The Foreign Account Tax Compliance Act, better known as FATCA, was passed in 2010 as part of the HIRE act. Starting July 1, 2014 foreign financial institutions (FFI) are required by the U.S. government to report information regarding non U.S. accounts of all U.S. citizens (living in the U.S. and abroad) to the IRS. This law requires major Canadian financial institutions including banks, stock brokers, hedge funds, insurance companies, trusts, etc. to report to the IRS all their clients who are U.S. citizens.
The U.S. Treasury has entered into Intergovernmental Agreements (IGAs) with a limited number of countries which will facilitate the transfer of information. Under the Canadian IGA:
- Canadian financial institutions will not report any information directly to the IRS. Rather, accountholder information on U.S. residents and U.S. citizens will be reported to the Canada Revenue Agency (CRA). The CRA will transfer the information to the IRS under the authority of existing provisions in the Canada-U.S. Tax Treaty. This sharing of information should be a source of worry for those U.S. citizens who are not compliant with their U.S. filing obligations.
- The FATCA requirement that Canadian financial institutions be required to close accounts or refuse to offer services to clients in certain circumstances will be eliminated.
- A number of accounts will be exempt from FATCA reporting, including Registered Retirement Savings Plans, Registered Retirement Income Funds, Registered Disability Savings Plans, and Tax-Free Savings Accounts.
- Smaller deposit-taking institutions, such as credit unions, with assets of less than $175 million will be exempt from reporting.
- The IRS will provide the CRA with enhanced and increased information on certain accounts of Canadian residents held at U.S. financial institutions. This provision should concern those Canadian who are not reporting income from U.S. accounts correctly.