The Canada Revenue Agency (CRA) on June 23, 2014 posted much anticipated guidance for Canadian
entities that could find themselves subject to the Foreign Account Tax Compliance Act (FATCA),
which took effect on July 1, 2014.
According to the Guidance, "[a] Canadian financial
institution that is in compliance with Part XVIII will not be
subject to any U.S. withholding tax on U.S. source income and gross
proceeds (both on its own investments and those held on behalf of
its customers) under section 1471 of the U.S. Internal Revenue Code
(IRC). However, the Agreement requires that procedures be followed
by Canadian financial institutions seeking to secure that
Of particular interest, it is noted that an entity
must meet two conditions before it is considered to be a
"Canadian financial institution." The entity
must be a Canadian financial institution as defined under the
IGA and it must be a "listed financial institution"
for the purposes of Part XVIII of the Income Tax Act. Subsection 263(1) of the Act defines a
"listed financial institution" for that purpose and
limits its meaning to 13 categories of entities. The
Guidance explains that certain investment vehicles which, for
example, may not be promoted to the public if they do not seek
external capital (to illustrate, a personal trust used as a means
for an individual or a family to hold investable assets), are not
intended to be included in the term "listed financial
institution" and will be viewed as passive Non-Financial
Foreign Entities (or NFFE) under Canadian law.
The CRA has indicated that it is open to further
comments and that the Guidance will be updated to take into
account any developments, as appropriate.
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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