For reportable accounts held by certain types of corporations, information about controlling individuals of the corporation who are located outside Canada is also reported to the CRA (including name, address, date of birth, TIN, country of tax residence, and type of controlling person). One hundred countries3 have agreed to exchange information under the CRS, and most of them have adopted laws implementing the CRS, which will enter into force on 1 January 2017. CRS requires financial institutions to apply for tax residency for their clients and provide their local tax authority with information about all accounts of tax residents of other countries. The local tax authority then shares the information with the tax authorities of the country or other countries where the taxpayer is considered a tax resident. The CRS describes the information to be exchanged, the different types of accounts and account holders, the types of financial institutions that must be reported, and the procedures that financial institutions must follow to identify reportable accounts (see Question 5). For more information about 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 status as a U.S. person. If you are not sure if you are a U.S. person, please consult your accountant or lawyer. The Foreign Account Tax Compliance Act (FATCA) is a U.S. law passed in March 2010 to deter “U.S.
persons”1 from evading U.S. tax by using financial accounts (such as bank accounts, mutual fund and brokerage accounts, segregated fund contracts, and certain annuity and insurance contracts) outside the United States. FATCA requires identification and reporting of information to the U.S. Internal Revenue Service (IRS) regarding certain financial accounts held by U.S. persons outside the United States. The United States has signed a number of agreements with other countries to implement FATCA, including Canada. The obligation for Canadian taxpayers, including financial institutions, to comply with FATCA has been included in Part XVIII of Canada`s Income Tax Act. Since 2014, Canadian financial institutions have been required by Canadian law to identify and report to the CRA information on reportable financial accounts held by U.S. persons in Canada. The CRA then shares this information with the IRS. 21. Should I be concerned about the privacy of my personal data? If a Canadian resident has a reportable account in another country that has adopted the CRS, and that country has an agreement to share information with Canada, the financial institution in that country must report the information to its local tax authority, which will then share the information with the CRA.
The following information has been prepared to help clients of Canadian financial institutions and their advisors understand the improved reporting of financial account information (including FATCA and CRS obligations) and its potential impact. This document should not be construed as tax, legal or financial advice. 18. How does improved financial account reporting affect estates and trusts? In the case of “passive” non-financial entities and certain investment companies, information must be collected on the persons who control the entity. For businesses, this usually means ownership of 25% or more, but can vary depending on the type of account. If no one owns 25% of the shares, an officer or director is treated as a controlling person. In a trust, which is a “passive” entity, a controlling person generally includes a trustee, trustee, protector, beneficiary or other person who has actual control of the trust. 20. What information must be collected for controlling persons of a company? Your financial institution may have its own form or collect this information in documents or account applications. The CRS is an international standard for the automatic exchange of “financial accounts” information (such as bank accounts, mutual fund and brokerage accounts, segregated fund contracts, and certain pension and insurance contracts) among CRS participating countries, including Canada. CRS is very similar to FATCA, except that the exchange of financial account information under CRS takes place between countries other than the United States. It was developed by the Organisation for Economic Co-operation and Development (OECD)2 with support from Canada and other developed G20 countries to reduce tax evasion and improve tax compliance globally.
Financial institutions cannot provide clients with advice on tax residency. If you are unsure of your tax residency, you should consult a tax advisor. Information on tax residency rules is also available as follows: 15. If a Canadian resident has an account with a financial institution outside of Canada, is the information reported to the CRA? If an account is to be reported, the Canadian financial institution (or another country in the case of accounts outside Canada) will report information to the CRA, including: Other CRS countries may require additional information to be reported to their local tax authorities (e.g., the account holder`s place of birth). In general, “passive” businesses do NOT engage in business activities essential to producing a good or service, but rather derive most of their income from owning or buying and selling investments that generate income, typically in the form of interest, dividends or capital gains. Your financial institution is subject to strict federal and state data protection laws. The information your financial institution collects from you and that you share with the CRA is strictly limited to what is required under Canada`s Income Tax Act. Your financial institution will take all appropriate security measures when transmitting your data. This is a number used by a country`s tax administration for identification purposes. Its type and form vary from country to country. For example, for people in Canada, your Social Security Number (SIN) is your TIN. For Canadian businesses and partnerships, the TIN is the Business Number (BN) assigned by the CRA.
Information on foreign TINs is available at: 1. What is Enhanced Financial Account Information Reporting? 10 For more information, see the IRS and U.S. Citizenship and Immigration Services websites listed in footnote 9. For the purposes of extended financial account reporting, a “passive” entity is an entity that is not “active”. At a high level, a business is “active” if it meets one of the following criteria8 of the Income Tax Act: Accounts held by an estate of a deceased person are exempt from the extended financial account information reporting for the year in which the financial institution receives a copy of the deceased`s will or death certificate. Accounts held by trusts must include a declaration of tax residency of the trust and its controlling persons (please note that controlling persons include trustees, trustees and beneficiaries). For more information about your residency in Canada, please visit the CRA website at: www.canada.ca/en/revenue-agency/services/tax/international-non-residents/information-been-moved/ Determining your residency status.html If you are a tax resident in a country other than Canada, your financial account information can be reported to the CRA.