In March 2010, the United States enacted the Foreign Account
Tax Compliance Act (FATCA), which requires non-U.S. financial
institutions to report to the United States Internal Revenue
Service (IRS) on the details of "U.S. Reportable
Accounts" held by U.S. taxpayers. "Accounts"
and "financial accounts" have very broad definitions and
the terms are not limited to regular bank accounts, but also
extend, for instance, to certain life insurance policies.
Pursuant to FATCA, financial institutions outside the United
States that fail to provide the requisite reporting are exposed to
severe sanctions. Provision was made for intergovernmental
agreements (IGAs) between other countries and the US to further
refine the application of FATCA to those countries.
FATCA comes into effect on July 1, 2014.
Since the enactment of FATCA, a number of concerns have been
raised about its effect on stakeholders, such as dual citizens and
U.S. citizens who hold accounts in Canadian banks. Also,
Canadian financial institutions expressed specific concern about
how they would abide by Canadian privacy laws in the face of
In September 2013, G-20 leaders (including Canada) committed to
fight global tax evasion and improve tax fairness by instituting
the automatic exchange of tax information as a new global standard
by the end of 2015. On February 5, 2014, in an effort to enhance
the exchange of tax information and define specifically how FATCA
was to be followed in Canada, Canada and the United States entered
into an IGA under the Canada-United States Tax Convention.
The agreement attempts to address many of the concerns expressed by
Canadian stakeholders since FATCA's enactment, including the
way in which account information may be exchanged in a manner
consistent with Canada's privacy laws. Thus, financial
institutions will not report to the IRS, but to CRA. CRA will
then pass the information on to the IRS.
The agreement includes significant exemptions and relief based
on the type of account holder and the type of financial
It is not necessary here to venture into the details of FATCA
and the IGA. However, of particular importance to the
Canadian voluntary sector is that under the IGA, accounts held by
an organization, which:
a. is established and operated exclusively for religious,
charitable, scientific, artistic, cultural, athletic, or
b. is exempt from tax in its jurisdiction of residence;
c. has no shareholders or members with proprietary or beneficial
interest in its income or assets;
d. under the laws of its jurisdiction or pursuant to its
i. is not permitted to apply any income or assets of the
organization for the benefit of a private person or non-charitable
ii. is required, upon liquidation or dissolution, to distribute
all of its assets to a governmental entity or non-profit
are not "U.S. Reportable Accounts" and, thus, do not
have to be reported at all.
It is to be noted that the definition of "Account
Holder" does not appear to extend to, among other individuals,
agents, signatories or intermediaries. This means that if,
for instance, a charity maintains a financial account at a Canadian
financial institution, the fact that one or more of the
charity's directors or officers, or those who have signing
authority, are U.S. or dual citizens, will not cause the
financial account to be subject to the reporting obligations
of the Canadian financial institution under FATCA.
We note that the foregoing is a brief analysis of FATCA as it
pertains to Canadian registered charities and some non-profit
organizations. We encourage our readers to consult US counsel
for advice pertaining to US organizations.
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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Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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