Canadian entities that could be subject to the U.S. Foreign Account Tax Compliance Act (FATCA) will need to ensure that they are ready for these new rules now that the Canadian government passed legislation to implement an intergovernmental agreement (IGA) with the United States on June 19, 2014. The IGA is intended to streamline compliance with the information gathering and reporting requirements under FATCA, which generally takes effect July 1, 2014.
Under the IGA, Canadian financial institutions must report to CRA and not the IRS. In addition, certain pension plans and registered accounts are exempt from FATCA due diligence and reporting, including Registered Retirement Savings Plans (RRSPs), Registered Retirement Income Funds (RRIFs), Registered Pension Plans (RPPs) and Tax-Free Savings Accounts (TFSAs). The IGA also provides:
- Relief from most U.S. FATCA withholding
- Due diligence procedures for pre-existing accounts
- Procedures for the on-boarding of new accounts and obtaining self certifications.
Without the IGA, a 30% withholding on Canadians’ U.S. source income would have been used as a penalty to compel Canadian businesses to provide the information the IRS requires about U.S. account holders and U.S. owners. For more details on the IGA see KPMG’s TaxNewsFlash-Canada 2014-06, “Canada Signs FATCA Agreement with U.S [PDF 40Kb].”.
The legislation to implement the Canada-U.S. IGA did not make any substantive changes from the earlier draft legislation originally issued. During this draft legislation's consultation period, KPMG Canada prepared a submission paper [PDF 204Kb] that recommended that Finance should:
- Confirm its interpretation of the term “financial institution” for purposes of the proposed legislation with the U.S. in a memorandum of understanding
- Allow a financial institution to assume Canadian residency for purposes of the “Financial Institutions with a Local Client Base” exemption if, after reasonable inquiry, it has no reason to believe an account holder is a non-resident of Canada
- Provide limited relief from FATCA by allowing an entity with a class of shares that are regularly traded to deem all of its shares to be regularly traded for purposes of the IGA’s definition of “Financial Account”.
- For details of KPMG's submission, see TaxNewsFlash-Canada 2014-25, "Canada's IGA Legislation Causes FATCA Concern for Some Trusts"
Now that these new rules are considered law, Canadian financial institutions must comply with new information gathering and reporting requirements effective July 1, 2014 under FATCA. These rules include registering as participating foreign financial institutions with the IRS and ensuring on-boarding procedures comply with the IGA on all new accounts opened on or after July 1, 2014, among other things.
We can help
KPMG Canada’s experienced, multidisciplinary team of tax and advisory professionals can help your multinational Canadian company meet its FATCA requirements. We provide FATCA advice to a wide range of financial services and general business organizations and can assist you in determining the FATCA categories for entities in your organization. To discuss any aspect of FATCA, please contact your KPMG adviser.
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Information is current to June 20, 2014. The information contained in this TaxNewsFlash-Canada is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG’s National Tax Centre at 416.777.8500.
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