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Information for Clients on the Canada-U.S. Information Exchange Agreement to Improve Cross-Border Tax Compliance

Release Date: 06/12/2014
Staff Reference: Peggy McFarland

The attached information is for clients of Canadian life insurance companies to help you understand how the Canada-U.S. Information Exchange Agreement (the “Agreement”)1 to improve cross-border tax compliance, which was signed on February 5, 2014, could affect you.

What is the purpose of the Agreement?

This Agreement between Canada and the U.S. is intended to improve tax compliance in both countries through enhanced information sharing between the two governments and to provide the U.S. government with information required under U.S. legislation known as the Foreign Account Tax Compliance Act (FATCA).

FATCA is U.S. legislation that was passed in 2010 to deter "U.S. Persons" from evading U.S. tax using "financial accounts" (including bank accounts, investment accounts, mutual funds and certain insurance contracts, such as annuity contracts, segregated fund contracts and cash value life insurance policies) held outside the United States. FATCA requires non-U.S. financial institutions to identify and report information to the Internal Revenue Service (IRS) on certain financial accounts held outside the U.S. by U.S. Persons.

The Canadian agreement signed with the U.S. is similar to agreements signed by other countries and provides similar relief. Under this agreement, certain concessions were granted to ease the burden of administration:

  • reporting is to the Canada Revenue Agency (CRA), rather than the IRS
  • there is no requirement to withhold tax or close financial accounts held by U.S. Persons.
Under this Agreement, effective July 1 2014, Canadian financial institutions are required under Canadian law to identify and report information to CRA on reportable Financial Accounts held in Canada by U.S. Persons.

1The full name of the Agreement is "Agreement Between the Government of the United States of America and the Government of Canada to Improve International Tax Compliance through Enhanced Exchange of Information under the Convention Between the United States of America and Canada with Respect to Taxes on Income and on Capital".