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Information for individuals holding accounts with Canadian financial institutions

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New reporting requirements for financial accounts

This information is for individuals who hold or want to open an account with a financial institution in Canada and who want to know if their financial account information will be reported by their financial institution to the Canada Revenue Agency (CRA) and shared with the United States (U.S.) and/or other jurisdictions.

The intergovernmental agreement between Canada and the U.S. and the international standard for the automatic exchange of financial account information between tax administrations, also known as the Common Reporting Standard (CRS), are designed to improve tax compliance. To achieve this, financial institutions need to better understand the tax residence of their account holders.

Under the agreement with the U.S. and under the CRS, financial institutions have to identify account holders who are non-residents of Canada or U.S. citizens by following the due diligence procedures. As a result, individuals may be asked to certify or clarify their tax residence to their financial institution. This includes declaring whether they are non-residents of Canada or U.S. citizens and producing documents such as a driver’s licence for any representation they make. Financial institutions need this information from account holders to satisfy their obligations for tax reporting to the CRA.

The CRA gives the information it received from financial institutions on U.S. residents and U.S. citizens to the U.S. and on other non-residents to each of Canada’s CRS partners with respect to their own residents. The U.S. and those CRS partners provide the CRA with similar information on Canadian residents holding accounts with financial institutions located in their jurisdictions.

The agreement with the U.S. and the CRS are strictly information-sharing agreements and do not involve any new or higher taxes. The agreement with the U.S. and the CRS have no effect on your foreign filing or reporting requirement. For more information on the agreement with the U.S. and on the CRS, see the Intergovernmental Agreement for the Enhanced Exchange of Financial Account Information under the Canada-U.S. Tax Convention and the Standard for Automatic Exchange of Financial Account Information in Tax Matters, respectively.

Why are there new requirements?

With the world becoming increasingly global, it is easier for individuals to invest through financial institutions outside their country of residence. Without increased international cooperation, vast amounts of money are kept offshore and risk going tax-free. Governments must modernize their approaches to make sure all taxpayers pay their fair share of taxes. In Canada, these changes mean that financial institutions have to take steps to more accurately record the tax residence status of their account holders in order for Canada to exchange the information with their jurisdiction of residence.

The intergovernmental agreement with the U.S. is a way to meet U.S. objectives under the Foreign Account Tax Compliance Act. To do so, the agreement relies on the provisions for information exchange in the Canada-U.S. tax treaty. The agreement requires Canadian financial institutions to identify financial accounts held by U.S. residents and U.S. citizens or by entities that are organized in the U.S. or controlled by U.S. residents or U.S. citizens and to report that information to the CRA. The CRA provides the information to the Internal Revenue Service (IRS) in the U.S. and the IRS provides the CRA with information on accounts of Canadian residents held at U.S. financial institutions.

The intergovernmental agreement was entered into force on June 27, 2014. Laws have been enacted to support its implementation, including Part XVIII of the Income Tax Act. Canadian financial institutions started to collect information about new client accounts on July 1, 2014. Starting 2015, these financial institutions report annually to the CRA information on their U.S. account holders.

Part XIX of the Income Tax Act was enacted on December 15, 2016 to implement the Common Reporting Standard (CRS). Canadian financial institutions will begin collecting information about new client accounts on July 1, 2017. Starting in 2018, these financial institutions will report annually to the CRA information on their non-resident account holders.

Under the agreement with the U.S. and the CRS, financial institutions have new requirements for reporting to the CRA.

How a financial institution determines accounts that must be reported to the CRA

Financial institutions have to know the tax status of account holders and others they deal with. In the past, tax residency was often determined based on information at hand, such as an address, without more detailed enquiries.

If you are a client at a financial institution as of June 30, 2017, your account may need to be reviewed. Your financial institution has to review information it already has, such as a foreign address, for indications that you may be a non-resident of Canada. If there is such an indication, your financial institution may request a self-certification from you to verify whether you are a non-resident of Canada.

If you are a new client at a financial institution after June 30, 2014, with respect to the agreement with the U.S. and after June 30, 2017, with respect to the CRS, your financial institution will ask you to certify whether you are a non-resident of Canada or a U.S. citizen when you open your account and to provide documentation to support any representation you make. Your financial institution will confirm the reasonableness of such self-certification based on the information obtained.

