Foreign Account Tax Compliance Act

Background

The Foreign Account Tax Compliance Act (FATCA) was signed into U.S. law in March 2010. Its aim is to ensure U.S. taxpayers with financial accounts held outside of the U.S. are paying U.S. taxes.

On July 1, 2014, the Intergovernmental Agreement for the Enhanced Exchange of Tax Information under the Canada-U.S. Tax Convention (the Agreement) between the Canadian government and U.S. government came into effect. Under the Agreement, Canada enacted Part XVIII of the Income Tax Act (Canada) (Part XVIII), requiring Canadian financial institutions will be required to report to the Canada Revenue Agency (CRA) on specified accounts held in Canada by U.S. persons. The CRA will forward this information to the U.S. Internal Revenue Service (IRS) under the provisions and safeguards of the Canada-U.S. Tax Convention.

Why was FATCA introduced?

FATCA was introduced by the U.S. to ensure U.S. taxpayers with assets outside the U.S. are paying U.S. taxes.

When does this become effective?

The Agreement and Part XVIII came into effect on July 1, 2014.

What does the Agreement mean?

Canadian financial institutions, including Fidelity, are required to identify financial accounts held by U.S. tax residents and U.S. citizens and report certain information to the CRA. The CRA will then exchange that information with the IRS.

Who is affected?

The Agreement affects every U.S. person or U.S.-owned or U.S.-controlled entity with financial accounts in Canada.

Non-U.S. persons are also asked about their tax residency status when opening certain accounts.

Fidelity recommends investors consult their financial advisor or a U.S. tax professional regarding their tax status.

Who is considered U.S. person?

An individual is considered a U.S. person if he or she is

  • a citizen of the U.S., residing in the U.S. or abroad.
  • a U.S. tax resident, including a Green Card holder (permanent resident).
  • a corporation, trust or other entities organized in the U.S.
  • an entity substantially owned or controlled by one or more U.S. persons

Note: This list is not exhaustive. 

Fidelity recommends that investors consult their financial advisor or a U.S. tax professional regarding their tax status.

What is considered a U.S. account?

A U.S. account is an account held by any of the following:

  • a U.S. person.
  • an entity organized in the U.S.
  • an entity owned or controlled by a U.S. person

Whom should I speak with to find out if I qualify as a U.S. citizen?

Fidelity recommends that investors consult their financial advisor or a U.S. tax professional regarding their tax status.

Does the Agreement apply to all account types?

No, the Agreement only applies to certain accounts, including non-registered investment accounts. All registered plan accounts, including Registered Retirement Savings Plans (RRSPs), Registered Retirement Income Funds (RRIFs), Registered Education Savings Plans (RESPs) and Tax-Free Savings Accounts (TFSAs), are exempt from these reporting requirements.

What is the impact for U.S. persons with an existing Fidelity account?

If you have a non-registered account opened before July 1, 2014, you may be asked to inform us of your tax status and to provide your U.S. Taxpayer Identification Number (TIN). Your account information will be reported to the CRA on an annual basis.

What is the impact on persons opening a new Fidelity account?

If you are opening a new non-registered account with Fidelity, you will be asked to inform us of your tax status, and to provide your U.S. TIN. Your account information will be reported to the CRA on an annual basis.

What does this mean for Canadians who are not U.S. citizens or U.S. tax residents?

For the majority of Canadian investors, the Agreement has little impact beyond being asked indicate whether or not they are a U.S. person upon account opening.  

Investors who have a U.S. address may be asked to complete an IRS form for our records.

How will “snowbirds” be treated under the Agreement?

Snowbirds have the opportunity to provide a self-certification, which will remain valid for a period of seven years, allowing them to update their accounts with U.S. addresses and phone numbers when they vacation in the U.S. without having to provide a new certification each time.

Fidelity recommends that snowbirds consult their financial advisor or a U.S. tax professional regarding their tax status.

How are joint accounts handled if only one account owner is a U.S. person?

If at least one joint account owner qualifies as a U.S. person, then that individual would be treated as the owner of the entire account.

If more than one of the joint owners are U.S. persons, then each individual would be treated as the owner of the entire account.

What happens if a U.S. person or potential U.S. person does not respond or complete a request to clarify his or her tax status?

If we do not receive the required tax status information, Fidelity may be required to report your account to CRA.

Please check with your financial advisor or a U.S. tax professional.

If the CRA is sharing information with the U.S. government, how will my personal information be protected?

The CRA will forward this reporting to the IRS under the provisions and safeguards of the Canada-U.S. Tax Convention.

Does the Agreement have any impact on the IRS’ treatment of Canadian mutual funds under Passive Foreign Investment Company (PFIC) rules?

No. Please refer to the PFIC Q&A for further information on PFIC rules, or speak with your financial advisor or a U.S. tax professional.  

Now that TFSA and RESP accounts are exempt under the Agreement, does a U.S. person still have to treat these as taxable accounts when filing a U.S. income tax return?

Yes. The Agreement does not change the taxable status of TFSA and RESP accounts for U.S. persons, who must still include the required information when filing their U.S. tax returns.

Note that RSPs and RIFs are not treated as taxable as long as investors file the appropriate forms to defer tax on these accounts with their U.S. tax returns.

Please check with your financial advisor or a U.S. tax professional for further information.

Where can I get more information about this?

Fidelity recommends that investors consult their financial advisor or a U.S. tax professional regarding their tax status.

You can also find information on the Agreement and requirements at these sites:

Advisor support - view materials.  (Login is required)
691164.2.0