The following information has been prepared to help clients of Canadian financial institutions and their advisors understand Enhanced Financial Account Information Reporting and how it might affect them. This document should not be construed as tax, legal or financial advice. Further information is available from tax advisors and on:

Overview

1. What is Enhanced Financial Account Information Reporting?

Enhanced Financial Account Information Reporting is a requirement under Canadian law that obligates financial institutions to provide certain information to the Canada Revenue Agency (CRA), which in turn transfers that information to:

  • The US as a result of US law commonly known as FATCA (reflected in Part XVIII of Canada’s Income Tax Act)
  • Other countries as a result of Canada’s adoption of the Common Reporting Standard (CRS) (incorporated under Part XIX of Canada’s Income Tax Act).

2. What is FATCA?

The Foreign Account Tax Compliance Act (FATCA) is a US law that was passed in March 2010 to discourage "US Persons"1 from evading US tax using financial accounts (such as bank, mutual fund and brokerage accounts, segregated fund contracts and certain annuity and insurance contracts) held outside the US. FATCA requires non-US financial institutions to identify and report information to the US Internal Revenue Service (IRS) on certain financial accounts held outside the US by US Persons. The US has signed a number of agreements with other countries to implement FATCA, including Canada. The requirement for Canadian taxpayers, including financial institutions, to comply with FATCA has been incorporated into Part XVIII of Canada’s Income Tax Act. Since 2014, Canadian financial institutions are required under Canadian law to identify and report information to the CRA on reportable financial accounts held in Canada by US Persons. The CRA then exchanges this information with the IRS.

3. What is the CRS?

The CRS is a new international standard for the automatic exchange of information on “Financial Accounts” (such as bank, mutual fund and brokerage accounts, segregated fund contracts and certain annuity and insurance contracts), between CRS participating countries, which includes Canada. The CRS is very similar to FATCA, except the exchange of Financial Account information under the CRS is between countries other than the US. It was developed by the Organization for Economic Co-operation and Development (OECD)2, with the support of Canada and the other G20 industrialized countries, to reduce tax evasion and improve tax compliance around the world.

One hundred countries3 have agreed to exchange information under the CRS and most of these countries have passed legislation implementing the CRS effective January 1, 2016 or 2017. The CRS requires financial institutions to request the tax residency of their clients and provide information to their local tax authority about any accounts held by tax residents of other countries. The local tax authority will then share the information with the tax authorities of the country or other countries where the taxpayer is considered to be a tax resident. The CRS describes the information to be exchanged, the different types of accounts and account holders covered, the types of financial institutions that are required to report, and procedures that financial institutions must follow to identify reportable accounts (see question 5).

Canada has passed legislation (Part XIX of Canada’s Income Tax Act) requiring Canadian financial institutions to gather tax residency information from account holders for the purpose of identifying reportable accounts. This requirement began on July 1, 2017, and information relating to reportable accounts and account holders will be reported annually to the CRA beginning in May 2018. The CRA will exchange this information with countries with which Canada has an agreement. Canada has committed to ensuring countries it exchanges information with have safeguards to protect privacy and ensure the information is used only for tax purposes.

4. How does the CRS compare to US FATCA?

The CRS expands upon FATCA by requiring Canadian financial institutions to identify and report information to the CRA about accounts held by persons who are resident for tax purposes in countries other than Canada or the US. The CRA will exchange this information with foreign tax authorities from countries with which Canada has an agreement. Reportable accounts held by US Persons will continue to be reported to the CRA under FATCA (Part XVIII of the Income Tax Act), not the CRS (Part XIX of the Income Tax Act). One important difference between the CRS and FATCA is that FATCA exempts certain accounts with a balance of less than US $50,000, while the CRS does not.

Accounts subject to reporting

5. What types of Financial Accounts are subject to review and possible reporting?

Financial Accounts that are subject to review and possible reporting include:

  • Bank accounts
  • Holdings in mutual funds and similar investments
  • Brokerage and custodial accounts
  • Annuity contracts (including segregated fund contracts)
  • Life insurance policies with cash value.