For both existing and new accounts, if the information associated with your account is later changed in a way that suggests you may be a non-resident of Canada or a U.S. citizen (for example, you change your address to an address outside Canada), your financial institution must take steps that may include following up with you to verify your residence status.

The CRA has developed a form that financial institutions can use for collecting information on tax residence status of their account holders. However, financial institutions can decide themselves how to obtain the information from their account holders. Your financial institution might ask you to fill out a form for this purpose or it might have a comprehensive account opening form or document.

Financial institutions have to send to the CRA information on account holders who do not cooperate with requests for information. The CRA sends this information to the U.S. if the account holders refused to attest their status or to the government of the jurisdiction in which the account holders appear to be residents of.

Information reported to the CRA and shared with the U.S. or CRS partner

The account information that is collected and shared with the U.S. or the CRS partner includes the individual’s name, address, foreign taxpayer identification number and, in certain circumstances, the date of birth, along with the account number, account balance or value, and certain amounts paid or credited to the account.

If a financial institution identifies a joint account as a reportable account, it will report the full value of the account to the CRA. It will not report identifying information (name, address, and taxpayer identification number) associated with joint account holders who are not non-residents of Canada or U.S. citizens.

If a financial institution applying the due diligence procedures determines that any of its account holders are non-residents of Canada or U.S. citizens, the financial institution must collect and report to the CRA information on these accounts. For U.S. residents and U.S. citizens, the CRA will send the information to the U.S. under the provisions of the Canada-U.S. tax treaty. For other non‑residents of Canada, the CRA will send the information to each of Canada’s CRS partners with respect to their own residents under the existing provisions of the Multilateral Convention on Mutual Administrative Assistance in Tax Matters or the relevant bilateral tax treaty. The Convention and Canada’s bilateral tax treaties, including the Canada-U.S. tax treaty, contain robust safeguards to ensure that the U.S. and the CRS partners treat the taxpayer information they receive as confidential and that it is used solely to administer tax laws. For example, the IRS in the U.S. cannot share the information it receives under the agreement with non-tax authorities. Also, the IRS cannot use the information to administer non-tax laws such as the U.S. Bank Secrecy Act.

Accounts to be reported

Financial institutions have to report most bank accounts, mutual funds, brokerage accounts, custodial accounts, annuity contracts (including segregated fund contracts), and some life insurance policies with a cash value that are held by non-residents of Canada or U.S. citizens.

An account is not reportable if it falls within an exempt category such as the following:

Relevance of residence status for Canadian tax purposes

Under Canada’s tax system, like most other tax systems in the world, your income tax obligations are based on your tax residence status. You need to know your tax residence status before you can know what your tax responsibilities are. Residents of Canada are taxable in Canada on their worldwide income whereas non-residents are taxable in Canada on their income from Canadian sources.

Financial institutions have to know the tax residence of their account holders to ensure proper withholding and reporting. Therefore, financial institutions may ask individuals to certify or clarify their residence status for Canadian tax purposes.

Determining residence status for Canadian tax purposes

An individual’s tax residence status is determined on a case by case basis, based on the individual’s situation and all the relevant facts. The relevant facts in determining your tax residence include:

Residential ties include social and economic ties, such as a home, personal belongings, and family.

If you are an individual who normally lives in Canada, files an income tax and benefit return as a resident of Canada, and pays tax on worldwide income each year to Canada, you can inform your financial institution that you are a resident of Canada for tax purposes. However, even if you are a resident of Canada for tax purposes, if you are a U.S. citizen, you must inform your financial institution that you are also a U.S. citizen.

If you have no significant residential ties with Canada and you have lived outside Canada during the year, you may be considered a non-resident of Canada.

If you need help in determining your tax residence status, see Determining your residency status.

Individuals holding a work permit while in Canada

If you hold a work permit while in Canada, you may be considered resident in Canada if you have established significant residential ties with Canada. However, if you are in Canada only temporarily and are considered resident of another jurisdiction for tax purposes, you should identify yourself as a resident of that other jurisdiction to your financial institution.

If you need help in determining your tax residence status, see Determining your residency status.

