Canada moves closer to automatic exchange of foreign bank information

(Originally published at this link)


Canada moves closer to automatic exchange of foreign bank information

Canada has moved one large step closer towards exchanging financial information automatically with member countries with its signature of the Organization for Economic Cooperation and Development’s (“OECD”) Multilateral Competent Authority Agreement on June 4, 2015. In doing so, Canada has joined 60 other countries that have agreed to implement the OECD’s Standard for Automatic Exchange of Financial Account Information (the “Standard”).

The Standard will result in participating countries exchanging financial information supplied by domestic financial institutions in respect of both individuals and entities that are resident in another country (“Reportable Persons”). This information will be exchanged on a systematic and periodic basis, thereby eliminating banking secrecy and the ability to “hide” income from the Canadian and provincial tax authorities.

The Standard is specifically designed with a broad scope to report to the account holder’s country of residence:

  1. investment income earned in the year (including interest, dividends, income from certain insurance contracts, and similar types of income);
  2. year-end account balances or values; and
  3. gross sale or redemption proceeds from financial assets for the year.

Disclosure of Beneficial Ownership

Financial institutions that are required to report information under the Standard include: banks, custodians, brokers, investment entities, collective investment vehicles, and certain insurance companies.

Accounts held by both individuals and entities (including trusts and foundations) will be reported. Financial institutions will look through passive entities to report in respect of the beneficial owner (i.e. the individuals that ultimately control the entity).

Under the Standard, the name, address, tax identification number, and place of birth (in the case of an individual) of each Reportable Person that is an account holder or controls an entity that is an account holder will be collected and exchanged.

Financial institutions must review and report in respect of:

  1. all pre-existing individual accounts (there is no de minimus threshold); and
  2. all pre-existing entity accounts with a year-end value in excess of $250,000.

Financial institutions will also be required to follow a higher standard of due diligence in respect of both new accounts and individual accounts that have a balance in excess of $1 million at the end of the year.

To date, 94 jurisdictions, of which 61 have signed the Multilateral Competent Authority Agreement, have committed to a first exchange of financial information in 2017 and 2018, based on account information collected as early as December 31, 2015. (See Schedules below)


Voluntary Disclosure Program

The OECD initiative to automatically exchange financial information among member countries has generated a high level of concern among taxpayers who hold previously unreported accounts outside of Canada. The impending exchange of Canadians’ foreign financial information together with the introduction of the Offshore Tax Informant Program by the Canada Revenue Agency in January 2014 has caused the number of Canadian voluntary disclosures filed to almost double over the last year to 10,000. (see B. Schecter, “Canadians are racing to disclose their offshore assets as the CRA steps up its war on tax cheats” The Financial Post (11 June 2015) online

Taxpayers wishing to correct their previous tax reporting omissions in respect of their foreign accounts may be eligible to become tax compliant by way of the federal and provincial voluntary disclosure programs. In very general terms, both the federal and provincial voluntary disclosure programs allow taxpayers to become tax compliant by reporting previously unreported investment income and realized capital gains. Quebec tax residents may also be subject to tax on the value of their offshore portfolio. The tax cost of each disclosure will vary depending on the performance of the portfolio and other factors. Taxpayers who take advantage of the voluntary disclosure program will not be subject to penalties or the threat of prosecution. Moreover, the resulting tax payable will be subject to reduced rate of interest.

Sweibel Novek LLP has a team of lawyers with extensive experience in handling voluntary disclosure files. We invite you to contact us if you would like to know more about how we can assist you.

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