Guidance on enhanced financial accounts information reporting

Part XVIII of the Income Tax Act

This guidance document is also available in PDF format.

Chapter 1 – Introduction

The purpose of this guidance

1.1 This guidance is to help financial institutions, their advisers, and Canada Revenue Agency (CRA) officials with the due diligence and reporting obligations relating to the Canada-United States Enhanced Tax Information Exchange Agreement, signed on February 5, 2014 (hereinafter referred to as the "Agreement"). The Agreement was implemented by the Canada-United States Enhanced Tax Information Agreement Implementation Act together with the addition of Part XVIII and other amendments to the Income Tax Act (ITA). These changes were made under the Economic Action Plan 2014 Act, No. 1.

1.2 Canada’s implementation of the Agreement will also be of interest to customers of Canadian financial institutions. Individuals with an existing account or opening a new account at a Canadian financial institution may be asked to certify or clarify their U.S. tax status or to produce documents or both for any representations they make. Canadian financial institutions need this information to satisfy their obligations under Canadian law for enhanced tax reporting to the CRA. Similar but slightly more detailed information may also be required from corporations and other entities with financial accounts. Information to help individuals and entity account holders to respond to such information requests is available on the CRA website.

Scope of guidance

1.3 This guidance describes the due diligence and reporting obligations that arise under the ITA by virtue of the implementation of the Agreement in Canada. Part XVIII has been added to the ITA and a few other changes have been made elsewhere in the ITA to implement the Agreement in Canada. The guidance refers to U.S. law and procedural rules only to the extent that doing so helps the reader understand the requirements in Canada.

1.4 This guidance applies exclusively to Part XVIII reporting. Nothing contained in this guidance modifies or is intended to modify a CRA view on any other matter. This guidance should not be relied upon in connection with any other legal or regulatory requirement or purpose in Canada or the U.S.

1.5 A Canadian financial institution that is in compliance with Part XVIII will not be subject to any U.S. withholding tax on U.S. source income and gross proceeds (both on its own investments and those held on behalf of its customers) under section 1471 of the U.S. Internal Revenue Code (IRC). However, the Agreement requires that procedures be followed by Canadian financial institutions seeking to secure that outcome.

International context

1.6 The Agreement is consistent with Canada’s support for the recent G-8 and G-20 commitments to develop a global standard for the automatic exchange of tax information. This guidance has been developed with the international context in mind and may, if appropriate, be updated to ensure proper alignment with an international consensus that may emerge.

1.7 Part XVIII has been added to the ITA at a time when global developments in connection with the automatic exchange of information continue to develop. This guidance will be updated to take into account any developments, as appropriate.

Chapter 2 – Definitions and glossary

The meaning of certain terms

2.1 The Agreement defines many terms, such as "account holder", "financial institution", and "specified U.S. person". In Part XVIII of the ITA (hereinafter referred to as "Part XVIII"), any term has the meaning that is defined in the Agreement unless the term is defined in that Part. The table below provides references for many of those defined terms. To the extent that those terms are used in this guidance, their meanings are drawn from those legal instruments, as the context requires and unless otherwise indicated.