Individual residents of two jurisdictions at the same time for tax purposes

If you are an individual who is considered a resident of Canada and of another jurisdiction with which Canada has a tax treaty, you may take into account the tie-breaker rules under the residence article of the relevant tax treaty to determine your jurisdiction of residence. If you are considered a resident of Canada for tax purposes as a result of the tie-breaker rules, you can inform your financial institution that you are a resident of Canada and not a resident of the other jurisdiction. However, even if you are a resident of Canada for tax purposes, if you are a U.S. citizen, you must inform your financial institution that you are also a U.S. citizen.

If you are an individual who is considered a resident of Canada and of another jurisdiction with which Canada does not have a tax treaty, you must inform your financial institution that you are a resident of both jurisdictions for tax purposes. Refer to the Department of Finance’s list of Canada’s tax treaties.

Specific questions regarding the interaction between individuals and financial institutions

Do I have to provide a tax identification number to my financial institution and what if I do not have one?

A financial institution that maintains an account identified as belonging to a non-resident of Canada or a U.S. citizen has to report that person’s foreign taxpayer identification number (TIN) when reporting information to the CRA. If you are a non-resident of Canada or a U.S. citizen, you have to give your foreign TIN to your financial institution when they ask for it. For U.S. residents and U.S. citizens, your foreign TIN is generally your U.S. social security number. Note that if you have a social insurance number, you are also required to provide it to your financial institution.

If you fail to provide your foreign TIN or your social insurance number, you will be subject to a penalty.

If you do not have a foreign TIN and your jurisdiction of residence issues TINs to its residents, you have 90 days to apply for a TIN through your jurisdiction of residence and 15 days, once you received your TIN, to provide it to your financial institution.

What if I do not cooperate with my financial institution?

If your financial institution has information in its records that shows that you may be a non-resident of Canada or a U.S. citizen and you have not given your financial institution enough information to clarify your status, it will report your account to the CRA. If that is the case, the CRA will exchange information about your account with the U.S. if you refused to attest your status or with the jurisdiction in which you appear to be a resident of.

Does my financial institution have to notify me if information on my account is reported to the CRA?

Financial institutions must be open about their policies and procedures for complying with their reporting obligations and must be prepared to make this information available to anyone who asks about it. Although financial institutions do not have to automatically notify their account holders about reporting to the CRA, they must, upon request, allow account holders to have access to the personal information that has been reported.

You can also contact the CRA to find out if your information has been received or shared with the U.S. or your jurisdiction of residence.

What if a financial institution reports my account in error?

In the unlikely event that a financial institution reports your account in error, it can send the CRA a notice of correction. If the CRA receives this notice after sharing the original data with the U.S. or a CRS partner, the CRA will ask the U.S. or the CRS partner to disregard the incorrect data.

I am a Canadian resident with a financial account in a foreign jurisdiction. The foreign financial institution is asking me for my social insurance number. Do I have to provide it?

U.S. financial institutions and financial institutions in participating jurisdictions that are subject to the due diligence procedures under the agreement with the U.S. and under the CRS are required to collect the social insurance numbers of their Canadian account holders.

I am a Canadian resident with a financial account in a foreign jurisdiction. Will my financial information be shared with Canada?

As a resident of Canada you are taxable in Canada on your worldwide income and you are required to report income from all sources, including from foreign accounts. If you hold an account with a U.S. financial institution or with a financial institution in a participating jurisdiction that is a CRS partner with Canada, your financial information will likely be shared with Canada.

Who are Canada’s CRS partners?

Canada’s initial CRS partners will be determined in 2017. Canada expects to have an extensive number of CRS partners in view of the large number of jurisdictions that are implementing the CRS and the CRA’s desire to leverage its international partnerships to maximum effect.

Specific questions regarding the agreement with the U.S.

Why is U.S. citizenship relevant to U.S. taxation?

In Canada, your tax status is not determined by your citizenship. However, the U.S. tax system is based on both residency and citizenship. Regarding citizenship, the U.S. tax system treats all U.S. citizens as U.S. residents for tax purposes no matter where in the world they reside. Therefore, if you are a U.S. citizen, you are a resident of the U.S. for tax purposes even if you hold another citizenship or reside in Canada or any other jurisdiction. Since Canada has agreed to identify U.S. residents and U.S. citizens with certain financial accounts in Canada, your financial institution may ask whether you are a U.S. resident or a U.S. citizen.

