20 August 2018 External T.I. 2018-0759081E5 - Canada-U.S. Enhanced TIEA

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: Whether a new individual depository account that exceeds the $50,000 threshold provided for in paragraph A of section III of Annex I to the TIEA at the end of a calendar year may be designated under subsection 264(1) of the Act in a subsequent year if the depository account balance drops below $50,000 at the end of that subsequent year.

Position: No.

Reasons: Wording of paragraph A of section III of Annex I to the TIEA.

XXXXXXXXXX							2018-075908
								Ina Eroff, B.C.L./LL.B.
August 20, 2018

Dear XXXXXXXXXX:

Re: Part XVIII - Enhanced International Information Reporting

We are writing in reply to your email of May 7, 2018 in which you requested a technical interpretation with respect to the wording of paragraph A of section III of Annex I to the Agreement between the Government of Canada and the Government of the United States of America to Improve International Tax Compliance through Enhanced Exchange of Information under the Convention between Canada and the United States of America with Respect to Taxes on Income and on Capital (the “TIEA”), in connection with a designation that may be made pursuant to paragraph 264(1)(b) of the Income Tax Act, R.S.C. 1985 (5th Supp.), c.1, as amended, (the “Act”).

Subsection 266(1) of the Act imposes an obligation on a reporting Canadian financial institution, as defined in subsection 263(2) of the Act, to file with the Minister of National Revenue an information return relating to each U.S. Reportable Account that is maintained by the institution. A U.S. Reportable Account is defined in subsection 263(1) of the Act and Article 1 of the TIEA. Subsection 264(1) of the Act provides that a reporting Canadian financial institution may designate certain financial accounts to not be U.S. Reportable Accounts for a calendar year. The accounts that may be so designated include:

• pursuant to paragraph 264(1)(a) of the Act and paragraph A of section II of Annex I to the TIEA, Preexisting Individual Accounts that are Depository Accounts; and
• pursuant to paragraph 264(1)(b) of the Act and paragraph A of section III of Annex I to the TIEA, New Individual Accounts that are Depository Accounts.

With regards to New Individual Accounts, paragraph A of section III of Annex I to the TIEA provides that New Individual Accounts that are Depository Accounts are not required to be reviewed, identified, or reported as U.S. Reportable Accounts “unless the account balance exceeds $50,000 at the end of any calendar year or other appropriate reporting period”. In contrast, paragraph A of section II of Annex I to the TIEA provides that Preexisting Individual Accounts that are Depository Accounts are not required to be reviewed, identified, or reported as U.S. Reportable Accounts where the account has “a balance of $50,000 or less”.

You have enquired whether a New Individual Account that is a Depository Account which balance exceeds $50,000 at the end of a calendar year would lose its ability to be designated under paragraph 264(1)(b) of the Act for that year as well as for all subsequent years, even if the account balance decreases below the $50,000 threshold at a later time. You have indicated that this is your interpretation based on the wording of paragraph A of section III of Annex I to the TIEA.

Our comments:

This technical interpretation provides general comments about the provisions of the Act and the TIEA. It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R7, Advance Income Tax Rulings and Technical Interpretations.

We agree with your interpretation of paragraph A of section III of Annex I to the TIEA. Once a New Individual Account that is a Depository Account is identified as a U.S. Reportable Account upon exceeding the $50,000 balance threshold at the end of any given year, it remains reportable regardless of its balance in subsequent years, and thus may no longer be designated pursuant to paragraph 264(1)(b) of the Act.

Further, we would note that this reporting obligation for New Individual Accounts is different than the reporting obligation that is applicable to Preexisting Individual Accounts that are Depository Accounts. Pursuant to paragraph A of section II of Annex I to the TIEA, Preexisting Individual Accounts that are Depository Accounts do not need to be reported, and thus may be designated pursuant to paragraph 264(1)(a), where the account has a balance of $50,000 or less. This is a yearly test to be applied. Consequently, where a Preexisting Individual Account that is a Depository Account exceeds $50,000 at the end of a particular calendar year, and the account balance later drops below $50,000 at the end of a subsequent year, a reporting Canadian financial institution may designate that account to not be a U.S. Reportable Account pursuant to paragraph 264(1)(a) of the Act for that subsequent year.

We trust this information is of assistance to you.

Yours truly,

Ann Kippen
Acting Section Manager
For Division Director
International Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch