Understanding how the Foreign Account Tax Compliance Act (FATCA) and Common Reporting Standard (CRS) affect you – an FAQ (2024)

The following information has been prepared to help clients of Canadian financial institutions and their advisors understand Enhanced Financial Account Information Reporting (which includes obligations under FATCA and CRS) 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:

• CRA’s Enhanced Financial Account Information Reporting website at: www.canada.ca/en/revenue-agency/ services/tax/international-non-residents/enhanced-financial-account-information-reporting.html
• The OECD website at: www.oecd.org/tax/automatic-exchange/common-reporting-standard/

Overview

1. What is Enhanced Financial Account Information Reporting?

Enhanced Financial Account Information Reporting is a requirement under Canadian law that obligates financialinstitutions to provide certain information to the Canada Revenue Agency (CRA), which in turn transfers thatinformation 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 "USPersons"¹ from evading US tax by using financial accounts (such as bank, mutual fund and brokerage accounts, segregatedfund contracts and certain annuity and insurance contracts) held outside the US. FATCA requires the identification and reporting of information to the US Internal Revenue Service (IRS) on certain financial accountsheld outside the US by US Persons. The US has signed a number of agreements with other countries to implementFATCA, including Canada. The requirement for Canadian taxpayers, including financial institutions, to comply withFATCA has been incorporated into Part XVIII of Canada’s Income Tax Act. Since 2014, Canadian financial institutionsare required under Canadian law to identify and report information to the CRA on reportable financial accounts heldin Canada by US Persons. The CRA then exchanges this information with the IRS.

3. What is the CRS?

The CRS is an international standard for the automatic exchange of information on “Financial Accounts” (such asbank, 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 exchangeof Financial Account information under the CRS is between countries other than the US. It was developed by theOrganization for Economic Co-operation and Development (OECD)², with the support of Canada and the other G20industrialized 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 passedlegislation implementing the CRS effective by January 1, 2017. The CRS requires financial institutions to requestthe tax residency of their clients and provide information to their local tax authority about any accounts held by taxresidents of other countries. The local tax authority will then share the information with the tax authorities of thecountry or other countries where the taxpayer is considered to be a tax resident. The CRS describes the informationto be exchanged, the different types of accounts and account holders covered, the types of financial institutions thatare required to report, and procedures that financial institutions must follow to identify reportable accounts (seequestion 5).

Canada has passed legislation (Part XIX of Canada’s Income Tax Act) requiring Canadian financial institutions to gathertax residency information from account holders for the purpose of identifying reportable accounts. This requirementbegan on July 1, 2017, and information relating to reportable accounts and account holders has been reported annuallyto the CRA beginning in May 2018. The CRA exchanges this information with countries with which Canada has anagreement. Canada has committed to ensuring countries it exchanges information with have safeguards to protectprivacy 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 theCRA about accounts held by persons who are resident for tax purposes in countries other than Canada or the US. TheCRA 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 IncomeTax Act), not the CRS (Part XIX of the Income Tax Act). One important difference between the CRS and FATCA is thatFATCA 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.

6. Are there any types of accounts that are not considered "Reportable Accounts"?

Reporting is not required for certain accounts such as:

1. credit products including: mortgages, commercial loans, auto loans, etc.
2. government registered retirement and savings plans 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);
3. insurance contracts that provide pure insurance protection and have no cash value (such as term life, disability, health, and property and casualty insurance);
4. annuity contracts that are non-transferable and non-investment linked that monetize a pension or disability benefit arising from a contract in iii) or ii) above.

7. What is a Declaration of Tax Residence?

A "Declaration of Tax Residence" (also known as a self-certification form) is a written declaration completed by account holders, certifying their country oftax residence and including their TIN(s) and date of birth, which must be provided to their financial institution whenrequired under Canadian law.

For an example, see CRA forms:

• RC518 - Declaration of Tax Residence for Individuals – Part XVIII and Part XIX of the Income Tax Act
• 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 thisinformation in the account opening documentation or application.