Certain types of accounts, including most CRA registered plans, are exempt (including: Registered Retirement Savings Plans (RRSPs), Registered Retirement Income Funds (RRIFs), Registered Education Savings Plans (RESPs), Registered Pension Plans (RPPs), Pooled Registered Pension Plans (PRPPs), Tax Free Savings Accounts (TFSAs) and Registered Disability Savings Plans (RDSPs)).

6. Are all insurance and annuity products reportable under Enhanced Financial Account Information Reporting?

No. Insurance and annuity contracts that are reportable include non-registered:

  • life insurance policies with “cash value”, such as Universal and Whole Life4; and
  • annuity contracts (including segregated fund contracts)
    held by:
    1. individuals or entities5 resident for tax purposes in countries other than Canada (including US citizens); or
    2. entities with primarily passive income6 controlled by persons who are tax resident in a country other than Canada.

Additionally, a Financial Account may also be reported if the account holder does not clarify their tax status when requested.

Accounts subject to reporting are referred to in the remainder of this document as “Reportable Accounts.” Reporting is not required for certain accounts such as:

  1. insurance contracts that provide pure insurance protection and have no cash value (such as term life, disability, health, and property and casualty insurance);
  2. government registered retirement and savings plans (such as RRSPs, RRIFs, RPPs, PRPPs, RESPs, RDSPs and TFSAs);
  3. annuity contracts that are non-transferable and non-investment linked that monetize a pension or disability benefit arising from a contract in i) or ii) above.

7. How will clients of Canadian financial institutions be impacted by CRS?

  1. Clients who open new accounts after June 30, 2017
    Since July 1, 2017, clients purchasing or opening a Financial Account with a Canadian financial institution are required to provide a “Declaration of Tax Residence” that indicates their tax residency, date of birth and tax identification number (TIN) for all countries in which they are resident for tax purposes. (Refer to Question 5 for the most common types of Financial Accounts.) In addition, applications for accounts held by certain entities may require similar information about the individuals who make decisions on behalf of the entity. Clients who are tax resident in countries other than Canada will have information on their Reportable Accounts reported to the CRA.
  2. Clients who hold existing accounts on June 30, 2017
    Clients who hold a Financial Account with a Canadian financial institution on June 30, 2017 may be required to provide a Declaration of Tax Residence to confirm their tax residency and provide TINs for all countries in which they are a resident for tax purposes. It is expected that most Canadians with existing accounts at Canadian financial institutions will be minimally affected by the CRS, since many will be solely resident in Canada for tax purposes. Clients who are tax resident of other countries may have information on their existing Reportable Accounts reported to the CRA. For existing account holders on June 30, 2017, additional ongoing requirements apply as follows:

 

CASH-VALUE INSURANCE CONTRACTS AND ANNUITY CONTRACTS
(INCLUDING SEGREGATED FUND CONTRACTS)

Individuals

Entities

Cash-value insurance contracts and annuity contracts (including segregated fund contracts) held by individuals as of June 30, 2017 are exempt under the CRS (FATCA has a similar exemption as of June 30, 2014). Similar to FATCA, if any contract issued prior to July 1, 2017 is transferred to a new owner (or a term policy is converted to a permanent insurance contract) it will be considered a new account and the owner will be asked for a Declaration of Tax Residence.

Contracts held by entities will be reviewed if the policy value exceeds US $250,000 on June 30, 2017 (or at the end of any subsequent year) and may require completion of a Declaration of Tax Residence and may be reported. Entities may also be required to provide information about their controlling persons.

ALL OTHER FINANCIAL ACCOUNTS

All other types of Accounts, such as mutual funds and bank accounts that are open on June 30, 2017 are also subject to ongoing review for any changes in client information (such as address or phone number) that could indicate a change of tax residence.

