Frequently asked questions

General

  1. What is the purpose of the Canada-U.S. intergovernmental agreement?
  2. When did the agreement take effect?
  3. Does my financial data remain confidential?
  4. What does each government do with the information it receives?
  5. Why does the CRA exchange information with other countries?

1. What is the purpose of the Canada-U.S. intergovernmental agreement?

The agreement provides an alternative means of meeting the U.S. objectives under the Foreign Account Tax Compliance Act by relying on existing provisions for information exchange under the Canada-U.S. tax treaty. The agreement requires Canadian financial institutions to identify financial accounts held by U.S. residents and U.S. citizens or by entities that are organized in the U.S. or controlled by certain U.S. persons and to report that information to the CRA. The U.S. provides Canada with enhanced and increased information on certain accounts of Canadian residents held at U.S. financial institutions.

2. When did the agreement take effect?

The agreement entered into force on June 27, 2014, and laws have been enacted to support its implementation, including Part XVIII of the Income Tax Act.

Canadian financial institutions began collecting information about new client accounts on July 1, 2014, and reporting information on their existing and new U.S. account holders to the CRA every year starting in 2015.

3. Does my financial data remain confidential?

Yes, it does. The information is exchanged in accordance with the provisions of the Canada-U.S. tax treaty. The treaty contains robust safeguards to make sure that the IRS treats as confidential the taxpayer information that it receives and that it uses the information solely to administer tax laws.

4. What does each government do with the information it receives?

The CRA and the IRS use the information they receive primarily to assess risk and to make sure that taxpayers properly report their income from accounts they hold in the other country.

The Canada-U.S. tax treaty limits the use of information received through exchanges such that it can only be used to administer tax laws. For example, the IRS cannot share the information it receives under this agreement with non-tax authorities. Also, the IRS cannot use the information to administer non-tax laws such as the U.S. Bank Secrecy Act.

5. Why does the CRA exchange information with other countries?

Exchanging information gives the CRA and other tax authorities information that is relevant for tax administration purposes and that they otherwise don’t have access to because it’s in another jurisdiction. The information helps tax administrators prevent tax evasion and make sure that everyone pays their fair share of taxes.

What the agreement means for individuals with financial accounts in Canada

  1. Does the new reporting requirement change how I interact with my Canadian financial institution?
  2. On what form do I have to provide the information?
  3. What types of accounts are reported?
  4. What if I only spend the winter months in the U.S.?
  5. If I spend a certain number of days in the U.S. over a period of three years, does the U.S. consider me to be a U.S. resident?
  6. How does my citizenship affect my tax residency?
  7. Will my financial institution ask me if I was born in the U.S.?
  8. Am I obliged to provide the information?
  9. What type of information is reported to the U.S.? ?
  10. Do I have to provide my U.S. taxpayer identification number (TIN)?
  11. I am not a U.S. person, but I have a joint account with a U.S. person. How does the agreement affect me?
  12. I am a Canadian resident and I hold accounts in the U.S. How does the agreement affect me?
  13. If I have several financial accounts, how are they reported?
  14. How do I know whether my Canadian financial institution has to comply with the agreement and whether my account is subject to review?
  15. How does my Canadian financial institution determine if I am a U.S. person?
  16. Does my Canadian financial institution have to notify me if information on my accounts is reported to the CRA?
  17. What if a Canadian financial institution reports my account in error?
  18. I am a U.S. citizen living in Canada and was not aware that the U.S. wants me to file tax returns. Does the agreement mean that I now have to pay U.S. tax?
  19. Does the agreement require Canadian financial institutions to report to the CRA on any individuals who relinquished their U.S. citizenship?
  20. I am a U.S. citizen and I understand that some of my accounts (including my RRSPs, RESPs, and TFSAs) are excluded under the agreement. Does this mean that I do not have to consider them when fulfilling my reporting obligations under U.S. law?
  21. Since my Canadian financial institution has to report my accounts to the CRA (to share with the IRS), do I still have to file a Report of Foreign Bank and Financial Accounts with the U.S. Department of Treasury?
  22. If I am assessed tax or a related penalty by the U.S., will the CRA assist the U.S. to collect it?
  23. If the U.S. assesses me a FBAR penalty, will the CRA assist the U.S. to collect it?

