The Foreign Account Tax Compliance Act (FATCA) is tax legislation that was passed into law in the United States (U.S.) in March 2010. The legislation, administered by the Internal Revenue Service (IRS), is intended to prevent U.S. persons from using accounts held outside of the U.S. to evade taxes. On February 5, 2014, the Canadian Government announced it had entered into an Intergovernmental Agreement with the U.S. government under the existing Canada-U.S. Tax treaty with further guidance expected from the government shortly.
FATCA and, in some countries, related local regulations will require financial institutions to report annually on specified accounts held outside of the U.S. by U.S. persons. This reporting will be made available to the IRS either directly or through local regulatory agencies.
1. When does FATCA take effect?
FATCA implementation begins July 1, 2014.
2. Who is impacted by FATCA?
Non-U.S. financial institutions will need to identify and report all financial accounts (deposits of Home Trust Company) for specified U.S. persons.
3. What is the definition of a U.S. person?
Under U.S. tax law, you are considered a U.S. person if you are:
- A citizen of the U.S. (including U.S.-born individuals who are resident in Canada or another country and who have not renounced their U.S. citizenship)
- A permanent resident of the U.S.
- A U.S. green card holder
- U.S. corporation, U.S. partnership, U.S estate or U.S. trust
You may also be considered a U.S. person if you spend considerable time in the U.S. in one year or over a period of years.
U.S. corporations, partnerships, estates and trusts are also U.S. persons.
4. Are all financial institutions impacted by FATCA?
Every non-U.S. financial institution globally must comply with FATCA or potentially be subject to a 30% withholding tax on all U.S. source income (certain exemptions apply).
5. Will Home Trust Company comply with FATCA?
There is still considerable uncertainty regarding the obligations that Canadian financial institutions will face under FATCA; however, Home Trust Company will comply with all applicable laws and regulations in the jurisdictions where Home Trust Company operates.
This document is intended to provide information only, and should not be construed as legal, financial or tax advice. For more information on FATCA please refer to www.irs.gov/FATCA or contact your financial advisor.