FATCA Rules for Canadians

FATCA Rules for Canadians
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 Canadians. If you are American, read this.


Accounts Held in the USA

If you are anyone 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 Canada

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

  • Many Canadians living in Mexico use a USA mailing address for their Canadian bank, investments and other correspondence. If you have a USA mailing address, your account may be reported to the IRS for investigation.
  • Canadians may have moved to the USA to work, leaving investment and other accounts behind with their new US address recorded so that they can receive their statements.
  • A USA post office box or mail forwarding service is counted as a USA address.

Types of Canadian Accounts Affected

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). This applies to everyone, even a Canadian who is a non-resident of Canada. No matter 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).

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 (RRSP's)
  • Registered Retirement Income Funds (RRIF's and LIF's)
  • Tax Free Savings Accounts (TFSA's)
  • Registered Disability Savings Plans (RDSP's)
  • Registered Pension Plans (RPP's)
  • Pooled Registered Pension Plans (PRPP's)
  • Registered Education Savings Plans (RESP's)
  • AgriInvest Accounts
  • Deferred Profit-Sharing Plans (DPSP's)

How to Avoid Problems and Issues

For Canadians in Mexico with Canadian Held Accounts

Canadians are taxed on residency, not on citizenship, so they have less of a problem. If you are using a USA mailing address, have a USA telephone number or meet any other of the criteria that makes you reportable to the IRS, you need to demonstrate to your Canadian financial institution that you are not taxable or resident in the USA.  Some financial institutions have already changed their applications to include a statement to the affect that (a) you are not a USA citizen, (b) your residence is Canada or some other country and (c) you are not taxable in the USA.

It may be that Canadian financial institutions will soon start requesting a W8BEN form be filed, and that you provide documents of residency commonly used by international financial institutions, called AML or KYC compliance. Stay tuned for more information.

Updates

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Originally written October 22, 2014
Revised: November 19, 2014
 

Contact a Canadian financial advisor for free advice

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