Canada: FATCA Comes To Canada: The Basics

Last Updated: August 5 2014
Article by Melissa Wright

Bill C-31, which became law in June, has added several provisions to the Act that require Canadian financial institutions to implement procedures to enable identification of US reportable accounts. Information about these accounts must be reported to the CRA. Canada has agreed to automatically exchange this information with the United States pursuant to article XXVII of the Canada-US treaty. The United States is expected to use this information to identify Canadians who are non-compliant US persons, such as US citizens who have not been submitting US tax returns and FBAR ("Report of Foreign Bank and Financial Accounts") filings.

These additions to the Act implement the intergovernmental agreement (IGA) signed by the United States and Canada on February 5, 2014 in respect of the Foreign Account Tax Compliance Act (FATCA). FATCA is US legislation that was enacted in 2010 and took effect on July 1, 2014.

New part XVII of the Act (sections 263 to 269) requires some Canadian financial institutions to report to the CRA certain information with respect to accounts held by certain US persons. Such institutions generally include not only banks but also investment entities such as funds, insurance corporations, and trusts.

Generally, a US reportable account of a Canadian financial institution is an account held by one or more specified US persons or by a non-US entity with one or more specified US persons that exercise control over the entity. A specified US person (as defined in the IGA) generally includes US citizens or residents; privately owned corporations controlled by US citizens or residents; and US partnerships, trusts, and estates. Common accounts excluded from the reporting requirements are RRSPs, RRIFs, PRPPs, RPPs, TFSAs, RDSPs, RESPs, and DPSPs.

Pursuant to new section 265, Canadian financial institutions must implement due diligence procedures to identify US reportable accounts. Separate procedures apply to pre-existing accounts and to new accounts. For all new account openings, Canadian financial institutions must determine whether an account holder is a specified US person. Under the IGA, opening a new account does not require the account holder to provide proof of citizenship (such as a passport or birth certificate). However, account holders may be required to provide self-certification that they are not US persons for US tax purposes.

For existing accounts, the requirements are generally less onerous—the financial institution does not have to contact all of its existing clients to obtain this information. Instead, such procedures for low-value pre-existing individual accounts (in excess of $50,000 but $1 million or less) involve searching electronic records for US indicia (such as US citizenship or birth) by June 30, 2016. Despite US indicia, low-value pre-existing individual accounts are not US reportable accounts if the account holders establish that they are not US citizens or US residents for tax purposes by meeting one of the exemptions outlined in the IGA.

High-value pre-existing individual accounts (in excess of $1 million as of June 30, 2014 or any subsequent year) are subject to enhanced review procedures. If electronic records do not contain sufficient information, paper records must also be searched for US indicia by June 30, 2015. Canadian financial institutions may elect to treat a high-value pre-existing individual account as not being a US reportable account if the account holder meets one of the exemptions outlined in the IGA.

Pre-existing individual accounts under $50,000 as of June 30, 2014 are generally not US reportable accounts. This exemption is significant. However, the monetary threshold is subject to certain aggregation rules in the IGA (for example, an individual account could be combined with a joint account).

The following information is generally required to be provided to the CRA in respect of each US reportable account:

  • the name, address, and US federal taxpayer identifying number of each specified US person who has the account or who exercises control over the entity;
  • the account number;
  • the name and transit number of the Canadian financial institution; and
  • the account balance or value at the end of the relevant calendar year or appropriate reporting period.

A joint account held by a US person and one or more Canadians is considered a US reportable account. This means that all of the information listed above will have to be reported, including information pertaining to Canadian joint account holders who are not US persons. Further, the balance of a joint account is attributable in full to each of the account holders under the aggregation rules.

Canadian financial institutions are required to file annual information returns with respect to each US reportable account beginning in 2015. Canadian financial institutions are not required to obtain US federal taxpayer identifying numbers until January 1, 2017.

The key question, of course, is when the IRS will begin using the flood of information that is expected to be received under FATCA from governments and financial institutions all over the world.

Originally published by Canadian Tax Focus, Volume 4, Number 3, August 2014.

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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