CRA Amends Canada's FATCA & CRS Guidance
CRA Update FATCA and CRS Guidance
On Thursday, 10th of March the Canadian Revenue Agency (CRA) released new guidance on information reporting obligations under the FATCA and CRS regulations. This is following two other recent CRA FATCA and CRS updates including in recent years. Firstly the guidance revision in 2020 regarding potential penalties for failing to collect self-certification forms in a timely manner which became effective on January 1, 2021. Secondly the updated XML Schema released in November 2021 used for filing information reporting under FATCA and CRS in 2022. With the new guidance changes set to take effect from January 1, 2023, it is important that Canadian Financial Institutions (FIs) review and update their FATCA and CRS policies and procedures accordingly.
FATCA and CRS Compliance in Canada
Canada’s exchange and reporting of financial account information fall under two regimes, namely FATCA and CRS. Canada signed an International Agreement (IGA) in 2014, which governs the exchange and reporting of financial account information under the FATCA regulation. This IGA stipulates that to prove FATCA compliance, FIs, 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. This was officially added to the Income Tax Act as Part XVIII Enhanced International Information Reporting in June 2014. The CRA has been exchanging this information with the International Revenue Service since 2015.
Similarly, Canada was one of more than 100 jurisdictions that have committed to CRS, an international reporting standard developed by the OECD in 2014. The CRS regulation, similar to FATCA, requires FIs 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 such as the CRA. This was officially added to the Income Tax Act in December 2016 as Part XIX Information Returns. The CRA then exchanges this information with the participating jurisdictions beginning in 2018. However, both the CRA and reporting FIs need to stay up to date with the new CRS adopter countries that have been added to the list of participating jurisdictions.
FATCA and CRS Guidance Revision Summary
Canadian FIs have been anticipating the Canada Revenue Agency (CRA) to issue updated versions of the FATCA and CRS guidance since they released the updated XML schema and also published revised versions of the FATCA and CRS self-certification forms in November 2021. We have summarized the guidance revisions below but for more information please refer to Income Tax Act which can be found on the CRA website;CRA Revised FATCA Guidance & CRA Revised CRS Guidance
Significant Changes to CRA FATCA and CRS Guidance:
Anti-avoidance provision: For situations where a person enters into an arrangement, where it can be reasonably determined that the primary purpose was to avoid their FATCA and CRS obligations, this person is still subject to the obligation. For example not creating electronic records for lower value accounts or year-end account balances manipulation to avoid the reporting.
Multiple financial institution arrangements clarification: For situations where multiple FIs maintain the same financial account that is subject to FATCA and CRS due diligence and reporting. These situations may include dealers and funds, introducing brokers and carrying brokers, and investment managers and custodians. The changes will become effective from January 1, 2023, and do not require any further remediation of existing accounts unless a change in circumstances occurs.
New cut-off dates for reviewing accounts: New cut-off dates have been set to the beginning of the following reportable period for Canadian financial institutions no longer deemed to be deemed-compliant FFI under FATCA and for financial institutions that cease to be a non-reporting financial institution to become a reporting financial institution under CRS. Account review needs to be executed by FIs by May 2, 2023.
Canadian TIN Requirements: Canadian Tax Identification Numbers (TINs) are no longer required to be reported on a self-certification unless the account holder is a reportable person/ specified US person.
Electronic Signatures and Online account applications: For online account opening a FI can accept an electronic form including the electronic signature of the account holder. The CRA will accept electronic signature is numeric, character-based, or biometric and provided using either 1. the electronic address most recently provided by the account holder to the financial institution, 2. through access-controlled, secured electronic location such as a secure website or 3. provided in person by the account holder, in the presence of the financial institution using a tablet.
Additional definition provided for new, amended and existing accounts/information: Meaning of new, additional or amended customer information and treatment of the new and existing accounts as a single account
How can TAINA Help Canadian Financial Institutions?
In lieu of the latest CRA update and preparing for possible CRA audits, we would advise Canadian FIs to review and update their existing FATCA and CRS policies and procedures to be in line with the revised CRA guidance. As part of the reviewal process, Canadian FIs should be looking to address any potential gaps in the collection and validation of self-certification 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 organization.
For more information on how our fully automated FATCA and CRS Validation platform can add value to your business, get in touch or request a demo to see it in action.