 

8. What is a Declaration of Tax Residence?

A "Declaration of Tax Residence" is a written declaration completed by account holders, certifying their country of tax residence and including their TIN(s) and date of birth, which must be provided to their financial institution when required under Canadian law. For an example, see CRA form RC518 - Declaration of Tax Residence for Individuals – Part XVIII and Part XIX of the Income Tax Act or RC519 - Declaration of Tax Residence for Entities – Part XVIII and Part XIX of the Income Tax Act. Your financial institution may have its own form, or alternatively may collect this information in the account opening documentation or application.

Life insurers may require account holders to provide a Declaration of Tax Residence when:

  • Applying for a new life insurance or annuity policy (other than term or most registered policies);
  • Converting a term policy to a permanent insurance contract;
  • Changing ownership;
  • Changing client information (e.g., address or telephone number) that could indicate a change in tax residency;
  • There are standing orders to transfer funds to an account in the US or another country; and/or
  • A death benefit is paid and the beneficiary: i) has a foreign address or phone number or ii) is an entity.

Account holders who have provided a Declaration of Tax Residence to their financial institution (including one provided within the account application) must provide a new Declaration of Tax Residence within 30 days of any change in circumstances causing their previous Declaration of Tax Residence to become incomplete or inaccurate (i.e., any change affecting their tax residency status).

9. I am an individual tax resident only in Canada. How am I affected by Enhanced Financial Account Information Reporting?

If requested by your financial institution, you will still need to complete a Declaration of Tax Residence and provide your TIN(s). If you are not a tax resident in a country outside Canada, the financial institution is not required to, and will not, report your Financial Account information to CRA for possible transmission to tax authorities in other countries, provided you have submitted all required documentation.

10. What if you do not provide the required information about your tax residency and/or your TIN?

You and your financial institution are required to comply with Canadian law for Enhanced Financial Account Information Reporting. It is important that you respond to requests from your financial institution to provide a Declaration of Tax Residence, which includes your TIN(s), even if you are not a tax resident outside of Canada. If you do not provide the required information, your financial institution may report your account to the CRA as required under Canada’s Income Tax Act. You may also be subject to penalties imposed by CRA.

Privacy

11. Should I be concerned about the confidentiality of my personal information?

Your financial institution operates under strict federal and provincial privacy laws. The information your financial institution collects from you and discloses to CRA is strictly limited to what is required under Canada’s Income Tax Act. Your financial institution will use all appropriate security measures when forwarding your information.

Tax Residency

12. How do I know if I am a tax resident of a country?

Financial institutions cannot provide advice about tax residency to clients. If you are unsure about your tax residency, you should consult a tax advisor. Information on tax residency rules is also available as follows:

13. Can individuals be a tax resident in more than one country at a time?

Yes, it is possible for an individual to be a tax resident of multiple countries depending on each country’s tax law and whether or not there is a tax treaty between the countries. Tax treaties frequently contain tie-breaker rules to address the treatment of dual tax residents and deem residency in one country or the other.

For Canadian tax purposes, it will be extremely rare for a taxpayer to have multiple tax residence. That is because Canada has 92 tax treaties that provide a tie-breaker rule. Where the taxpayer is resident in a country with which Canada does not have a tax treaty, there is no tie breaker rule to apply. If you are unsure of your tax residency, contact a tax advisor.

Taxpayer Identification Number (TIN)

14. What is a Taxpayer Identification number (TIN)?

This is a number used by a country’s tax authority for identification purposes. It varies in nature and form by country. For example, in Canada, your Social Insurance Number (SIN) is your TIN. For Canadian corporations and partnerships, the TIN is the Business Number (BN) issued by CRA. Information about foreign TINs is posted at:

15. What if I do not know my TIN?

If you are eligible to receive a TIN, but you do not have one, you have 90 days from the time you open a Financial Account to apply for a TIN from the tax authority of your country of tax residence. Once you obtain a TIN, you have 15 days to provide it to your financial institution. If you fail to provide your TIN, the financial institution may be required to report your account to the CRA, and you may be subject to penalties imposed by CRA.