1. Does the new reporting requirement change how I interact with my Canadian financial institution?

You might be asked about your tax residency status in connection with your existing accounts (if there is information associated with your account that suggests you may be a U.S. person) or when you open a new account. You might also be asked by your financial institution to provide certain evidence, such as a driver’s licence, to support a claim that you are not a U.S. person if information associated with your account suggests that you may be a U.S. person. Financial institutions need this information to satisfy their obligations under Canadian law and to determine whether they have certain tax reporting obligations to the CRA.

2. On what form do I have to provide the information?

The CRA has not issued a form for Canadian financial institutions to use. They can decide themselves how to get the information from their account holders. Your financial institution might ask you to fill out a form for this purpose or it might have a comprehensive account opening form or document.

3. What types of accounts are reported?

Canadian financial institutions have to report most bank accounts, mutual funds, brokerage accounts, custodial accounts, annuity contracts (including segregated fund contracts), and some life insurance policies with a cash value that are held by U.S. persons.

An account is not reportable if it falls within an exempt category such as the following government-registered plans:

  • registered retirement savings plans
  • registered retirement income funds
  • pooled registered pension plans
  • registered pension plans
  • tax-free savings accounts
  • registered disability savings plans
  • registered education savings plans
  • deferred profit-sharing plans

Also, your financial institution may not have to identify and report on certain accounts if their value is below certain thresholds.

4. What if I only spend the winter months in the U.S.?

Many Canadians spend a significant amount of time in the U.S. to attend school, to live during the winter, or for other reasons, but many of them are neither citizens nor residents of the U.S. Under the agreement, your financial institution could identify you as potentially being a U.S. account holder because of information associated with your account, such as a U.S. address or telephone number. Your financial institution could ask you to provide documents showing that you are not a U.S. resident or U.S. citizen.

Your financial institution may use special procedures to streamline this process for you. Further information is available in the CRA Guidance for Canadian financial institutions.

5. If I spend a certain number of days in the U.S. over a period of three years, does the U.S. consider me to be a U.S. resident?

According to the IRS website, you (unless you are a U.S. citizen) are considered a resident alien for U.S. tax purposes if you satisfy the substantial presence test. This test uses the number of days you were in the U.S. during a three year period. The IRS website has more information to help you determine if you are a resident alien based on the substantial presence test.

The IRS also says that even if you are a non-U.S. citizen and you satisfy the substantial presence test for a particular year, you can still be considered a non-resident alien, if you meet certain conditions. One of these conditions is that you maintain a closer connection to a foreign country in that year.

IRS Publication 519 states that the U.S. domestic rules that determine if a non-U.S. citizen is a U.S. resident do not override tax treaty definitions of residency. If you are considered a resident of Canada and the U.S. under each country’s laws and the Canada–U.S. tax treaty considers you a resident of Canada, the U.S. has to treat you as a non-resident taxpayer and you should not identify yourself as a U.S. resident to your Canadian financial institution.

6. How does my citizenship affect my tax residency?

Canada and virtually all other countries do not tax on the basis of citizenship. The citizenship you hold is generally not relevant in determining your residency for tax purposes.

The U.S. tax system is different from most countries in that it treats all U.S. citizens as U.S. residents for tax purposes no matter where in the world they reside. Therefore, if you are a U.S. citizen, you are a resident of the U.S. for tax purposes even if you hold another citizenship or reside in Canada or any other country.

7. Will my financial institution ask me if I was born in the U.S.?

A financial institution does not have to ask its account holders about their place of birth.

If a financial institution, applying the due diligence rules of the agreement to its accounts, finds records that have an unambiguous indication of a U.S. place of birth, the financial institution must treat the account as a reportable account or follow up with the account holder to obtain documentation that shows he or she is not a U.S. resident or a U.S. citizen.

8. Am I obliged to provide the information?

Canadian financial institutions have a legal responsibility to know where you reside for tax purposes and they are entitled to ask you for that information.

If you refuse to cooperate with your financial institution, it can treat the account as a U.S. reportable account and report your account to the CRA.

