Information for entities with accounts with Canadian financial institutions

This information is for corporations, trusts, partnerships, and other organizations (referred to in this document as entities) that hold or want to open an account with a financial institution in Canada. If you are a sole proprietorship, see the information for individuals with accounts with Canadian financial institutions.

Under the agreement, Canadian financial institutions have to identify and report on certain account holders that are U.S. entities and certain entity account holders that have controlling persons who are U.S. residents or U.S. citizens. For example, a corporation may be asked to indicate where it is incorporated, the nature of its activities, and whether it is controlled by U.S. citizens or U.S. resident individuals.

These requirements are in addition to obligations that may exist under other regulatory regimes, such as for anti-money laundering purposes.

Why have new requirements been implemented?

Canadian financial institutions have long been required to understand the tax status of account holders and others they deal with. In the past, tax residency was often determined based on information at hand, such as address information, without more direct enquiries.

Under the agreement, Canadian financial institutions have to report new information to the CRA.

The new requirements aim to find out whether an entity account holder has significant links to the U.S., for example, because the entity is a U.S. corporation or is controlled by an individual who is a U.S. person for U.S. tax purposes (for example, a U.S. resident or a U.S. citizen). The requirements stem from the new agreement between Canada and the U.S. to improve tax compliance. For more information, see the Intergovernmental Agreement for the Enhanced Exchange of Tax Information under the Canada-U.S. Tax Convention.

In some circumstances, financial institutions rely on information already in their records or that is publicly available indicating that the entity or one or more of its controlling persons may be a U.S. person. Financial institutions can also ask their clients to provide a certification to declare whether they are a U.S. person. Financial institutions are required to send to the CRA information on account holders who do not cooperate with requests for information (The information is similar to that reported about U.S. account holders.) The CRA then sends the information to the IRS.

The CRA has not developed a form for Canadian financial institutions to use in collecting the information under the agreement. Instead, financial institutions can design solutions that are tailored to their particular businesses, as long as they get the required information.

The following questions and answers address questions that may be asked by financial institutions about an entity’s residency status.

What information can a financial institution ask for?

With respect to entity account holders, a financial institution applying the due diligence rules of the agreement is required to determine whether the account holder is:

  • a U.S. person and, if so, whether it is a specified U.S. person;
  • a financial institution and, if so, whether it is of a particular type; or
  • a non-financial foreign entity (or NFFE for short) and, if so, whether it is a passive NFFE.

If the account holder is a passive NFFE, the financial institution must identify any individual that is a U.S. person that is a controlling person of the account holder.

These are unfamiliar terms, what do they mean?

In addition to any instructions given by Canadian financial institutions, the following guidance may help you to complete any required certification.

U.S. person

An entity may be asked whether it is a U.S. person. Generally speaking, an entity is a U.S. person if it is:

  • a corporation or partnership organized in the U.S. or a U.S. state;
  • a trust subject to U.S. law that is controlled by one or more U.S. citizens or U.S. residents for tax purposes; or
  • a testamentary trust of a decedent that was a U.S. citizen or a U.S. resident for tax purposes at the time of death.

A corporation that was incorporated in Canada, or organized in any other place outside of the U.S., is not generally a U.S. person.

For more information on the classification of taxpayers for U.S. tax purposes, see the IRS publication Classification of Taxpayers for U.S. Tax Purposes.

Specified U.S. person

An entity that is a U.S. person is not a specified U.S. person if it is a corporation whose stock is regularly traded on an established securities market, or if it is a U.S. government or agency. A specified U.S. person also does not include most entities that fall into any of the following categories:

  • a trust or organization exempt from taxation;
  • a bank, real estate investment trust, regulated investment company, common trust fund, or securities or commodities dealer; or
  • a corporation that is related to a corporation whose stock is publicly traded.

If an entity falls into one of these categories, it should consult the definition of specified U.S. person in subparagraph 1(ff) of Article 1 of the Intergovernmental Agreement for the Enhanced Exchange of Tax Information under the Canada-U.S. Tax Convention to properly assess whether it can certify that it is not a specified U.S. person.

Non-financial foreign entity (NFFE)

All entities are NFFEs except financial institutions and U.S. persons. Therefore, all Canadian and other non-U.S. entities that are not financial institutions are NFFEs.