16. What if a countr y does not issue TINs?

If your country of tax residence does not issue TINs, you do not have to provide one.

When you complete the Declaration of Tax Residence, you will have to indicate your country of tax residence and give the reason you do not have a TIN, for example "My country of tax residence does not issue TINs to its residents".

17. If a Canadian resident has an account with a financial institution outside Canada, will information be reported to CRA?

If a Canadian resident has a Reportable Account in another country that has adopted the CRS, and if that country has entered into an agreement to share information with Canada, the financial institution in that country will be required to report information to its local tax authority, which will then provide that information to CRA.

18. What information will be reported to CRA?

If an account is reportable, the Canadian financial institution (or a foreign country in the case of accounts outside Canada) will report information to CRA including:

  • The account holder’s:
    • Name
    • Address
    • Date of birth (for individuals)
    • TIN(s) (if the country issues TINs)
    • Country (or countries) of tax residence
  • Account number
  • Account balance or value at the end of the year
  • Amount of interest, dividends, gross proceeds and other amounts paid or credited to the account holder (if applicable).
  • Entity type (for entities)

In the case of reportable accounts held by certain types of entities, information about the entity’s controlling persons who are resident outside Canada will also be reported to CRA (including name, address, date of birth, TIN, country of tax residence, and controlling person type).

Other countries participating in the CRS may require that additional information be reported to their local tax authorities (such as the account holder’s place of birth).

Once an account is reportable, updated information must be reported every year for as long as the account remains open and reportable.

19. I am purchasing a jointly owned cash-value insurance policy. Are both joint owners required to provide their tax residence(s) and TIN(s)?

Yes, to comply with Canadian law, all policy owners must provide their tax residence and TIN on request from your financial institution. The financial institution will report to CRA information on all account holders who are reportable persons along with information on the joint policy. The financial institution is not required to provide information about any joint policy holder who is not a reportable person.

20. How does this impact claimants/beneficiaries of cash value insurance contracts and annuity contracts?

At the time of payment, a claimant/beneficiary may be asked to complete a Declaration of Tax Residence form, for example, if a financial institution knows, or has reason to know, that the beneficiary is a tax resident of another country, or if the beneficiary is an entity.

How will clients be documented and reported to the CRA under the CRS and FATCA when they hold investment funds in a dealer account?

21. How does the CRS apply to my investment funds that are registered in my name on the fund company’s records?

Funds held in a ‘client name’ account are registered in the name of the client on the records of the fund company. When an investor holds an investment fund in a ‘client name’ account with a dealer, it is the CRA’s expectation that the dealer will:

  • Document the account for CRS and FATCA purposes;
  • Determine whether the account is reportable, and
  • Provide that information to the fund manager so that they may report the account to the CRA.

In the rare instance when a dealer fails to fulfill their obligations a fund manager may contact the investor directly to document the account and determine its reportable status.

22. How does the CRS apply to my investment funds that are registered with the fund company in my investment dealer’s name on my behalf?

Funds held in a ‘nominee name’ account are registered in the name of the dealer on behalf of the client. When an investor holds an investment fund in ‘nominee name’, the dealer is responsible for all CRS and FATCA requirements. The dealer will document the account, determine whether it is a reportable account and provide the reportable account information to the CRA.

Questions for Entities7

23. I am an owner of a business and would like to know how Enhanced Financial Account Information Reporting will affect me and my business?

Individual/Unincorporated Business Owners (Sole Proprietors)
The requirements discussed above apply to Financial Accounts opened by Sole Proprietors (except for certain exempt accounts - see question 5). You are required to provide a Declaration of Tax Residence to certify whether you are tax resident of:

  • Canada
  • US (including a US citizen) and/or
  • Any country other than Canada or the US.

