This GMS Flash Alert reports that Canadian financial institutions will soon have to collect information on financial accounts held by tax residents of jurisdictions outside of Canada and the United States and provide these details to the Canada Revenue Agency.
Canadian financial institutions will soon have to collect information on financial accounts held by tax residents of jurisdictions outside of Canada and the United States and provide these details to the Canada Revenue Agency (CRA).1
Individuals with affected accounts should be aware that Canadian financial institutions must report to the Canadian tax authority information such as individuals’ account balances, interest and dividends received, and proceeds from the sale of financial assets. This information may subsequently be shared with other countries’ tax authorities.
The rules include a CAD 500 penalty for persons who fail to provide their Taxpayer Identification Number (TIN) upon request to a reporting financial institution.
This requirement is part of an international initiative under which Canada has agreed to provide this information to other countries’ tax authorities in exchange for information about financial accounts held by Canadians in those jurisdictions.
A reporting financial institution must complete enhanced due diligence procedures before 2019 for pre-existing individual accounts with an aggregate balance or value that exceeds USD 1 million on June 30, 2017. For pre-existing individual accounts that do not exceed USD 1 million and entity accounts that have account balances greater than USD 250,000, due diligence procedures must be completed before 2020.
For new accounts that are opened after June 30, 2017, reporting financial institutions are required to collect appropriate self-certifications and documentary evidence to identify reportable accounts. Financial institutions must validate these self-certifications.
Although this reciprocal exchange of information begins in 2018, affected financial institutions must have procedures in place to identify this information by July 1, 2017. Such institutions should be thinking about developing and implementing appropriate procedures and systems to collect the required information and report it correctly.
Canada’s proposed common reporting standard rules will require financial institutions in Canada to identify accounts held by residents of jurisdictions outside of Canada and the United States (including persons with dual or multiple residency) and report specific information relating to these accounts directly to the CRA each year. Under these rules, financial institutions must report information such as account balances, interest, dividends received, and proceeds from the sale of financial assets. These rules apply to accounts held by individuals and certain entities.
Under the proposed common reporting standard rules, a “reporting financial institution” is required to identify accounts held by tax residents of jurisdictions other than Canada and the United States and report certain account information to the CRA. However, a corporation, trust, partnership, joint venture or other Canadian resident entity that is not a Canadian financial institution (a “non-financial entity” or “NFE”) is still generally required to self-certify its entity classification under the proposed rules to any reporting financial institution with which it holds a financial account.
A reporting financial institution must file a prescribed information return with the CRA by May 1 of each year, starting May 1, 2018. This return must provide information relating to reportable accounts that it maintained at any time during the preceding calendar year and after June 30, 2017. Specifically, financial institutions will be required to report information such as account balances, interest, dividends received, and proceeds from the sale of financial assets.
Canada’s proposed common reporting standard rules, introduced on April 15, 2016, include concepts that are largely drawn from the U.S.-based Foreign Account Tax Compliance Act (FATCA), which has a similar focus on financial accounts and the financial institutions that maintain them. As a result, Canadian financial institutions may be able to leverage certain aspects of the systems they currently have in place to meet the Canadian rules that require them to comply with FATCA (the Canadian FATCA rules in Part XVIII of the Income Tax Act).
Some aspects of the common reporting standard rules are significantly broader than those under the Canadian FATCA rules. For example:
There are no registration or withholding tax regimes under the common reporting standards as there is with the Canadian FATCA rules. Instead, reporting financial institutions can expect to be subject to penalties for failure to report (although these provisions have yet to be proposed). In addition, as mentioned earlier, the rules include a CAD 500 penalty for reportable persons who fail to provide their Taxpayer Identification Number (TIN) upon request to a reporting financial institution.
1 For more details, see the CRA webpage.
This article is excerpted from “Canadian FIs – Start Collecting Non-Resident Account Details,” in TaxNewsFlash-Canada (August 11, 2016, No. 2016-40, a publication of the KPMG International member firm in Canada.
For additional information or assistance, please contact your local GMS or People Services professional or the following professional with the KPMG International member firm in Canada:
The information contained in this newsletter was submitted by the KPMG International member firm in Canada.
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