On February 5, 2014 Canada and the United States signed an
Intergovernmental Agreement (IGA) to implement the Foreign
Account Tax Compliance Act (FATCA). The IGA is a Model 1
agreement under which "reporting Canadian financial
institutions" report the relevant information regarding US
reportable accounts (i.e. accounts that are held by a
"specified US person" or a "non- U.S. entity"
with one or more "controlling persons" that is a
specified US person), to the Canada Revenue Agency (CRA), which
then provides that information to the Internal Revenue Service
(IRS). The IGA is reciprocal so that the United States will provide
tax information to Canada regarding Canadian individuals and
entities with accounts in the United States.
Legislation to amend the Income Tax Act (Canada) in
order to implement the IGA is before Parliament.
Reporting Canadian financial institutions will be required to
perform specified due diligence procedures with respect to accounts
as at June 30, 2014 in order to identify US Reportable Accounts.
The review procedures vary depending on whether the account holder
is an individual or an entity, the size of the account and the
nature of the account. Where specified "US indicia" are
found (which include, for example, identification of the account
holder as a US citizen or resident, an "unambiguous
indication" of a US place of birth or a current US address or
telephone number), the financial institution must follow specified
additional procedures to "resolve" such US indicia or
treat the account as a US Reportable Account.
For accounts opened after June 30, 2014, a reporting Canadian
financial institution must perform specified due diligence
procedures to identify whether the account will be a US Reportable
The definition of "financial institution" is broad. It
includes a "custodial institution", a "depository
institution", a "specified insurance company" and an
"investment entity". An "investment entity" is
an entity that conducts as a business, for or on behalf of a
customer, (1) trading in money market instruments (cheques, bills,
certificates of deposit, derivatives, etc.); foreign exchange;
exchange, interest rate and index instruments; transferable
securities; or commodity futures trading; (2) individual and
collective portfolio management; or (3) otherwise
investing, administering, or managing funds or money on behalf of
other persons. It also includes an entity that is managed by such
an entity. A portfolio manager, a mutual fund, a trust managed by a
trust company and a securitization trust would all be within the
There are some important exclusions from the definition of
"reporting Canadian financial institution" in the IGA
including, for example, a registered pension plan (so that such a
plan does not have to perform due diligence on plan members).
Reporting Canadian financial institutions must generally
register with the IRS on a FATCA Registration Portal in order to
obtain a "global intermediary identification number"
(GIIN) so that they can identify themselves as such to withholding
agents which would otherwise be required to collect a 30%
withholding tax on certain US source payments. Withholding will
begin on payments made after June 30, 20141 The IRS will
publish a list of financial institutions that have obtained GIINs.
However, withholding agents are not required to obtain GIINs for
reporting Canadian financial institutions before January 1, 2015.
In IRS Announcement 2014-17, the IRS stated that it believes it can
ensure registering foreign financial institutions that their GIINs
will be included on the July 1, 2014 IRS list if their
registrations are finalized by June 3, 2014.
There are also important exclusions from the definition of
"financial account" in the IGA including RRSPs, RRIFs,
RPPs and TFSAs so these accounts do not need to be reviewed by a
The enabling legislation to implement the IGA also provides that
the due diligence procedures that a reporting Canadian financial
institution would otherwise have to perform in respect of
"client name accounts" maintained by registered
securities dealers and portfolio managers is to be performed by
such registered securities dealers and portfolio managers
The CRA is currently preparing Guidance to assist in the
interpretation and application of the IGA. A draft was circulated
to certain industry participants and comments have been provided.
It is expected that, when released, the Guidance will be an
1IRS Notice 2014-33 provides that the IRS will
not enforce many of the rules in 2014 and 2015 if there is a
good-faith effort to achieve compliance with FATCA.
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