If you are a tax resident of a country other than Canada, information about your Financial Account(s) may be reported to the CRA.

Corporations and Partnerships (Entities) A corporation is a separate legal person, distinct from its owners, and may own property separately from its owners. FATCA and the CRS treat accounts opened by partnerships as owned by the partnership, not by the individual partners. If the account is opened for an entity, the entity account holder is required to provide a Declaration of Tax Residence. Additional information may be required in order to determine whether the entity is active or passive (see question 26), as this could have tax implications. For example, the entity may be required to provide information about the controlling persons (see question 25).

24. How will the enhanced financial account information reporting affect estates and trusts?

Accounts held by an estate of a deceased individual are exempt from Enhanced Financial Account Information Reporting starting in the year that the financial institution receives a copy of the deceased’s will or death certificate. Accounts held by trusts must provide a Declaration of Tax Residence for the trust and its controlling persons (note that controlling persons include the trustee(s), settlor(s), and beneficiaries).

If the trust is established to hold family assets for estate planning purposes, it must classify itself as either an “active” or “passive” non-financial entity (see question 26).

25. What information needs to be collected for controlling persons of an entity?

For “passive” non-financial entities and certain investment entities, information must be collected about individuals who control the entity. For corporations, this is generally defined to mean ownership of 25% or more, but may vary depending on the type of account. If no individual owns 25% of more of the shares, a senior officer or director will be treated as a controlling person.

Required information includes:

  • Name
  • Residence address
  • Country(ies) of residence for tax purposes
  • TIN(s) for all countries in which they are tax resident
  • Date of birth

This is similar to anti-money laundering requirements.

26. How will I know if my entity is "passive" or "active"?

In general, "passive" entities do NOT engage in substantive business activities to produce a good or service, but rather derive the majority of their revenue from holding or buying and selling investments that produce income, usually in the form of interest, dividends or capital gains.

For Enhanced Financial Account Information Reporting purposes, a "passive" entity is one that is not "active". At a high level, an entity is "active" if it meets any one of the following criteria8 under the Income Tax Act:

  • 50% or more of the entity’s gross proceeds are from an active business AND 50% or more of its assets are used in an active business
  • The entity’s shares are publicly traded (or it is related to such an entity)
  • The entity is a holding company whose subsidiaries are not financial institutions and the entity is not an investment fund such as a private equity fund or venture capital fund
  • The entity is in liquidation or reorganization (and was not a financial institution)
  • The entity is a start-up business (other than a financial institution) that is investing in active assets (24-month limit to become “active”)
  • The entity primarily engages in financing and hedging with or for related entities that are not financial institutions
  • The entity is a Governmental Entity, an International Organization, or a Central Bank
  • The entity is a tax exempt religious, charitable, scientific, cultural, athletic or educational organization and it meets certain other criteria

The detailed criteria for active entities in the Income Tax Act should be consulted. If you are unsure whether your entity is active or passive, consult a tax advisor.


1 See Appendix for additional information on “US Persons”.
2 The Organisation for Economic Co-operation and Development (OECD) has 35 member countries, including Canada. Its mission is to promote policies that improve the economic and social well-being of people around the world. For more information, see www.oecd.org.
3 For a list of the countries that have committed to implement the CRS visit the OECD website at: www.oecd.org/tax/transparency/AEOI-commitments.pdf.
4 Under FATCA, policies with a cash value under US $50,000 are not reportable subject to aggregation rules if multiple policies are held by the same policyholder. There is no similar exemption for CRS.
5 "Entity" includes corporations, partnerships and some trusts.
6 Accounts held by financial institutions, government organizations, and publicly traded entities are generally not reportable. Passive income is earned on investments, and is usually in the form of interest, dividends or capital gains.
7 "Entity" includes corporations, partnerships and some trusts.
8 Refer to the Income Tax Act (Canada) for a complete list of criteria to qualify as an “active” entity (see subsection 265(4) and subsection 270(1))

The above information is intended to provide general guidance only, and is not an exhaustive analysis of the impact of Enhanced Financial Account Information Reporting. The above information should not be considered as legal or tax advice. We recommend you seek the advice of your financial or tax advisor to better understand if, or how, Enhanced Financial Account Information Reporting impacts you or your business.