Will my financial institution ask me if I was born in the U.S.?

A financial institution does not have to ask its account holders about their place of birth.

If a financial institution applying the due diligence procedures to its accounts finds records that have an unambiguous indication of a U.S. place of birth, the financial institution must treat the account as a reportable account or follow up with the account holder to obtain documentation that shows he or she is not a U.S. resident nor a U.S. citizen.

Does the agreement with the U.S. require financial institutions to report to the CRA on any individuals who relinquished their U.S. citizenship?

No. Financial institutions do not have to report on any individuals who have relinquished their U.S. citizenship and are not residents of the U.S.

Financial institutions may ask individuals who have relinquished their U.S. citizenship for documentation to this effect.

I hold a U.S. green card. How does this affect my tax residency?

If you are a green card holder (that is, a lawful permanent resident of the U.S.), the U.S. considers you to be a U.S. resident.

However, if you are a resident of Canada for tax purposes as a result of the tie-breaker rules under the Canada–U.S. tax treaty and do not hold U.S. citizenship, you can inform your financial institution that you are a resident of Canada and not a resident of the U.S.

What if I only spend the winter months in the U.S.?

Many Canadians spend a significant amount of time in the U.S. to attend school, to live during the winter, or for other reasons, but many of them are neither U.S. residents nor U.S. citizens. Under the agreement with the U.S., your financial institution could identify you as being a U.S. resident because of information associated with your account, such as a U.S. address or telephone number. Your financial institution could ask you to provide documents showing that you are not a U.S. resident nor a U.S. citizen.

Your financial institution may use special procedures to streamline this process for you. Further information is available in the Guidance on the Canada-U.S. Enhanced Tax Information Exchange Agreement.

If I spend a certain number of days in the U.S. over a period of three years, does the U.S. consider me to be a U.S. resident?

According to the IRS website, unless you are a U.S. citizen, you are considered a resident alien for U.S. tax purposes if you satisfy the substantial presence test. This test uses the number of days you were in the U.S. during a three year period. The IRS website has more information to help you determine if you are a resident alien based on the substantial presence test.

The IRS also says that even if you are a non-U.S. citizen and you satisfy the substantial presence test for a particular year, you can still be considered a non-resident alien, if you meet certain conditions. One of these conditions is that you maintain a closer connection to a foreign country in that year.

IRS Publication 519 states that the U.S. domestic rules that determine if a non-U.S. citizen is a U.S. resident do not override tax treaty definitions of residency. If you are considered a resident of Canada and the U.S. under each country’s laws and the Canada–U.S. tax treaty considers you a resident of Canada under the tie-breaker rules, the U.S. has to treat you as a non-resident taxpayer and you should not identify yourself as a U.S. resident to your financial institution.

If I am assessed tax or a related penalty by the U.S., will the CRA assist the U.S. to collect it?

While the Canada–U.S. tax treaty says that Canada may assist the U.S. to collect certain taxes, it also says that the CRA will not assist the IRS to collect your U.S. tax liability if you were a Canadian citizen when the liability arose. This is true whether or not you were also a U.S. citizen at the time.

If the U.S. assesses me a Foreign Bank and Financial Accounts (FBAR) penalty, will the CRA assist the U.S. to collect it?

The IRS cannot use the information it receives under the intergovernmental agreement to administer non-tax laws such as the U.S. Bank Secrecy Act. The CRA will not assist the U.S. to collect non-tax related penalties such as those for failing to file the FBAR return.

Since my Canadian financial institution has to report my accounts to the CRA to share with the IRS, do I still have to file a Report of Foreign Bank and Financial Accounts with the U.S. Department of Treasury? Also, I understand my financial institution is not required to report certain accounts such as RRSPs, RESPs, and TFSAs. Does this mean that I do not have to consider them when fulfilling my reporting obligations under U.S. law?

The intergovermental agreement is strictly an information-sharing agreement. The agreement does not change your U.S. filing or reporting requirements. As a U.S. citizen, no matter where you live, you have to file annual tax returns and other forms, including the Report of Foreign Bank and Financial Accounts (FBAR). How an account or product is treated under the agreement also has no effect on your U.S. filing or reporting requirement.

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