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

8. I am an individual tax resident only in Canada. How am I affected by Enhanced FinancialAccount Information Reporting?

If requested by your financial institution, you will still need to complete a Declaration of Tax Residence and provideyour Tax Identification Number (TIN(s) at account opening or when there is a change of circ*mstances in your account information that indicates a change in your residence status. 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 othercountries, provided you have submitted all required documentation.

9. 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 InformationReporting. It is important that you respond to requests from your financial institution to provide a Declaration of TaxResidence, which includes your TIN(s), even if you are not a tax resident outside of Canada. If you are opening a new financial account and do not providethe required information, you may not be able to complete the account opening process. If you already have an account, 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.

Tax Residency

10. 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:

• CRA: see Income Tax Folio, S5-F1-C1, Determining an Individual’s Residence Status, which you can get on CRA’s website at: www.canada.ca/en/revenue-agency/services/tax/technical-information/income-tax/incometax- folios-index/series-5-international-residency/folio-1-residency/income-tax-folio-s5-f1-c1-determiningindividual- s-residence-status.html
• US - see Appendix
• OECD: www.oecd.org/tax/automatic-exchange/crs-implementation-and-assistance/tax-residency

11. 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 lawand whether or not there is a tax treaty between the countries. Tax treaties frequently contain tie-breaker rules toaddress 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 becauseCanada has 92 tax treaties that provide a tie-breaker rule. Where the taxpayer is resident in a country with whichCanada does not have a tax treaty, there is no tie breaker rule to apply. If you are unsure of your tax residency, contacta tax advisor.

Taxpayer Identification Number (TIN)

12. 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, for individuals 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:

• US: www.irs.gov/individuals/international-taxpayers/taxpayer-identification-numbers-tin
• Other countries: www.oecd.org/tax/automatic-exchange/crs-implementation-and-assistance/tax-identification-numbers

13. 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 FinancialAccount to apply for a TIN from the tax authority of your country of tax residence. Once you obtain a TIN, you have 15days to provide it to your financial institution. If you fail to provide your TIN, the financial institution may be requiredto report your account to the CRA, and you may be subject to penalties imposed by CRA.

14. What if a country 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 andgive the reason you do not have a TIN, for example "My country of tax residence does not issue TINs to its residents".

15. If a Canadian resident has an account with a financial institution outside Canada, willinformation be reported to CRA?

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

16. 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 outsideCanada) 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 personswho are resident outside Canada will also be reported to CRA (including name, address, date of birth, TIN, country oftax residence, and controlling person type).

Other countries participating in the CRS may require that additional information be reported to their local taxauthorities (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 remainsopen and reportable.

Questions for Entities⁷

17. I am an owner of a business and would like to know how Enhanced Financial Account InformationReporting 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 exemptaccounts - see question 5). You are required to provide a Declaration of Tax Residence to certify whether you are taxresident 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 reportedto 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 question19), as this could have tax implications. For example, the entity may be required to provide information about thecontrolling persons (see question 20).

18. 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 InformationReporting 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 (notethat 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 19).

19. 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.

20. 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 individualswho control the entity. For corporations, this is generally defined to mean ownership of 25% or more, but may varydepending on the type of account. If no individual owns 25% of more of the shares, a senior officer or director willbe treated as a controlling person. For a trust that is a "passive" entity, a controlling person generally includes a settlor, trustee, protector, beneficiary, or another individual that has effective control over the trust.

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.

Privacy

21. 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.

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 improvethe 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 oninvestments, 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 subsection270(1))

The above information is intended to provide general guidance only, and is not an exhaustive analysis of the impactof Enhanced Financial Account Information Reporting. The above information should not be considered as legal or taxadvice. We recommend you seek the advice of your financial or tax advisor to better understand if, or how, EnhancedFinancial 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 howthis 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-testYour financial institution may request additional information from you, or through your advisor, to clarify and confirmyour 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 timethey spend in the US on a yearly basis exceeds a certain time limit. They may be deemed to be a “resident alien” ifthey 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 informationon 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 certificationswill 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 youare a citizen of the US (including an individual born in the US, but resident in Canada or in another country and youhave 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 thereanything 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 USgovernment. 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 form8854 "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-residenceand 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.