The federal government has signed an agreement to help the United States catch tax-evading “US persons” living outside the US, including those with dual US-Canada citizenship. The “Intergovernmental Agreement for the Enhanced Exchange of Tax Information under the Canada-U.S. Tax Convention” will govern disclosure of financial information under the recently enacted US Foreign Account Tax Compliance Act (FATCA). Without such an agreement, Canadian banks and other financial institutions (including credit unions, pension managers, insurance companies, and others) would have to provide some Canadian (and American) citizens’ information to the US Internal Revenue Service or face a withholding tax. The agreement must still be made law. Interested parties can read the “legislative proposals” that will inform a draft implementation Bill.
I previously discussed FATCA and some of the concerns last May on Inside Internal Controls.
To allay concerns about banks and other financial institutions divulging customers’ information directly to the IRS, the agreement will require organizations subject to FATCA to report to the Canada Revenue Agency. The CRA will subsequently provide the information to American officials “through the existing provisions and safeguards of the Canada-U.S. Tax Convention,” which “is consistent with Canada’s privacy laws.” In exchange, the IRS will provide the CRA with some similar “enhanced and increased” information on Canadians’ accounts with American financial institutions.
Certain accounts will be exempt from FATCA: Registered Retirement Savings Plans, Registered Retirement Income Funds, Registered Disability Savings Plans, Tax-Free Savings Accounts, Pooled Registered Pension Plans, Registered Education Savings Plans, Deferred Profit-Sharing Plans, and some others. Also exempt will be deposit-taking institutions with assets less than $175 million.
Read more about FATCA on the Department of Finance website.
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