The Foreign Account Tax Compliance Act (FATCA) is United States (U.S.) legislation that was passed in 2010 that requires non-U.S. financial institutions to identify and report information to the U.S. Internal Revenue Service (IRS) on certain financial accounts held outside the U.S. by U.S. persons, including U.S. entities.
On February 5, 2014, the Canadian government signed The Canada-U.S. Enhanced Tax Information Exchange Agreement or Intergovernmental Agreement (IGA). The IGA is intended to improve tax compliance in both countries through enhanced information sharing between the two governments, and to provide the U.S. government with information similar to that required under FATCA.
On June 27, 2014, Part XVIII was added to the Income Tax Act(Canada), implementing the IGA and reporting obligations in Canada.
Under the IGA and the Income Tax Act, Canadian financial institutions* are required to report any reportable accounts to the Canada Revenue Agency (CRA). CRA then shares that information with the IRS under the information sharing provisions contained in the IGA.
More information can be found on these websites:
- Department of Finance Canada website: Canada and U.S. Reach Agreement on Foreign Account Tax Compliance Act
- Canada Revenue Agency website: Enhanced financial account information reporting
- Canadian Life and Health Insurance Association website: Enhanced Financial Account Information Reporting to CRA on Insurance and Annuity Contracts
Impact of the FATCA requirements for Sun Life
As of July 1, 2014, Canadian financial institutions* are required to identify accounts opened by U.S. persons and entities, and provide information about those accounts to the CRA on an annual basis. The first report was sent before May 1, 2015 for the year ended December 31, 2014.
Not all financial accounts are subject to FATCA requirements. For example, term life insurance and registered accounts (e.g. RRSPs, RRIFs, and TFSAs) are not subject to review or report.
Information for advisors
For any covered financial account opened with a financial institution in Canada on or after July 1, 2014, the client is required to certify whether they are a U.S resident for tax purposes (including a U.S. citizen). If they are signing on behalf of an entity, they have to certify whether the entity is a U.S. resident for tax purposes, or if the entity's controlling persons are U.S. residents for tax purposes. If the account is confirmed as reportable, the client's name, address, and U.S. Taxpayer Identification Number (TIN) are some of the details the financial institution must report to the CRA as required by Canadian law.
For more information about who would meet the definition of a U.S. person, please refer to: U.S. citizens and resident aliens abroad.
* includes insurance companies, trust companies, investment dealers and banks