Appendix - Additional information for US Persons

Who is considered a "US Person"?

A US Person includes:

  • A citizen of the US [including an individual born in the US, but resident in Canada (or another country) who has not renounced their US citizenship]
  • A permanent resident of the US
  • A US green card holder9
  • US corporations and US estates and US trusts

You may also be considered a US Person if you spend considerable time in the US on a yearly basis. For example, some Canadian "snowbirds" may be considered a US Person for US tax purposes. Contact your tax advisor on how this may impact you.

For more information about your Canadian residency, visit the CRA website at: www.canada.ca/en/revenue-agency/services/tax/international-non-residents/information-been-moved/ determining-your-residency-status.html

For more information, visit the IRS website at: www.irs.gov/individuals/international-taxpayers/alien-taxation-certain-essential-concepts

For more information on snowbirds, visit the IRS website at: www.irs.gov/individuals/international-taxpayers/substantial-presence-test Your financial institution may request additional information from you, or through your advisor, to clarify and confirm your US Person status. If you are not sure if you are a US Person, please contact your tax advisor or lawyer.

If I am a snowbird, am I considered a US Person?

Snowbirds may become US Persons if they have moved their principal residence to the US or if the amount of time they spend in the US on a yearly basis exceeds a certain time limit. They may be deemed to be a “resident alien” if they are a US green card holder. Information on the “Substantial Presence Test” is posted on the IRS website at: https://www.irs.gov/individuals/international-taxpayers/substantial-presence-test

For general information, see the CRA webpage “Canadian residents going down south”, which includes information on US tax issues: www.canada.ca/en/revenue-agency/services/tax/international-non-residents/canadian-residentsgoing- down-south.html

Contact your tax advisor or lawyer for further advice on how this may impact you. Your financial institution may ask you to certify that you are only a temporary visitor to the US. Any such certifications will need to be renewed at least every seven years.

I am a Canadian resident but I was born in the US. Am I considered a US Person?

Generally yes, unless you have renounced your US citizenship. As noted above, you are considered a US Person if you are a citizen of the US (including an individual born in the US, but resident in Canada or in another country and you have not renounced your US citizenship). Keep in mind that a person can be a tax resident of more than one country.

I am a Canadian resident but am also a resident of the US for tax purposes*. Is there anything I can do to change my status from a US Person to a non-US Person?

If you wish to become a non-US Person, you may be able to formally renounce your US citizenship with the US government. We recommend you consult a lawyer to review your options. Some information is available at: https://travel.state.gov/content/travel/en/legal-considerations/us-citizenship-laws-policies/renunciation-ofcitizenship.html

* Examples of individuals who are US residents for US tax purposes may include:

  1. A person born in the US who moved to Canada shortly after birth and who has not renounced their US citizenship
  2. A Canadian resident, born outside of the US, who has acquired US citizenship through US citizenship rights due to US parents or marriage
  3. A Canadian US green card holder who has stopped working in the US and, after leaving the US, has not yet filed IRS form 8854 “Initial and Annual Expatriation Statement” or has not declared themselves a “nonimmigrant” on their US tax return10

9 A green card has a 10-year standard term (which requires renewal). A green card holder continues to be a U.S. Person until IRS form 8854 "Initial and Annual Expatriation Statement" has been filed.

For more information, visit the websites for U.S. Citizenship and Immigration Services and the IRS at: https://www.uscis.gov/green-card/after-green-card-granted/maintaining-permanent-residence and https://www.irs.gov/individuals/international-taxpayers/frequently-asked-questions-about-international-individual-tax-matters

10 For more information, see IRS and U.S. Citizenship and Immigration Services websites listed in footnote 9.