The Canada Revenue Agency (CRA) has posted updated guidance that attempts to streamline and harmonize, where possible, compliance requirements associated with implementing both the Common Reporting Standard (CRS) and the U.S. Foreign Account Tax Compliance Act (FATCA).
The CRA posted the updated guidance on the two international tax-information exchange regimes on its website last week, and the Investment Industry Association of Canada (IIAC) in Toronto is lauding the development.
“[Streamlining requirements] has the dual benefit of minimizing the net new requirements and costs for Canadian financial [services] institutions and reducing the confusion and challenges experienced by clients,” says Andrea Taylor, managing director with the IIAC.
Under the CRS, Canadian financial services institutions will begin identifying accounts belonging to individuals who are tax residents of foreign countries in July, and will start reporting that information to CRA. In turn, the CRA will exchange that information with other jurisdictions in 2018. The U.S. government, notably, is not a signatory to the CRS.
The CRA has been exchanging information with the U.S. Internal Revenue Service since 2015 under a reciprocal agreement signed between Canada and the U.S. to implement FATCA. That U.S. law passed in 2010 and compels global banks to report on their U.S. clients to the U.S. government.
The IIAC is particularly pleased that the new guidance provides Canadian financial services firms with standardized tax residency certification forms for both the CRS and FATCA. No other CRS-participating jurisdiction has taken such a step, the IIAC points out.
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“This demonstrates the CRA’s level of commitment to establishing an effective — yet sensible — approach to the collection and exchange of tax residency information internationally,” Taylor says.
“The use of the forms is not mandatory, but our understanding is that many financial services institutions — particularly smaller ones — will be using the forms,” she adds. “That’s because they can greatly reduce implementation costs while also ensuring the institution is asking the right questions of its clients — for both the CRS and FATCA.”