Bill is a carpenter whose business is incorporated in Canada. Since the corporation is not a U.S. person and not a financial institution, it is an NFFE.

Passive non-financial foreign entity (passive NFFE)

An NFFE can be either a passive NFFE or an active NFFE. A passive NFFE is any NFFE that is not an active NFFE.

Canadian corporations (that are not financial institutions) that carry on an active trade or business are generally active NFFEs. Entities that do not engage in substantive business activities to produce a good or service are generally passive NFFEs.

An active NFFE also includes:

  • a public corporation with shares that regularly trade on an established securities exchange (for example, the TSX or the NYSE);
  • an entity related to a public corporation described above;
  • a registered charity;
  • a government (or an agency or instrumentality thereof) that performs functions of a governmental nature;
  • a start-up entity investing in assets with the intent of operating a business (other than a business of making or managing investments), if the entity was incorporated or otherwise organized less than 24 months before it relies on this criteria to certify it status.

For example, a Canadian corporation that is exclusively dedicated to running a restaurant, hair salon, car dealership, or factory is engaged in an active pursuit is an active NFFE. On the other hand, a personal investment corporation or trust that holds investments to produce passive income is a passive NFFE.

Passive income is generally understood to include income from the mere holding of investment property, such as interest, dividends, and rent.

A business corporation or other entity can be involved in multiple activities or hold a combination of assets, which may make it more difficult to know whether it should be categorized as an active NFFE. For example, a corporation may be carrying on an active business but also earning significant income from portfolio holdings. It is an active NFFE as long as the entity earned less than 50% of its gross income in its last fiscal year from passive income and less than 50% of its assets held during that year were held to generate passive income (the passive income/asset test).


Michele is a professional photographer and her business is incorporated as ABC Photo in Alberta. She is the sole shareholder of the corporation. In its last fiscal year, 70% of ABC Photo's income was from fees and commissions and 30% was from passive income in the form of interest and dividends from assets owned by ABC Photo that represent 25% of its total assets.

ABC Photo is an active NFFE.


Joe is an optometrist whose practice is incorporated in Quebec. He is the sole shareholder of the corporation. He is preparing to retire and has reduced the number of hours he works, so the portfolio owned by the corporation now earns more income from investment assets than from fees for service. As reported last fiscal year, 40% of the corporation's income is from fees and 60% is passive income from investment assets.

Joe's corporation is a passive NFFE.

If an entity needs more information to decide whether it is a passive NFFE, then it should consult the definitions of passive NFFE and active NFFE in Section VI of Annex I of the Intergovernmental Agreement for the Enhanced Exchange of Tax Information under the Canada-U.S. Tax Convention before certifying its status. The CRA Guidance for Canadian Financial Institutions may also be helpful.

Financial institution

An entity that holds a financial account at a financial institution in Canada may be asked to declare whether it is itself a financial institution. Not all entities in the financial sector are considered financial institutions.

To be a financial institution, an entity must be a custodial institution, a depository institution, an investment entity, or an insurance company that offers insurance contracts with an investment component or annuity contracts. Further guidance on what entities are financial institutions is available on the CRA Guidance for Canadian Financial Institutions.


If an entity is a financial institution, it may be asked to specify what sub-category of financial institution it falls into. This is particularly true in connection with establishing whether a financial institution is a non-participating financial institution. It is also relevant to financial institutions that are or will be receiving U.S. source payments and have to give sub-category information to U.S. withholding agents.

At the time this document was last published no Canadian financial institution was known to be classified as a non-participating financial institution. The IRS website lists any institution that it considers to be a non-participating financial institution as a result of significant non-compliance.

More information on what it means to be a non-participating financial institution is available in the CRA Guidance for Canadian Financial Institutions.

Controlling person of a passive NFFE who is a U.S. person for U.S. tax purposes

If an entity is a passive NFFE, you have to identify whether any of its controlling persons are U.S. persons for U.S. tax purposes.

Controlling persons

Controlling persons of an entity means the individuals (natural persons) who exercise control over the entity. Whether any person exercises control over an entity is determined based on the particular situation in a manner consistent with how beneficial owners are identified for the purposes of Canada's Proceeds of Crime (Money Laundering) and Terrorist Financing Act.

Generally speaking, a person is not considered a controlling person of an entity (other than a trust) unless they are at least a 25% owner.

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