wary canada signs fatca agreement

The agreement was said to differ from the 21 other FATCA agreements signed thus far, as a result of what were described as "significant exemptions and other relief" obtained by Canada's officials in pre-signing negotiations.

A statement announcing the signing of the FATCA deal, published yesterday on the Canadian Finance Department's website, noted that among the accounts "exempt from FATCA and…not reportable" were "registered retirement savings plans, registered retirement income funds, registered disability savings plans, tax-free savings accounts, and others".

"In addition, smaller deposit-taking institutions, such as credit unions, with assets of less than C$175m ($158m, £96.8m) will be exempt," the statement said.

What's more, the 30% withholding tax provided for by the generic FATCA agreement, for those who fail to comply with the act, "will not apply to clients of Canadian financial institutions, and can apply to a Canadian financial institution only if the financial institution is in significant and long-term non-compliance with its obligations under the agreement," the Canadian Finance Department's website said.

Approximately 1 million people who hold American citizenship are believed to live in Canada, many of whom are also Canadian citizens.

'Strictly a tax info-sharing agreement'

Canadian National Revenue minister Kerry-Lynne Findley, who signed the agreement yesterday, along with Canadian finance minister Jim Flaherty, stressed that it would not impose any US taxes or penalties on US citizens or US residents holding accounts in Canada.

""This is strictly a tax information-sharing agreement," she said, evidently for the benefit of those Canadians who were not already familiar with FATCA.

"The CRA [Canada Revenue Agency] does not collect the US tax liability of a Canadian citizen if the individual was a Canadian citizen at the time the liability arose.

"This includes dual Canada-US citizens. That will not change under this agreement."

The deal was described as reciprocal, meaning that it will oblige US financial institutions to provide information to the Canadian authorities on any accounts they may have which are held by Canadians.

Canada is the last G7 country to sign an agreement to implement FATCA on behalf of the US, which is said to reflect the country's misgivings about the act.

Signed into law in 2010 by President Obama, FATCA calls on foreign financial institutions to report to the US tax authorities on any accounts they have that belong to American citizens, whether resident in the US or elsewhere, that are worth $50,000 or more. Many Americans, particularly expatriates, oppose the act, which they say is making it increasingly difficult to find foreign financial institutions that will have them as clients, and is adding to the complexity – and thus cost – of filing tax returns.

Without an agreement such as the one signed yesterday in place, obligations to comply with FATCA would have been unilaterally and automatically imposed on Canadian financial institutions and their clients as of July 1, 2014.

In the statement on the Canadian Finance Department's website, Flaherty noted that Canada had "engaged in lengthy negotiations with the US government" to address his country's concerns about FATCA, and that this was how the "significant exemptions and other relief" had been obtained.

As reported, Flaherty wrote an open letter to a number of major US publications in September 2011, in which he criticised the US for its aggressive pursuit of Canadians with dual citizenships as part of its ongoing crackdown on overseas tax evasion.

“Put frankly, Canada is not a tax haven,” Flaherty said in that letter.

”People do not flock to Canada to avoid paying taxes.”

IGA annexes reflect countries' concerns

With all of the FATCA IGAs, the “annex” portion at the end is “where the country-specific tailoring” happens, according to Nick Matthews, of Kinetic Partners, the international regulatory consultants.

Thus it is here, in the final pages of the just-signed Canadian IGA, he noted, that one sees how the Canadian FATCA negotiators focused specifically on the interests of the country's relatively large number of American citizens and dual nationality residents – unlike, for example, the IGAs signed by such other jurisdictions as the Cayman Islands, Jersey and Guernsey.

These in contrast were “very fund-focussed” in the tinkering contained in their FATCA annexes, reflecting the nature of their economies as they relate to the US and their dealings with it, and, in the case of such jurisdictions as Jersey and Guernsey, their relatively small number of American expatriate residents.

Model 1 IGA

The type of so-called "intergovernmental agreement (IGA) signed by Canada was a Model 1 IGA, the type signed by most countries that have signed formal FATCA agreements thus far. Counting Canada, 19 countries have signed Model 1 agreements, compared with three that have signed Model 2 agreements. Canada was the third to sign up to FATCA thus far this year, with Hungary having done so on Tuesday and Italy on 10 January.

Under a Model 1 IGA, foreign financial institutions (FFIs) forward the information sought by the US authorities to their respective governments, which then forward it to the IRS. Under Model 2 IGAs, these FFIs report directly to the IRS, with their respective governments getting involved only as needed to accommodate certain legal impediments, such as, for example, Switzerland's banking secrecy rules.

For a complete list of the countries that have signed these two agreements, see below.

To read and download a copy of the 47-page US-Canada FATCA agreement, click here.

Source: US Internal Revenue Service