Canadian Revenue Agency Updates FATCA, CRS forms & XML Schema
CRA Updates FATCA, CRS forms & XML Schema
Canada and their tax authority the Canada Revenue Agency (CRA) are one of many countries that in the recent years joined the global tax cooperation to combat international tax evasion.To increase tax transparency and ensure a fair and equal tax system it was decided that a global coordinated approach to exchanging and disclosing account information between tax authorities and participating jurisdictions was needed and thus the Automatic Exchange of Information (AEOI) agreement and the FATCA and CRS Regulations were created.
The most recent Canadian AEOI update took place on the 5th of November 2021. The Canada Revenue Agency (CRA) issued an updated XML schema, to be used for filing information returns in 2022. The updated XML schema version 1-22-2 covers information reporting under the Foreign Account Tax Compliance Act (FATCA) and Common Reporting Standards (CRS). In addition the CRA also published revised versions of the FATCA and CRS self-certification forms, and are expected to release updated versions of the FATCA and CRS guidance. Forms listed below have updated instructions and for individuals the inclusion of social insurance number field. This number only needs to be provided by US persons or non residents.
FATCA and CRS Self Certification Forms CRA Updates:
RC518 for declaration of tax residence for individuals for part of XVIII and Part XIX of the Income Tax Act
RC519, for declaration of the tax residence for entities for part XVIII and part XIX of the Income Tax Act
RC520, for declaration of tax residence for individuals for Part XIX of the Income Tax Act
RC521, for declaration of tax residence of the Income Tax Act
IGAs and FATCA Compliance in Canada
Canada’s exchange and reporting of financial account information under the FATCA regulation is governed by an International Agreement (IGA), which Canada signed in 2014. This IGA stipulated that FFIs, located in Canada, will have to perform tax due diligence by identifying and reporting all relevant account information on all accounts held by U.S. residents or U.S. citizens living in Canada to the CRA. The CRA then exchanges this information with the International Revenue Service beginning 2015.
In June 2014, Part XVIII Enhanced International Information Reporting was added to the Income Tax Act, which details the requirements and reporting obligations of Canadian financial institutions to prove FATCA compliance.
Canadian financial institutions Requirements under Part XVIII:
Canadian FIs must apply due diligence procedures to identify U.S. reportable accounts and accounts held by non–participating financial institutions
Canadian FIs must annually report to the CRA all relevant information required on a Part XVIII Information Return (slips and summary) before May 2nd following the calendar year to which the information return applies.
CRS Compliance in Canada
Canada’s exchange and reporting of financial account information with other jurisdictions is governed under the CRS regulation. Canada is one of more than 100 jurisdictions that have committed to CRS since it was developed by the Organisation for Economic Co-operation and Development (OECD) in 2014. CRS similar to FATCA requires FFIs resident in a participating jurisdiction, in this case Canada, to identify and report any tax residents or reportable accounts on an annual basis to the relevant tax authority, in this case the CRA. The CRA then exchanges this information with the participating jurisdictions beginning in 2018. In addition FFIs in CRS adopter countries will need to ensure that they stay up to date with the list of participating jurisdictions, as they’re obligated to report their account holders from all of these participating countries.
In December, 2016, Part XIX Information Returns was added to the Income Tax Act, which details the requirements and reporting obligations of Canadian financial institutions to prove their CRS compliance.
Canadian financial institutions Requirements under Part XIX:
Canadian FIs must apply due diligence procedures to identify reportable accounts
Canadian FIs must annually report to the CRA all relevant information required on a Part XIX Information Return (slips and summary) before May 1st the following calendar year to which the information return applies.
CRA Compliance Audit and Non-Compliance
It is expected that the CRA will soon commence FATCA and CRS compliance audits to assess whether Canadian FIs have obtained valid FATCA and CRS self-certification forms that establish whether their account holders are reportable under either AEOI regime. Failure to maintain appropriate documentation on financial accounts, failure to report information or submit FATCA and CRS filings by the deadlines, or inaccurate reporting on reportable accounts may all result in penal consequences including withholding and financial penalties. Canadian FIs that fail to meet their FATCA and CRS obligations may be liable for penalties up to $2,500 per account, per regime.
In addition to the financial penalties, non-compliant Canadian FIs may be at risk of serious reputational damage as in some cases tax authorities have been known to publish cases of non-compliance with FATCA and CRS regulations, leading to naming and shaming in the industry and media.
The CRA have been known to provide discretionary penalty relief based on a FIs remediation efforts and the implementation of strong control measures.
How can TAINA help?
With CRA audits and reporting deadline just around the corner, a large majority of FFIs in Canada are adhering to the FATCA and CRS requirements. These Canadian FIs should be looking to address any potential implementation gaps in the collection and validation of self-certifications forms for both the onboarding of new accounts and ongoing monitoring of changes on existing accounts.
TAINA’s fully-automated FATCA and CRS Validation Platform can help financial institutions in Canada lighten their compliance burden and prove their FATCA and CRS compliance whilst improving efficiency, reducing cost, mitigating risk and improving their overall customer and investor experience. Using our flexible and lightweight platform you can automate and streamline your FATCA and CRS validation process whilst ensuring you have good year-end data that will result in clean FATCA and CRS reporting to tax authorities..
We would love to talk to you more about your current documentation validation process and how our award winning FATCA and CRS Validation platform may add value to your organisation.