CRA releases FATCA guidance on reporting obligations under IGA

The guidance is intended to provide clarity to help financial institutions and their advisors understand and comply with their due diligence and reporting obligations under Canada’s intergovernmental agreement (IGA) with the United States.

Under this agreement, Canadian financial institutions must report to the CRA and not the IRS. Certain pension plans and registered accounts are exempt from FATCA due diligence and reporting, including Registered Retirement Savings Plans, Registered Retirement Income Funds, Registered Pension Plans and Tax-Free Savings Accounts.

The Guidance on enhanced financial accounts information reporting – Part XVIII of the Income Tax Act states that a "Canadian financial institution that is in compliance with Part XVIII will not be subject to any US withholding tax on US source income and gross proceeds (both on its own investments and those held on behalf of its customers) under section 1471 of the US Internal Revenue Code."

However, the agreement requires that procedures be followed by Canadian financial institutions seeking to secure that outcome, and an entity must meet two conditions before it is considered as such: First, it must be a Canadian financial institution as defined under the IGA. In addition, it must be a “listed financial institution” for the purposes of Part XVIII of the Income Tax Act.

Subsection 263(1) of the Act defines a “listed financial institution” for that purpose and limits its meaning to 13 categories of entities.

The guidance concludes that trusts that are not promoted or represented to the public – such as family trusts – are not intended to be included in the term “listed financial institution”.

It also confirms that a trust established for family estate planning purposes is not a listed financial institution and that a family trust professionally managed by an investment entity is viewed as a passive Non-Financial Foreign Entity (NFFE) under Canadian law.