Canada and U.S. Sign Tax Information Sharing Agreement

Canada and the United States agreed to a new tax information sharing agreement which will potentially affect all American citizens living in Canada.

Effective July 1, 2014 Canadian banks and investment institutions will be required to report information regarding Americans with financial accounts held in Canada holding more than $50,000. This requirement relates to the Foreign Account Tax Compliance Act (“FATCA”) which was enacted in 2010 in response to a scandal relating to Americans hiding money offshore in Swiss bank accounts.

For each applicable account held by an American , Canadian banks and investment institutions will have to report the account holder’s name, taxpayer identification number, account number, ending account balance, and any income earned in the account on an annual basis. Banks will submit the information to the CRA which will in turn transmit the information to the IRS.

The IRS requires American persons (citizens, green card holders, or residents) with certain financial assets outside of the U.S. to report the assets on an annual basis. Failure to timely or completely disclose the required information typically results in significant penalties (penalties generally start at $10,000 or more per instance. One of the most common of these requirements is the foreign bank account reporting (“FBAR”) form which requires certain U.S. persons to annually disclose their non-U.S. financial accounts.

With the Canadian banks and investment institutions being required to report information on accounts held by Americans, it will provide the IRS with significant information to help them identify U.S. persons who aren’t property disclosing their non-U.S. financial assets and/or reporting their non-U.S. investment income.

In September 2012, the IRS released streamlined nonresident tax filing procedures which allows qualifying, “low-risk” Americans living outside of the U.S. to get current on their U.S. filings without facing penalties or additional enforcement action. These streamlined filing procedures are generally not available to persons who have already been contacted by the IRS. So it is important to be current on U.S. filing requirements before the IRS starts receiving information from Canadian financial institutions. It’s best to review your unique situation with a tax professional and determine if you are eligible for streamlined filings, or other disclosure programs.

You can download/read the 47 page long new financial information sharing agreement from the link below.

http://www.fin.gc.ca/treaties-conventions/pdf/FATCA-eng.pdf