References for defined terms

Term	Agreement	Income Tax Act
Account holder	Article 1(1)(dd)
Active NFFE	Annex I (VI)(B)(4)
Agreement (Agreement between the Government of the United States of America and the Government of Canada to Improve International Tax Compliance through Enhanced Exchange of Information under the Convention between the United States of America and Canada with Respect to Taxes on Income and on Capital)	Article 1(1)	ss. 263(1)
Annuity contract	Article 1(1)(x)
AML/KYC Procedures	Annex I (VI)(B)(1)
Canadian financial institution	Article 1(1)(l)	ss. 263(2)
Canadian reportable account	Article 1(1)(bb)
Cash value	Article 1(1)(z)
Cash value insurance contract	Article 1(1)(y)
Controlling persons	Article 1(1)(mm)
Custodial account	Article 1(1)(u)
Custodial institution	Article 1(1)(h)
Competent authority	Article 1(1)(f)
Depository account	Article 1(1)(t)
Depository institution	Article 1(1)(i)
Documentary evidence	Annex I (VI)(D)
Electronic filing		ss. 263(1)
Entity	Article 1(1)(gg)
Equity interest	Article 1(1)(v)
Financial account	Article 1(1)(s)	ss. 263(3)
Financial institution	Article 1(1)(g)
High value account	Annex I (II)(D)
Internal Revenue Service (IRS)	Article 1(1)(c)
Insurance contract	Article 1(1)(w)
Investment entity	Article 1(1)(j)
Listed financial institution		ss. 263(1)
Lower value account	Annex I (II)(B)
New individual account	Annex I (III)
New entity account	Annex I (V)
Non-financial foreign entity (NFFE)	Annex I (VI)(B)(2)
Nonparticipating financial institution (NPFI)	Article 1(1)(r)
Non-reporting Canadian financial institution (NRCFI)	Article 1(1)(q)	ss. 263(1) & (2)
Non-U.S. entity	Article 1(1)(hh)
Passive NFFE	Annex I (VI)(B)(3)
Partner jurisdiction	Article 1(1)(e)
Partner jurisdiction financial institution	Article 1(1)(m)
Preexisting account	Annex I (VI)(B)(5)
Preexisting individual account	Annex I (II)
Preexisting entity account	Annex I (IV)
Related entity	Article 1(1)(jj)
Reportable account	Article 1(1)(aa)
Reporting financial institution	Article 1(1)(n)
Reporting Canadian financial institution	Article 1(1)(o)	ss. 263(2)
Reporting U.S. financial institution	Article 1(1)(p)
Specified insurance company	Article 1(1)(k)
Specified U.S. person	Article 1(1)(ff)
U.S. indicia	Annex I (II)(B)(1)
U.S. person	Article 1(1)(ee)
U.S. reportable account	Article 1(1)(cc)	ss. 263(1)
U.S. source withholdable payment	Article 1(1)(ii)
U.S. or Canadian tax identification number (TIN)	Article 1(1)(kk) and (ll), respectively	ss. 263(4)

2.2 Certain short-form terms and acronyms are also used throughout this guidance. The table below provides a longer-form description and/or an appropriate reference point for many of them.

List of acronyms

Term	Refers to
AML	Anti-Money Laundering
CRA	Canada Revenue Agency
Deemed-compliant FFI	Deemed-compliant foreign financial institution – A financial institution that is identified in section III of Annex II of the Agreement as a "non-reporting Canadian financial institution". A "non-reporting Canadian financial institution" is defined in Article 1(1)(q) of the Agreement (see Chapter 3 of this guidance).
FFI	Foreign financial institution – A term that appears in the Agreement and that is labelled from the perspective of the U.S. (for example, a Canadian chartered bank is a non-U.S. financial institution).
Local FFI	Local foreign financial institution – A particular type of deemed-compliant FFI identified in section III of Annex II of the Agreement that is relevant to understanding the meaning of the term "non-reporting Canadian financial institution" in the Agreement (see Chapter 3 of this guidance).
FATCA	Foreign Account Tax Compliance Act
FATF Recommendations	Financial Action Task Force Recommendations
GIIN	Global intermediary identification number – A number assigned to financial institutions by the U.S. Internal Revenue Service
Intergovernmental Agreement	An agreement concluded by the U.S. and another jurisdiction that is largely based on Model Agreements published by the U.S. Treasury
IRS	U.S. Internal Revenue Service
IRC	U.S. Internal Revenue Code and related U.S. Treasury Regulations
ITA	Income Tax Act
KYC	Know Your Client
NAICS	North American Industry Classification System (see Chapter 10 of this guidance)
PCMLTFA	Proceeds of Crime (Money Laundering) and Terrorist Financing Act
Qualified intermediary attachment	Canada’s attachment to the Qualified Intermediary Agreement (see Annex I (II)(F) of the Agreement)
Part XVIII	Part XVIII of the ITA
Part XVIII Information Return	Part XVIII Information Return –International Exchange of Information on Financial Accounts
Relationship manager	See paragraphs 8.48 to 8.58 of this guidance
SIC	Standard Industrial Classification (see Chapter 10 of this guidance)

Coordination of definitions with U.S. Treasury Regulations

2.3 Paragraph 7 of Article 4 of the Agreement provides that Canada may use, and may permit Canadian financial institutions to use, a definition in the relevant U.S. Treasury Regulations in place of a corresponding definition in the Agreement, provided that such application does not frustrate the purposes of the Agreement and is not inconsistent with Canadian legislation and this guidance.

2.4 If a financial institution is of the view that this guidance does not reflect an approach that results in outcomes equally favourable as would be obtained if definitions were fully coordinated with the U.S. Treasury Regulations, it may contact the CRA. If the CRA is of the view that increased coordination is warranted, updated guidance will be issued and will serve to notify all financial institutions of the change (see paragraph 1.6). This approach will ensure transparency and fairness for all financial institutions.

