FATCA Rules for Americans

FATCA Rules for Americans
Disclaimer:  The information on FATCA is new and complex. Do not rely on this information for decision making. You are advised to consult with a tax specialist or financial advisor familiar with jurisdictional tax issues.
If you have not read the introduction to FATCA, then you may want to review that information before reading these notes.

This page is for Americans. If you are Canadian, read this.


Accounts Held in the USA

If you are an American with a Canadian Mailing Address… or a Canadian telephone number… on accounts held in the USA, they are reportable to the Canada Revenue Agency (CRA). This includes

  • USA bank accounts which earn $10 or more a year in interest.
  • Any investment account in the USA.

Accounts Held in Mexico

Mexico is obligated by this treaty to report any accounts of any value held by Americans in Mexico. It doesn't matter where you reside, even if you are a permanent resident of Mexico, the IRS wants your information.  After all, Americans are taxable on world income and the US wants your taxes.

What Information Makes You Reportable?

If any of the following applies to you, then Mexico is obligated to report your account to the IRS

  • Identification on file which shows the account holder as a U.S. citizen or resident;
  • An indication on the file of a U.S. place of birth. That could be a copy of your US passport, for example.
  • If the current U.S. mailing or residence address (including a U.S. post office box or U.S. “in-care-of” address);
  • If the current telephone number on file is in the USA;
  • Standing instructions to transfer funds to an account maintained in the United States;
  • Currently effective power of attorney or signatory authority granted to a person with a U.S. address. In other words, someone with a USA address has signing authority (joint or otherwise) on the account, or someone with a USA address has power of attorney over the account.

Accounts Held in Canada

There are a number of valid reasons for an American to have accounts in Canada with a USA mailing address.

  • Americans who have worked or lived in Canada may have opened accounts while there. Today, they may be using their USA address to receive statements and reports. This means their Canadian account information will now be shared with the IRS.
  • A USA post office box or mail forwarding service is counted as a USA address.
Types of Canadian Accounts Affected

You will notice that the US is casting a bigger net to identify accounts held in Canada.

If you are anyone with a USA Mailing Address or a USA telephone number on accounts in Canada, they are reportable to the US Internal Revenue Agency (IRS). No where you actually live, if you have accounts in Canada with a USA Mailing Address or a USA telephone number, they are reportable to the US Internal Revenue Agency (IRS).

Canadian Mailing Address

If you are a US citizen or were born in the USA, and if the Canadian institution has that information in their files, your Canadian accounts are reportable to the IRS.

Accounts Affected Include
  • Canadian bank accounts worth $50,000 or more in cash value.
  • Investment accounts worth $50,000* or more.
  • Any life insurance policy worth $50,000* or more in cash surrender value. Cash surrender values are taxable values. Should you ever cancel the policy and take the cash value, it is taxable to the insurance policy owner. This is the reason that it is reportable.
  • Any annuity that has a cash value of $50,000* or more. Annuities are Guaranteed Income Programs sold by life insurance companies that work just like a pension plan. In some cases, Canadian employers provide pensions to their retirees by purchasing annuity contracts with insurance companies. At the time of this writing, there is some question about what annuities may be exempt. It may be best to assume all annuities over $50,000 in value will be reportable to the IRS until the situation is clarified.
  • Any Canadian account that has standing instructions to send payments to any account located in the USA.
  • All accounts with any one institution will be added together to see if the $50,000 threshold is reached.
  • Joint accounts are treated as if they were owned by both individuals. For example, a $50,000 account is NOT treated as if it were $25,000 for each person…it is treated as one $50,000 account for each person.

*The initial phase allows these values to be non-reportable if they are less than $250,000 as of June 30, 2014. For all new accounts after that date, they are reportable at the $50,000 level. However, the Agreement allows Canadian institutions to report all accounts of $50,000 or more even if they existed on June 30, 2014. The risk is that Canadian institutions will use the $50,000 threshold for all accounts.

Exceptions

The following Canadian accounts are exempt from reporting:

  • Registered Retirement Savings Plans (RRSPs)
  • Registered Retirement Income Funds (RRIF's and LIF's)
  • Tax Free Savings Accounts (TFSAs)
  • Registered Disability Savings Plans (RDSPs)
  • Registered Pension Plans (RPPs)
  • Pooled Registered Pension Plans (PRPPs)
  • Registered Education Savings Plans (RESPs)
  • AgriInvest Accounts
  • Deferred Profit-Sharing Plans (DPSPs)

How to Avoid Problems and Issues

Americans with Canadian or Mexican Accounts

The horse may be out of the barn if you have not been reporting income from Canadian accounts that exceed the thresholds. As noted earlier, the threshold for current accounts held on June 30, 2014 was to be $50,000 for bank accounts and $250,000 for the others. There is a risk that Canadian institutions will elect to use the $50,000 lower threshold for all accounts; time will tell.

For Mexico, the limits are the same, but the effective date was December 31, 2013.

  • If you have revoked your USA citizenship, you will need to provide documentation to the Canadian or Mexican financial institution to avoid them reporting your account to the IRS.
  • Where account holder information indicates a U.S. place of birth, you need to provide the following:
    (1) An IRS Form W-8;
    (2) a non-U.S. passport or other government-issued identification evidencing  citizenship or nationality in a country other than the United States; and
    (3) a copy of the your Certificate of Loss of Nationality of the United States or a reasonable explanation of two things:
             (a) the reason you do not have such a certificate despite renouncing U.S. citizenship; or
             (b) the reason you did not obtain U.S. citizenship at birth.
Updates

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Originally written October 22, 2014

Revised: November 18, 2014

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