The Foreign Account Tax Compliance Act (FATCA)
The Foreign Account Tax Compliance Act (FATCA) is a U.S. federal law which seeks to identify U.S. persons who may evade U.S. taxes through accounts held outside the U.S.
Canada and the U.S. have signed an inter-governmental agreement (IGA) to improve international tax compliance and to implement FATCA. Now, Canadian financial institutions, like SCU, must report about their U.S. members to the Canada Revenue Agency (CRA).
Definition of a “U.S. person” for U.S. tax purposes
Generally, the features of a U.S. person are:
- A citizen of the U.S., including an individual born in the U.S. but resident in another country, who has not renounced U.S. citizenship;
- A lawful resident of the U.S., including a U.S. green card holder;
- A person residing in the U.S.
- Certain persons who spend a significant number of days in the U.S. each year. (For example, some Canadian "snowbirds" may be considered U.S. persons. However, the Canada-U.S. tax treaty allows them to claim benefits to be treated as Canadian rather than U.S. taxpayers. Similar relief is provided under many other treaties with the U.S.)
- U.S. corporations, U.S. estates and U.S. trusts.
According to the CRA, "In Canada, your tax status is not generally determined by your citizenship(s). However, the U.S. taxes on the basis of both residency and citizenship. Since Canada has agreed to identify U.S. residents and U.S. citizens with certain financial accounts in Canada, your Canadian financial institution may ask whether you are a U.S. person, and may explain that the U.S. taxes on the basis of citizenship as well as residency."
How SCU is dealing with FATCA Legislation
SCU understands the objectives of the FATCA legislation to identify potential individuals/entities involved in tax evasion. We are diligently reviewing FATCA regulations and the IGAs to determine the impact on our members while maintaining our high standards for privacy.
We are confident that the vast majority of our members will not be affected by this legislation.
What are “reportable accounts”?
“Reportable accounts” are individual and entity accounts held by:
- One or more U.S. persons; or
- Certain entities in which one or more U.S. persons hold a substantial ownership or controlling interest.
Many additional limitations apply, further reducing the number of accounts that will qualify as “reportable.” In the end, we expect Canadian tax regulations related to FATCA to have a limited impact on the vast majority of our members.
How will you determine if I have “reportable accounts”?
For most individual members, information we have on file will allow us to determine if reporting is required. If the information you have provided indicates that reporting may be required for your accounts, we will ask you to complete a FATCA self-certification form. We will then review the information you provide against the applicable requirements to determine whether or not your accounts are reportable.
For most businesses, the documentation we have on file will allow us to determine if reporting is required. If your business is of a type for which we are required to obtain additional documentation, we will ask you to complete a FATCA self-certification form. We will then review the new documentation against the applicable regulations to determine if your accounts are reportable.
What information is SCU required to report about its U.S Reportable Accounts?
- Name, address, U.S. taxpayer identification number (TIN), and Canadian SIN, if applicable.
- Account number
- Account balance or value at the end of the year (or immediately prior to account closure)
- Interest paid to account
I am not a U.S. person. What does FATCA mean for me?
If you have an SCU account and are not a U.S. person, you will not be affected by FACTA. However, if you have an existing account and there is an indication that you may be a U.S. person, SCU may ask you to provide additional information or documentation to demonstrate that you are indeed not a U.S. person.
I am not a U.S. person but I have an account in U.S. dollars. Does this mean my accounts will be reported to the CRA?
No, the currency of an account has no impact on whether or not it is treated as a “reportable account.”
Does FATCA comply with privacy legislation?
SCU takes member privacy seriously and complies with privacy rules in all jurisdictions.
What happens if I refuse to answer the questions or provide the requested documentation?
If you choose not to meet requests for assistance in determining your U.S. tax status, Canadian law will require us to treat your accounts as “reportable accounts.”
Who can I contact with more questions?
You may want to consult with your personal tax advisor for additional clarification or visit the CRA or IRS websites for more information.