Chapter 3 – The different types of financial institutions and their reporting requirements

3.1 Reporting associated with the Agreement is required under Part XVIII. The reporting obligation applies only to a legal person or legal arrangement, such as a corporation, a trust, or a partnership (referred to as "entity" or "entities"). To determine whether an entity has a potential reporting obligation in Canada, you must determine whether the entity is a reporting Canadian financial institution for the purposes of Part XVIII. In making that determination, you must consider the scope of the term "financial institution" under the Agreement and how Part XVIII clarifies which entities fall within that scope.

Financial institutions

3.2 Under the Agreement, an entity is a financial institution if it is:

• a depository institution;
• a custodial institution;
• an investment entity; or
• a specified insurance company.

3.3 An entity can be more than one type of financial institution.

Depository institution

3.4 A depository institution is defined in subparagraph 1(i) of Article 1 of the Agreement as an entity that accepts deposits in the ordinary course of a banking or similar business. Entities that fall within this definition include entities regulated in Canada as a bank, a trust and loan company, a credit society, a savings and credit union, or a caisse populaire.

3.5 An entity is not a depository institution if it:

• solely provides asset-based financial services; or
• accepts deposits from persons solely as collateral or security pursuant to a sale or lease of property, a loan secured by property, or a similar financing arrangement, between it and the person making the deposit.

3.6 For example, this might for instance apply to a leasing, factoring or invoice discounting business or to an entity that solely lends to business enterprises using loans tied to inventory, accounts receivables, or machinery and equipment.

3.7 Facilitating money transfers by instructing agents to transmit funds (without financing the transactions) is not seen as the acceptance of a deposit and an entity will not be considered to be engaged in a banking or similar business or a depository institution because of this activity alone.

Custodial institution

3.8 A custodial institution is defined in subparagraph 1(h) of Article 1 of the Agreement as any entity that holds, as a substantial portion of its business, financial assets for the account of others. A substantial portion means where 20% or more of the entity’s gross income from the shorter of its last three fiscal periods, or the period since it started business, arises from the holding of financial assets on behalf of others and from "related financial services". Investment dealers, brokerages, trust companies, and other entities would be expected to be custodial institutions.

3.9 "Related financial services" are any ancillary services that are directly related to the holding of assets by the institution on behalf of others, such as fees for custody, account maintenance or providing financial advice.

Investment entity

3.10 An investment entity is defined in subparagraph 1(j) of Article 1 of the Agreement. To be an investment entity, an entity must primarily conduct as a business (or be managed by an entity that primarily conducts as a business) one or more of the following activities for, or on behalf of, a customer:

• trading in:
  • money market instruments (such as cheques, bills, certificates of deposit, and derivatives);
  • foreign exchange;
  • exchange, interest rate, and index instruments;
  • transferable securities and commodity futures;
• individual and collective portfolio management; and
• otherwise investing, administering or managing funds or money on behalf of other persons.

3.11 An entity whose assets consist only of non-debt direct interests in real or immovable property (even if managed by another investment entity) will not be an investment entity.

3.12 The Agreement provides that the term "investment entity" must be interpreted in a manner consistent with the definition of "financial institution" in the FATF Recommendations. Part XVIII takes this into account by ensuring that an entity will not be considered to be a Canadian financial institution unless it is included in the definition of the term "listed financial institution" in subsection 263(1) of the ITA.

Specified insurance company

3.13 The term "specified insurance company" is defined in subparagraph 1(k) of Article 1 of the Agreement as an insurance company (or the holding company of an insurance company) that issues, or is obligated to make payments with respect to, a product classified as a cash value insurance contract or an annuity contract.

3.14 Insurance companies that provide only general insurance or term life insurance, and reinsurance companies that provide only indemnity reinsurance contracts, are not covered under this definition.

3.15 A specified insurance company can include both an insurance company and its holding company. However, the holding company itself will be a specified insurance company only if it issues or is obligated to make payments with respect to cash value insurance contracts or annuity contracts.

3.16 Because only certain persons are permitted to provide insurance contracts or annuity contracts, it is very unlikely that an insurance holding company in Canada will, in itself, issue or be obligated to make payments with respect to cash value insurance or annuity contracts.

