The Toronto-based Investment Industry Association of Canada is praising the federal government's decision to exclude TFSAs as reportable accounts in recently published legislation to implement the Common Reporting Standard (CRS), the new international tax-information exchange regime.
Excluding TFSAs from CRS reporting requirements better aligns CRS rules with those already in place for the U.S. Foreign Account Tax Compliance Act (FATCA), the regime that provides the framework for the tax information exchange agreement between the U.S. and Canada.
"We always felt it was entirely appropriate for TFSAs to be excluded from the scope of CRS as they are for FATCA," says Andrea Taylor, managing director of the IIAC.
Previously released draft legislation to implement the CRS did exclude registered accounts such as RRSPs, RDSPs and RESPs from the scope of CRS, but did not exclude TFSAs. In October, the Department of Finance Canada released new legislation for the CRS that excludes TFSAs. That legislation has now been tabled in Parliament.
Under the CRS, Canadian financial services institutions will begin identifying accounts belonging to individuals who are tax residents of foreign countries in July 2017 and will start reporting that information to the Canada Revenue Agency (CRA). In turn, the CRA will exchange that information with other jurisdictions in 2018.
More than 100 countries have committed to implementing the CRS, developed under the auspices of the Organization for Economic Co-operation and Development, to help in the fight against global tax evasion and aggressive tax avoidance. Each country must pass legislation based on the CRS framework to enact the regulatory regime.
The OECD modelled the CRS on FATCA, a law passed in the U.S. in 2010 that compels global banks to report on their U.S. clients to the U.S. government. Last year, Canadian banks began implementing FATCA under a reciprocal agreement signed between Canada and the U.S. It should be noted, however, that the U.S. government is not a signatory to the CRS.
The IIAC had been arguing in dialogue with Ottawa that tax-deferred savings accounts similar in structure to TFSAs were excluded in the legislation of other CRS signatory countries, such as the U.K. and France. As well, TFSA deposits are subject to stringent residency rules, and the accounts are considered very low risk for tax evasion.
Excluding TFSAs from the CRS, as they are under FATCA, would be helpful for Canadian financial services institutions in the implementation of the new tax information exchange regime. Systems, processes and procedures already put in place for FATCA could be leveraged for implementing the CRS, Taylor says.
"It would have been extremely problematic for all of these financial institutions to go back to TFSA holders to redocument them from a tax residency perspective," Taylor says. "To have them included for CRS would mean you had to go all the pre-existing TFSAs, and all new accounts going forward, to look at tax residency when we know that 99% of them are [held by] Canadian tax residents."
The CRA will publish more detailed CRS guidance for financial services institutions soon, Taylor says. The IIAC is hopeful that the CRS legislation can be passed by the end of the year.
Photo copyright: rabbit/123RF