9. What type of information is reported to the U.S.?

Canadian financial institutions generally have to report the following:

  • identifying information about the account holder (name and address)
  • U.S. taxpayer identification number
  • date of birth (only in limited circumstances)
  • account number
  • account balance or value at end of the year
  • certain amounts paid or credited to the account

10. Do I have to provide my U.S. taxpayer identification number (TIN)?

Canadian financial institutions have a legal responsibility to ask for your U.S. TIN in connection with certain accounts. If you are a U.S. resident or U.S. citizen, you have to provide your U.S. TIN to your financial institution when asked.

11. I am not a U.S. person, but I have a joint account with a U.S. person. How does the agreement affect me?

If a Canadian financial institution identifies a joint account as a reportable account, the financial institution will report the full value of the account to the CRA. It will not report identifying information (name, address, taxpayer identification number) associated with joint account holders who are not U.S. persons.

12. I am a Canadian resident and I hold accounts in the U.S. How does the agreement affect me?

If a U.S. financial institution identifies the account you hold as a reportable account, the financial institution has to report the account to the IRS. The IRS then sends the information to the CRA.

13. If I have several financial accounts, how are they reported?

If you are identified as a U.S. person, your Canadian financial institution will report your accounts individually to the CRA.

14. How do I know whether my Canadian financial institution has to comply with the agreement and whether my account is subject to review?

Under the agreement, a number of Canadian financial institutions are partially or fully exempt from the requirements to undertake due diligence and to report on U.S. account holders. For instance, smaller Canadian deposit-taking institutions, such as credit unions, with assets under $175 million, are exempt.

A partial exemption is available for a Canadian financial institution if it is not part of a multinational group (i.e., it is not related to any entities organized outside of Canada) and at least 98% of its financial accounts are held by Canadian residents. These financial institutions do not have to apply due diligence or report on accounts held by individuals who are Canadian residents.

If you would like to know the status and obligations of a particular financial institution under the agreement, you should contact the financial institution.

15. How does my Canadian financial institution determine if I am a U.S. person?

If you held an account at a financial institution on June 30, 2014 and your account needs to be reviewed, your financial institution has to review certain information it already has, such as a U.S. address, for indications that you may be a U.S. person. If there is such an indication, your financial institution must seek to obtain or review certain information from you to verify whether you are a U.S. person. A financial institution may take similar steps in connection with an account you open after June 30, 2014. Alternatively, it may ask you to self-certify your status at the time you open your account.

16. Does my Canadian financial institution have to notify me if information on my accounts is reported to the CRA?

Canadian financial institutions must be open about their policies and procedures for complying with the agreement and must be prepared to make this information available to anyone who asks about them. Although financial institutions do not have to automatically notify their account holders about reporting to the CRA under the agreement, they must, upon request, allow account holders to have access to the personal information that has been reported.

17. What if a Canadian financial institution reports my account in error?

In the unlikely event that a Canadian financial institution reports your account in error, it can send the CRA a notice of correction. If we receive this notice after sharing the original data with the U.S. Internal Revenue Service (IRS), we will ask the IRS to disregard the incorrect data.

18. I am a U.S. citizen living in Canada and was not aware that the U.S. wants me to file tax returns. Does the agreement mean that I now have to pay U.S. tax?

The agreement is strictly an information-sharing agreement and does not involve any new or higher taxes.

Unlike Canada, the U.S. taxes its citizens who reside in other countries on their worldwide income. The U.S. citizenship-based tax regime has been in place for many years and the agreement does not alter it. For more information, see the IRS web site.

19. Does the agreement require Canadian financial institutions to report to the CRA on any individuals who relinquished their U.S. citizenship?

No. Canadian financial institutions do not have to report on any individuals who have relinquished their U.S. citizenship and are not residents of the U.S.

Financial institutions may ask individuals who have relinquished their U.S. citizenship for documentation to this effect.

20. I am a U.S. citizen and I understand that some of my accounts (including my RRSPs, RESPs, and TFSAs) are excluded under the agreement. Does this mean that I do not have to consider them when fulfilling my reporting obligations under U.S. law?

The agreement is strictly an information-sharing agreement. How an account or product is treated under the agreement has no effect on your U.S. filing or reporting requirement.

21. Since my Canadian financial institution has to report my accounts to the CRA (to share with the IRS), do I still have to file a Report of Foreign Bank and Financial Accounts with the U.S. Department of Treasury?