3.17 An insurance advisor, agent, or broker will not be classified as a specified insurance company since he or she is not obligated to make payments under the terms of a cash value insurance contract or an annuity contract.

Canadian financial institution

3.18 A financial institution must be a Canadian financial institution under Part XVIII for it to have potential reporting obligations in Canada under that Part.

3.19 Two conditions must be met for an entity to be a Canadian financial institution under Part XVIII—the entity must be a Canadian financial institution under the Agreement and it must be a "listed financial institution" for the purposes of Part XVIII. Subsection 263(1) of the ITA defines a "listed financial institution" for that purpose and limits its meaning to the following entities:

1. an authorized foreign bank within the meaning of section 2 of the Bank Act in respect of its business in Canada, or a bank to which that Act applies;
2. a cooperative credit society, a savings and credit union, or a caisse populaire regulated by a provincial Act;
3. an association regulated by the Cooperative Credit Associations Act;
4. a central cooperative credit society, as defined in section 2 of the Cooperative Credit Associations Act, or a credit union central or a federation of credit unions or caisses populaires that is regulated by a provincial Act other than one enacted by the legislature of Quebec;
5. a financial services cooperative regulated by An Act respecting financial services cooperatives, R.S.Q., c. C-67.3, or An Act respecting the Mouvement Desjardins, S.Q. 2000, c. 77;
6. a life company or a foreign life company to which the Insurance Companies Act applies or a life insurance company regulated by a provincial Act;
7. a company to which the Trust and Loan Companies Act applies;
8. a trust company regulated by a provincial Act;
9. a loan company regulated by a provincial Act;
10. an entity authorized under provincial legislation to engage in the business of dealing in securities or any other financial instruments, or to provide portfolio management, investment advising, fund administration, or fund management, services;
11. an entity that is represented or promoted to the public as a collective investment vehicle, mutual fund, exchange traded fund, private equity fund, hedge fund, venture capital fund, leveraged buyout fund, or similar investment vehicle that is established to invest or trade in financial assets and that is managed by an entity referred to in paragraph (j);
12. an entity that is a clearing house or clearing agency; or
13. a department or an agent of Her Majesty in right of Canada or of a province that is engaged in the business of accepting deposit liabilities.

3.20 With reference to paragraph (j) of the term "listed financial institution", an entity is considered to be authorized under provincial legislation to engage in the business of dealing in securities or any other financial instruments, or to provide portfolio management, or investment advising, fund administration, or fund management, services if the legislation contemplates any of the above-mentioned activities and the entity can perform one or more of them in the relevant province. An entity need not be registered in any way for such an authorization to exist.

3.21 Paragraph (k) of the term "listed financial institution" ensures that that term includes professionally-managed trusts and other entities that are promoted or represented to the public. Such entities typically seek to raise capital from, or become known as potential investments for, unrelated or external investors. At the same time, certain investment vehicles may not be promoted to the public if they do not seek external capital (for example, a personal trust used as a means for an individual or a family to hold investable assets). An investment vehicle is considered to be promoted or represented to the public even if marketing or other communication efforts are directed at a limited or a small group of potential investors.

Condition 1 – Reference to the Agreement

3.22 The term "Canadian financial institution" is defined in subparagraph 1(l) of Article 1 of the Agreement. A financial institution will be a Canadian financial institution if it is resident in Canada, but excludes any of its branches located outside of Canada. A financial institution that is a factual or deemed resident of Canada for purposes of the ITA is considered to be resident in Canada for the purposes of the Agreement. If the control and management of a partnership’s business takes place in Canada, the partnership is resident in Canada under the Agreement.

3.23 Under the Agreement, a Canadian financial institution also includes a branch in Canada of a financial institution that is not resident in Canada.

3.24 A Canadian financial institution does not include any account or product described in section IV of Annex II of the Agreement no matter how any such product or account is structured.

3.25 Entity classification elections (known as "check the box" elections) made to the IRS are irrelevant for determining whether an entity is a Canadian financial institution. Therefore, Canadian subsidiaries of a U.S. parent entity that have elected for U.S. tax purposes to be classified as disregarded entities, but which are carrying on financial activities in Canada, and that meet the definition of financial institution in the Agreement are to be treated as Canadian financial institutions for the purposes of the Agreement, separate from the U.S. parent.

3.26 For clarity, an entity that is a clearing house or clearing agency which if it was treated as an investment entity would not maintain financial accounts, other than equity or debt interests in itself or collateral or settlement accounts held in connection with carrying on business activities, is not considered a listed financial institution.

