Are you an investment dealer or a mutual dealer that has
non-resident client accounts?
If yes, please read on.
What you need to know before January 1,
On July 25, 2012, the Canada Revenue Agency
("CRA") announced changes to its administrative policies
effective January 1, 2013 with respect to the documentation
required to establish whether or not a non-resident taxpayer may
benefit from a tax treaty negotiated between Canada and another
The new policies of CRA now require additional information,
including the country of residence for tax treaty purposes, the
client's tax identification number of the foreign tax
jurisdiction and the type of income subject to withholding.
In response, the fund companies, who are responsible to withhold
and remit income tax to CRA, have proposed an indemnity agreement
with dealers to be administered by FundSERV (the "Indemnity
Agreement"). Pursuant to the Indemnity Agreement, the dealer
will be the point of contact with the client and will provide to
the fund company the information needed, in accordance with CRA
policies, to determine what amount of income tax to withhold from
non‑residents, based on the notions of residency and
eligibility for tax treaty benefits. The dealer also agrees
to indemnify the fund company in the event the information provided
with respect to income tax withholding is inaccurate or
insufficient for the purposes of CRA.
What is the impact of the Indemnity Agreement and how can you
protect your firm and its representatives?
In fulfilling its responsibility under the Indemnity Agreement
and complying with CRA's documentation requirements regarding
eligibility for tax treaty benefits, a dealer must consider what
modifications to its account opening process may be necessary.
The notions of residency and eligibility for tax treaty benefits
are complex. Work must be done to ensure that:
Accurate and sufficient information is collected from
Your representatives do not expose themselves and the firm to
Your representatives are educated on what they must do;
Clients are aware of their responsibilities in respect of
declarations they make regarding their residency status and
eligibility for tax treaty benefits.
What is the best practice?
We can provide assistance and guide you in this process to best
protect you, your firm and its representatives.
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.
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