As a U.S. citizen, no matter where you live, you have to file annual tax returns and other forms, including the Report of Foreign Bank and Financial Accounts (FBAR). This is a matter of U.S. domestic policy and is not affected by the agreement.

22. If I am assessed tax or a related penalty by the U.S., will the CRA assist the U.S. to collect it?

While the Canada–U.S. tax treaty says that Canada may assist the U.S. to collect certain taxes, it also says that the CRA will not assist the IRS to collect your U.S. tax liability if you were a Canadian citizen when the liability arose. This is true whether or not you were also a U.S. citizen at the time.

23. If the U.S. assesses me a FBAR penalty, will the CRA assist the U.S. to collect it?

The IRS cannot use the information it receives under this agreement to administer non-tax laws such as the U.S. Bank Secrecy Act. The CRA will not assist the U.S. to collect non-tax related penalties such as those for failing to file the FBAR.

What the agreement means for financial institutions in Canada

  1. Under the agreement, how do financial institutions identify accounts held by U.S. residents and U.S. citizens? What do financial institutions do with this information?
  2. Do all financial institutions have to comply with the agreement?
  3. How do Canada and the U.S. enforce the reporting of information by their respective financial institutions?
  4. What if account holders are unsure whether they are U.S. citizens?

1. Under the agreement, how do financial institutions identify accounts held by U.S. residents and U.S. citizens? What do financial institutions do with this information?

Canadian financial institutions have to identify account holders that are U.S. persons, including U.S. residents and U.S. citizens, by following the due diligence procedures of the agreement. The due diligence procedures vary depending on whether the account holder is an individual or an entity and whether the account was opened on or before June 30, 2014, or after. The due diligence procedures are more intensive for accounts with a value of more than US$1 million. There are also a number of exemptions from due diligence available for accounts that have a low value and for certain types of accounts, such as federally registered savings products (for example, RRSPs and TFSAs).

Guidance on how Canadian financial institutions are expected to undertake due diligence is provided in the CRA Guidance for Canadian financial institutions.

Canadian financial institutions report information on their U.S. account holders to the CRA every year starting in 2015. Canadian financial institutions also have to report on account holders who do not respond to requests from their financial institution for documentation to clarify whether they are a U.S. resident or U.S. citizen, in a manner similar to the reporting on U.S. account holders.

2. Do all financial institutions have to comply with the agreement?

The agreement generally applies to all types of financial institutions, including deposit-taking institutions, custodial institutions, insurance companies, and investment entities. The types of entities in Canada that meet these criteria are listed in the CRA Guidance for Canadian financial institutions.

For certain types of financial institutions, exemptions are available from some or all of the due diligence and reporting obligations under the agreement. For example, smaller deposit-taking institutions, such as credit unions, with assets of less than $175 million are exempt from reporting.

A partial exemption is available for a Canadian financial institution if it is not part of a multinational group (i.e., it is not related to any entities organized outside of Canada) and at least 98% of its financial accounts are held by Canadian residents. These financial institutions do not have to apply due diligence or report on accounts held by individuals who are Canadian residents.

3. How do Canada and the U.S. enforce the reporting of information by their respective financial institutions?

In Canada, the due diligence and reporting requirements that the agreement imposed on Canadian financial institutions were implemented through new legislation, including Part XVIII of the Income Tax Act. As the administrator of Canada’s tax laws, the CRA is responsible for monitoring and enforcing the due diligence and reporting requirements in Canada for Canadian financial institutions under the agreement.

In the U.S., the IRS is responsible for enforcing the information reporting requirements that the agreement imposed on U.S. financial institutions. The U.S. relies on its existing laws to require U.S. financial institutions to report to the IRS the information that they have to obtain under the agreement on accounts held by Canadian residents.

4. What if account holders are unsure whether they are U.S. citizens?

An account holder may be unsure whether he or she is a U.S. citizen and may ask a financial institution for clarification about the rules for U.S. citizenship. These rules are complex, and financial institutions are not expected to provide information on all aspects of U.S. citizenship. If an account holder asks for such a clarification, a financial institution may refer the account holder to relevant U.S. government websites or resources, such as the IRS website or U.S. Citizenship and Immigration Services. It is the responsibility of the account holder to determine whether he or she is a U.S. citizen.

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