Condition 2 – Reference to Part XVIII

3.27 Subsection 263(2) of the ITA identifies the entities that have reporting obligations under Part XVIII. An entity can be sure that it does not have reporting obligations under Part XVIII if it is not described in paragraphs (a) to (m) of the definition of the term "listed financial institution" as it appears in subsection 263(1) of the ITA.

3.28 An entity resident in Canada that does not satisfy the two above-referenced conditions is a NFFE (Chapter 10 of this guidance) (or, a non-reporting Canadian financial institution (see paragraph 3.31)).

Reporting v non-reporting Canadian financial institution

3.29 For the purposes of Part XVIII, a Canadian financial institution will be either a reporting Canadian financial institution or a non-reporting Canadian financial institution. The distinction is important because Part XVIII obligations generally apply only to reporting Canadian financial institutions.

3.30 The term "non-reporting Canadian financial institution" (NRCFI) is defined in subparagraph 1(q) of Article 1 of the Agreement and in subsection 263(1) of the ITA.

3.31 An NRCFI includes a Canadian financial institution identified as a non-reporting Canadian financial institution in sections II and III of Annex II of the Agreement. An NRCFI also includes a Canadian financial institution that qualifies as a deemed-compliant FFI or an exempt beneficial owner as those terms are defined under sections 1.1471-5(f) and 1.1471-6 of the U.S. Treasury Regulations, respectively, in effect on February 5, 2014 (the date the Agreement was signed). Paragraphs (b) and (d) of the definition of NRCFI in subsection 263(1) of the ITA provide that a Canadian financial institution may determine whether:

• it is described in any of paragraphs A, B, E, and F of section III of Annex II of the Agreement; or
• it qualifies as a deemed-compliant FFI under the relevant U.S. Treasury Regulations.

3.32 If the financial institution decides not to make the determination, it will not be an NRCFI unless it has that status under paragraph C or D or paragraphs G to J of section III of Annex II of the Agreement or is an exempt beneficial owner.

3.33 Any Canadian financial institution that is not a non-reporting Canadian financial institution will be a reporting Canadian financial institution. A reporting Canadian financial institution will be required to report information to the CRA beginning in 2015.

Annex II – Entities treated as non-reporting Canadian financial institutions

3.34 Annex II of the Agreement treats the following entities as non‑reporting Canadian financial institutions that do not have reporting obligations in relation to any financial account they maintain:

• Section II – Entities listed as exempt beneficial owners:
  • The Bank of Canada
  • a Canadian office of an international organization as defined under subsection 2(1) of the Foreign Missions and International Organizations Act
  • any plan or arrangement established in Canada described in paragraph 3 of Article XVIII of the Convention between Canada and the United States with Respect to Taxes on Income and on Capital (see paragraph 3.43 for a list of plans or arrangements covered under this exemption)
  • an entity that is a Canadian financial institution solely because it is an investment entity, provided that each direct holder of an equity interest in the entity is an exempt beneficial owner and each direct holder of a debt interest in such entity is either a depository institution (with respect to a loan made to such entity) or an exempt beneficial owner
• Section III – Entities under the heading of deemed-compliant financial institutions:
  • financial institutions with a local client base
  • local banks
  • financial institutions with only low value accounts
  • sponsored investment entities and controlled foreign corporations
  • sponsored, closely held investment vehicles
  • restricted funds
  • labour-sponsored venture capital corporations prescribed under section 6701 of the Income Tax Regulations
  • any central cooperative credit society as defined in section 2 of the Cooperative Credit Associations Act and whose accounts are maintained for member financial institutions
  • any entity described in paragraph 3 of Article XXI of the Convention between Canada and the United States with Respect to Taxes on Income and on Capital (see paragraph 3.44 for a description of the entities that are covered under this exemption)
  • an investment entity established in Canada that is regulated as a collective investment vehicle (CIV), provided that all of the interests in the CIV (including debt interests over US$50,000) are held by or through one or more exempt beneficial owners, active NFFEs, U.S. persons that are not specified U.S. persons, or financial institutions that are not nonparticipating financial institutions. For these purposes, entities that are considered to be regulated as CIVs in Canada include regulated investment funds.

U.S. Treasury Regulations – Entities identified as non-reporting Canadian financial institutions

3.35 A Canadian financial institution is also a non-reporting Canadian financial institution if it is an exempt beneficial owner or determines that it qualifies as a deemed-compliant FFI under the relevant U.S. Treasury Regulations in effect on February 5, 2014 (the date the Agreement was signed).

