New Foreign Resident Anti-Tax Evasion Rules

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BY: FAZAAD BACCHUS

As financial products become more and more complex so does regulation and compliance. Now Canadians are faced with the new anti-tax evasion laws. On July 1st, 2014 an agreement was made between Canada and the United States regarding Foreign Account Tax Compliance Act (FACTA) where it states that Canadian Financial Institutions need to declare any accounts to CRA where the account holder is a US citizen or is a resident of US for tax purposes. Since that time all accounts which included dividends, capital gains or income must be reported.

On July 1st, 2017, the agreement was further expanded to now include Common Reporting Standards where over a hundred countries participate in the joint venture. This means that the member countries will share information on your accounts through the CRA and this could have some impact on your taxable position, simply put you may have to report this earning on your other than Canada tax return.

How can you tell if you have tax residency in another country? The following are only guidelines so you need to check with a tax accountant to verify. If you have resided or have resident status in another country you may be a tax resident of that country. Check among other things, if you have a driver’s license, a spouse who lives there, personal property there, any dependents living there; are you still collecting income from that country?  These are questions which can trigger you to determine if you are a person who should be doing a declaration of tax residence.

In future when you go to the bank to open an account you may be asked whether you are a resident of another country for tax purposes. Typically, financial products that are registered such as TFSA, RRSP, RESP, RRIF etc are excluded from this regulation. Life insurance policies carrying no cash value (term life) are also excluded. However, all non-registered products, referred to as open accounts and all life insurance policies accumulating cash values are subject to this regulation. Effective July 1st, 2017, clients purchasing or opening a Financial Account with a Canadian financial institution will be required to provide a “Declaration of Tax Residence” which indicates their tax residency, date of birth and tax identification number (TIN) for all countries in which they are resident for tax purposes.

How serious a matter is this? Well, there is a reciprocal agreement between Canada and over 100 countries in relation to sharing of information for tax purposes, so by the same token, whatever your information is available in either country, will be shared. The information included but is not limited to the following: The account holder’s: name, address, date of birth (for individuals), TIN(s) (if the country issues TINs), country (or countries) of tax residence, account number, account balance or value at the end of the year, amount of interest, dividends, gross proceeds and other amounts paid or credited to the account holder (remember this is for non-registered accounts).

Is there a consequence of not complying? Well let’s see, if you are asked by your financial institution to provide a Declaration of Tax Residence and you fail to comply, your account will be reported to CRA who will in turn fine you with a penalty. So, it’s advisable to comply as this measure is to help with tax evasion.

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