With the initial deadline for compliance with the new U.S. tax legislation, known as the Foreign Account Tax Compliance Act (FATCA), looming next week, the Investment Industry Association of Canada (IIAC) says that it’s focused on minimizing the impact of the new rules on Canadian firms and investors.
In his latest letter to the industry, IIAC president and CEO, Ian Russell, details the trade association’s efforts, first to fight FATCA — which was initially proposed in 2009 and passed into law in early 2010 — and then to ameliorate the effects on the Canadian industry and its clients.
The initial deadline for complying with FATCA when opening new accounts and to start due diligence on existing accounts is July 1; with additional milestones set to take place over the next three years.
“Non-compliance with FATCA was never a realistic option for Canadian financial institutions and their clients who have built a significant presence in U.S. capital markets. This offshore business is increasingly important to the overall growth of these institutions, and to underlying profitability and shareholder returns,” Russell notes in his letter. “Acknowledging the need for FATCA compliance to maintain Canada’s competitiveness, the IIAC began seeking relief from both the U.S. and Canadian governments from the most onerous requirements of FATCA to minimize the cost and impact of compliance on as many of our members and their clients as possible.”
The result, is an inter-governmental agreement (IGA) for FATCA compliance that was agreed between Canada and the U.S. earlier this year, and the adoption of federal legislation to implement the deal that was passed earlier this month. Absent this sort of agreement with the U.S. authorities, the IIAC warns that, “the reporting obligations could have become even more onerous over time.”
Instead, the IIAC says that, “The agreement that has been struck between Canada and the U.S. ensures the exclusion from the scope of FATCA registered investment accounts that are at an extremely low risk for use as tax evasion vehicles: RRSPs, RRIFs, RESPs, TFSAs and RDSPs. This means that millions of account holders saving for retirement, education, or other important life events would be outside the scope of FATCA’s reach. Perhaps just as importantly, Canada’s unique definition of “financial institution” in the implementing legislation means that thousands of Canadian accountholders that are small family trusts will be relieved of expensive and time consuming registrations and filings.”
It stresses that the IGA approach “… balance[s] the need for information sharing with the right to consumer privacy, by allowing financial institutions to provide information to local tax authorities who will set and maintain standards for security of transmission and ensure that any other countries with which they share information also have high standards. We expect any sensitive taxpayer information exchanged should be on a secure basis, and subject to appropriate oversight by tax authorities.”
Looking ahead, the IIAC says that it will continue working with dealers, Canadian and international tax authorities, and other financial industry groups “to ensure the Canadian approach to tax information-sharing is developed in the most pragmatic and sensible way possible.”