3.36 By virtue of the categories of deemed-compliant financial institutions in section III of Annex II of the Agreement, the deemed-compliant FFI categories described in the relevant U.S. Treasury Regulations are expected to be of interest to very few Canadian financial institutions.

Deemed-compliant FFI

3.37 Section 1.1471-5(f) of the U.S. Treasury Regulations sets out that a "deemed-compliant FFI" includes a "registered deemed-compliant FFI", a "certified deemed-compliant FFI" and, in certain cases, an "owner-documented FFI".

3.38 For the purposes of Part XVIII, a Canadian financial institution is not required to determine whether it qualifies as a deemed-compliant FFI under the relevant U.S. Treasury Regulations.

3.39 Registered deemed-compliant FFIs include:

• local FFIs (section 1.1471-5(f)(1)(i)(A));
• nonreporting members of participating FFI groups (section 1.1471‑5(f)(1)(i)(B));
• qualified collective investment vehicles (section 1.1471‑5(f)(1)(i)(C));
• restricted funds (section 1.1471-5(f)(1)(i)(D));
• qualified credit card issuers (section 1.1471-5(f)(1)(i)(E)); and
• sponsored investment entities and controlled foreign corporations (section 1.1471-5(f)(1)(i)(F)).

3.40 Certified deemed-compliant FFIs include:

• nonregistering local banks (section 1.1471-5(f)(2)(i));
• financial institutions with only low value (that is, less than US$50,000) accounts (section 1.1471-5(f)(2)(ii)); and
• sponsored, closely held investment vehicles (section 1.1471‑5(f)(2)(iii)).

Exempt beneficial owner

3.41 A Canadian financial institution is a non-reporting Canadian financial institution if it is an exempt beneficial owner under section 1.1471-6(b) to (g) of the U.S. Treasury Regulations. (Note: The possibility of having this status is independent from the possibility of being an exempt beneficial owner by virtue of section II of Annex II of the Agreement.) Exempt beneficial owner status is generally designed to offer relief in respect of governments, international organizations, central banks, and certain retirement funds.

3.42 The Government of Canada, provincial, territorial and aboriginal governments in Canada, and municipal-level governments in Canada are regarded as non-reporting Canadian financial institutions under Part XVIII by virtue of qualifying as exempt beneficial owners, as set out under paragraph (c) of the definition of "non-reporting Canadian financial institution" in subsection 263(1) of the ITA. An agency or instrumentality of any such government is only a reporting Canadian financial institution if it is described in paragraph 263(1)(m) of the ITA. Otherwise, it is a non-reporting Canadian financial institution.

Entities under Articles XVIII(3) and XXI(3) of the Canada–U.S. Tax Convention

3.43 Plans or arrangements established in Canada described in paragraph 3 of Article XVIII (Pensions and Annuities) of the Convention between Canada and the United States with Respect to Taxes on Income and on Capital include superannuation, pension, or other retirement arrangements. Therefore, an exempt beneficial owner under section II of Annex II of the Agreement includes an entity that is for the purposes of the ITA:

• a registered retirement savings plan (RRSP);
• a registered retirement income fund (RRIF);
• a registered pension plan (RPP);
• a pooled registered pension plan (PRPP);
• a deferred profit sharing plan (DPSP); or
• another superannuation, pension, or retirement arrangement.

3.44 An entity described in paragraph 3 of Article XXI (Exempt Organizations) of the Convention between Canada and the United States with Respect to Taxes on Income and on Capital has no reporting obligations under Part XVIII. An entity is described in that paragraph if it is a trust, a company, an organization, or another arrangement that operates exclusively to earn income for the benefit of one or more organizations that is:

• a religious, scientific, literary, educational, or charitable organization exempt from tax; or
• a trust, a company, an organization, or another arrangement that is exempt from taxation and operates exclusively to administer or provide pension, retirement, or employee benefits.

3.45 The entities described in paragraphs 3.43 and 3.44 are regarded as non-reporting Canadian financial institutions under Part XVIII. (However, it is not considered of material importance if any such entity classifies itself as an active NFFE.)

