisions relating to foreign account tax compliance (FATCA).1

Broadly speaking, FATCA is intended to address tax evasion by "US persons," including US citizens, who maintain accounts in foreign financial institutions. The simplest example would be a US citizen who maintains a bank deposit or brokerage account with a bank outside the United States and does not declare the relevant income. FATCA is intended to require the bank to enter into an agreement with the Internal Revenue Service (IRS) to disclose information about its US clients, otherwise a person paying interest, dividends and certain other amounts from US sources to the bank must withhold a 30 per cent tax.

FATCA will require a foreign financial institution (FFI) to enter into an agreement with the IRS under which the FFI will be required to (i) obtain information from each accountholder to determine whether the accountholder is a US person; (ii) comply with verification and due diligence procedures required by the IRS for the identification of "US accounts"; (iii) make annual reports to the IRS with respect to each US account (including the name, address and taxpayer identification number of the holder, the account number and its balance or value and gross receipts and gross withdrawals or payments from the account); (iv) deduct a 30 per cent withholding tax on certain payments to "recalcitrant" accountholders (i.e., if the FFI cannot determine whether the holder is a US person); and (v) comply with requests for information from the IRS. If an FFI does not enter into an agreement with the IRS, then beginning January 1, 2013, a person making a "withholdable payment" (defined broadly to include US source interest and dividends as well as gross proceeds from the sale or other disposition of property that produce interest or dividends from US sources) to the FFI must withhold 30 per cent of the payment.

FATCA also contains provisions applicable to a foreign entity that is not an FFI (referred to as nonfinancial foreign entity or NFFE). In general terms, a person making a withholdable payment to an NFFE must withhold 30 per cent unless the NFFE certifies that it does not have any "substantial US owners" or provides the person with the name, address and taxpayer identification number of each substantial US owner. A substantial US owner of an NFFE is, subject to certain exceptions, generally a US person who owns, directly or indirectly, more than 10 per cent of the stock (by votes or value) of the NFFE if the NFFE is a corporation, more than 10 per cent of the profits or capital interests if it is a partnership, and more than 10 per cent of the beneficial interests if it is a trust.

Given the broad definition of FFI, which includes an entity that is engaged in the business of investing, reinvesting or trading in securities, it appears that a Canadian pension plan or profit- sharing plan that is funded would be an FFI. However, the regime applicable to FFIs will not apply to the extent that the beneficial owner of the relevant payment is of a class of persons identified by the Secretary of the Treasury as posing a low risk of tax evasion. In addition, the Secretary may identify classes of persons that are not subject to the rules applicable to NFFEs.

The FATCA provisions in the Internal Revenue Code are the "bare bones" of the new regime; the detailed rules will be set out in the regulations to the Code. In the meantime, the Department of the Treasury and the IRS intend to issue guidance to allow affected persons to prepare. In September, the IRS issued preliminary guidance in Notice 2010-60.

With respect to pension plans, the Notice identified certain retirement plans as posing a low risk of tax evasion and indicated that they would be excluded from the FFI regime. To be within the class of excluded retirement plans, all of the following requirements would have to be satisfied:

  1. it must qualify as a retirement plan under the law of the country in which it is established;
  2. it must be sponsored by a foreign employer; and
  3. it must not allow US participants or beneficiaries, other than employees who worked for the foreign employer in the country in which such retirement plan is established during the period in which benefits accrued.

The Notice requested comments on the definition of a retirement plan for this purpose, and on how such a plan could appropriately identify or document itself to person making payments potentially subject to withholding to verify its compliance with any such definitional requirements.

The Notice raises a number of issues with respect to whether Canadian pension plans and other arrangements will qualify as a retirement plan. If they do not, a Canadian pension plan would have to enter into an agreement with the IRS as described above and, among other things, determine which of its members are US citizens or other US persons. Otherwise, it will be exposed to a 30 per cent withholding tax on interest, dividends and certain other income from US sources. It is unclear how the inconsistency with reduced withholding rates under the Canada/US tax treaty would be resolved.

With respect to the first requirement, it is not clear what "law" is relevant. Must the plan qualify as such under the tax legislation of the country in which it is established or under some other law such as pension benefits legislation? Must the plan be exempt from tax in the country in which it is established? If not, could a "retirement compensation arrangement" qualify?

Are profit-sharing plans to be treated as retirement plans? The requirement that the plan be sponsored by "a" foreign "employer" raises questions about multi-employer plans, and income security or long-term savings plans provided by unions or trade associations.

The third requirement in the Notice may also be too narrow because US citizens covered under a Canadian plan may actually be working in another country.

Submissions raising these concerns about the Notice requirements have been made to Treasury and the IRS. Moreover, it is understood that a request has been made that it be made clear that a retirement plan that is not treated as an FFI will also be exempt from the rules applicable to NFFEs. Informal discussions with Treasury officials suggest that Canadian registered pension plans should qualify as a retirement plan.

Sponsors of Canadian pension plans, profit-sharing and similar plans should follow developments in this area closely and consider making submissions to Treasury.

The potential application of FATCA to Canadian pension plans illustrates the significant extra-territorial reach of FATCA. All intermediaries should be considering the application of FATCA to their business.


1. While we are not qualified to advise with respect to US law, we have set out in this note our understanding of certain implications of FATCA. For legal advice, readers must consult with US counsel.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.