Additional details on certain deemed-compliant financial institutions under section III of Annex II of the Agreement

Financial institution with a local client base

3.46 An NRCFI includes a financial institution that qualifies as a local FFI described in section 1.1471-5(f)(1)(i)(A) of the U.S. Treasury Regulations if subparagraphs A(1) to (3) of section III of Annex II of the Agreement are applied instead of the relevant provisions in those Regulations. Therefore, all of the criteria listed below must be met for a financial institution to be a financial institution with a local client base under paragraph A of section III of Annex II of the Agreement.

3.47 The criteria are:

1. The financial institution must be licensed and regulated under the laws of Canada (or the laws of a province or territory in Canada).
   
   
2. The financial institution must have no fixed place of business outside of Canada. For this purpose, a fixed place of business does not include a location that is not advertised to the public and from which the financial institution performs solely administrative support functions.
   
   
3. The financial institution must not solicit customers outside of Canada. For this purpose, a financial institution will not be considered to have solicited customers outside of Canada merely because it operates a website, provided that the website does not specifically indicate that the financial institution provides accounts or services to non-residents of Canada.
   
   A financial institution will also not be considered to have solicited customers outside of Canada if it advertises in print media or on a radio or television station and the advertisement is distributed or aired outside of Canada, as long as the advertisement does not specifically indicate that the financial institution provides accounts or services to non-residents of Canada.
   
   The issuance or distribution of a prospectus will not, in and of itself, amount to soliciting customers. Likewise, the publication of reports and other documents to satisfy regulatory requirements will not amount to soliciting customers outside of Canada.
   
   
4. The financial institution is required under Canadian law to identify Canadian resident account holders to perform information reporting (or tax withholding) or is a reporting entity under the PCMLTFA and related regulations.
   
   
5. At least 98% of the financial accounts by value provided by the financial institution must be held by residents of Canada (whether or not they are U.S. persons). A financial institution can determine the value of all such accounts using any reasonable means, such as book value or fair market value.
   
   Any account treated as an "exempt product" may be treated as a financial account for the purpose of determining whether the 98% test is satisfied.
   
   For the purpose of applying paragraph 3.47, a financial institution may treat an account as being held by a resident of Canada if the residence address associated with the account is in Canada.
   
   A financial institution will need to assess whether it meets this criteria annually. The measurement can be taken at any point of the preceding calendar year for it to apply to the following year, as long as the measurement date remains the same from year to year.
   
   
6. On or before July 1, 2014 (or the date it represents itself as a deemed-compliant financial institution), the financial institution must have policies and procedures, consistent with those described in Annex I of the Agreement, to prevent the financial institution from providing a financial account to an NPFI and to monitor whether it provides accounts to any:
   • specified U.S. person who is not a resident of Canada (including a U.S. person who was a resident of Canada when the account was opened but subsequently ceases to be a Canadian resident); or
   • passive NFFE with controlling persons who are U.S. persons and who are not residents of Canada.

   If any such account is discovered, the financial institution must report the account as would be required if the financial institution were a reporting Canadian financial institution or it must close the account.
   
   The financial institution is expected to follow the applicable requirements of the FATCA registration website and electronically file a Part XVIII Information Return with the CRA under section 266 of the ITA.
   
   

7. With respect to each preexisting account held by an individual who is not a resident of Canada or by an entity, the financial institution reviews those accounts according to the procedures in Annex I of the Agreement applicable to preexisting accounts to identify any financial account held by a specified U.S. person who is not a resident of Canada, by a passive NFFE with controlling persons who are U.S. residents or U.S. citizens who are not residents of Canada, or by a nonparticipating financial institution. When such accounts are identified, the financial institution must report those accounts as would be required if it were a reporting Canadian financial institution (and follow the applicable requirements of the IRS FATCA registration website) or it must close the account.
   
   
8. In the case of a financial institution that is a member of an expanded affiliated group, each financial institution in the group (other than a U.S. financial institution) is incorporated or organized in Canada and meets the requirements set out in paragraph A of section III of Annex II of the Agreement (with the exception of a retirement plan classified as an exempt beneficial owner, or a non-reporting Canadian financial institution referred to in section III of Annex II of the Agreement so long as its business is not the same as the first-mentioned financial institution).
   
   An investment entity will not be considered a member of an expanded affiliated group as a result of contributing seed capital (that is, an initial investment that is intended as a temporary investment) by a member of the group if all of the following conditions are met:
   
   • The member of the group that provides the seed capital is in the business of providing seed capital to investment entities that it intends to sell to unrelated investors.
   • The investment entity is created in the course of its business.
   • Any equity interest in excess of 50% of the total value of stock of the investment entity is intended to be held for no more than three years from the date of acquisition.
   • In the case of an equity interest that has been held for over three years, its value is less than 50% of the total value of the stock of the investment entity.

Local bank

3.48 An NRCFI includes a financial institution that qualifies as a nonregistered local bank described in section 1.1471-5(f)(2)(i) of the U.S. Treasury Regulations using the definitions provided for in paragraph B of section III of Annex II of the Agreement.

3.49 Therefore, a financial institution must satisfy the following requirements to qualify:

1. The financial institution operates solely as, and is licensed and regulated under the laws of Canada as, a bank or a credit union or similar cooperative credit organization that is operated without profit.
   
   (Note: The term "bank" includes any depository institution to which the Bank Act or the Trust and Loan Companies Act applies, or which is a trust or loan company regulated by a provincial Act. Note also that the term "credit union or similar cooperative arrangement that is operated without profit" includes any credit union or similar cooperative organization entitled to tax‑favoured treatment with respect to distributions to its members under Canadian law (for example, a credit union defined in subsection 137(6) of the ITA).)
   
   
2. The financial institution’s business consists primarily of receiving deposits from and making loans to, with respect to a bank, unrelated retail customers and, with respect to a credit union or similar cooperative credit organization, members, provided that no member has a greater than 5% interest in such credit union or cooperative credit organization.
   
   
3. The financial institution must not have a fixed place of business outside of Canada. For this purpose, a fixed place of business does not include a location that is not advertised to the public and from which the financial institution performs solely administrative support functions.
   
   
4. The financial institution must not solicit customers outside of Canada. For this purpose, a financial institution shall not be considered to have solicited customers outside of Canada merely because it operates a website, provided that the website does not permit account openings or specifically indicate that the financial institution provides accounts or services to non-Canadian residents or otherwise targets or solicits U.S. customers. A website that permits account openings can be distinguished from a website that facilitates account openings. In the latter case, the website typically allows a prospective account holder to apply for an account without creating the account before there is some form of human intervention.
   
   A financial institution will also not be considered to have solicited customers outside of Canada if it advertises in print media or on a radio or television station and the advertisement is distributed or aired outside of Canada, as long as the advertisement does not indicate that the financial institution provides accounts for or provides services to non-residents of Canada.
   
   The issuance or distribution of a prospectus will not, in of itself, amount to soliciting customers. Likewise, the publication of reports and other documents to satisfy regulatory requirements will not amount to soliciting customers outside of Canada.
   
   
5. The financial institution does not have more than US$175 million in assets on its balance sheet, and the financial institution and any related entities, taken together, do not have more than US$500 million in total assets collectively.
   
   
6. Any related entity must be incorporated or organized in Canada, and any related entity that is a financial institution (other than a retirement plan classified as an exempt beneficial owner or a financial institution with only low value accounts described below) must satisfy these same six requirements.

Financial institutions with only low value accounts

3.50 An NRCFI includes a financial institution that satisfies all of the following requirements:

1. The financial institution is not an investment entity.
2. No financial account maintained by the financial institution (or any related entity) has a balance or value exceeding US$50,000 (applying the rules in Annex I of the Agreement for account aggregation and currency translation).
3. The financial institution does not have more than US$50 million in assets on its balance sheet as of the end of the preceding accounting year, and the financial institution and any related entities, taken together, do not have more than US$50 million in total assets on their consolidated or combined balance sheets as of the end of the preceding accounting year.

Sponsored investment entities and controlled foreign corporations

3.51 An NRCFI includes a financial institution that is described in subparagraph D(1) or D(2) of section III of Annex II of the Agreement, as long as it has a sponsoring entity that complies with the requirements in subparagraph D(3) of the same section.

Sponsored, closely held investment vehicles

3.52 An NRCFI includes a financial institution that satisfies the requirements set out in paragraph E of section III of Annex II of the Agreement.

3.53 The following requirements must be satisfied to qualify:

1. The financial institution must be an investment entity that is not a U.S. qualified intermediary, a withholding foreign partnership, or a withholding foreign trust.
2. The financial institution does not hold itself out as an investment vehicle for unrelated parties.
3. The financial institution has 20 or fewer individuals that own its debt and equity interests (disregarding interests owned by participating FFIs, deemed-compliant FFIs, and an equity interest owned by an entity that is 100% owner and itself a sponsored, closely held investment vehicle).
4. The sponsoring entity is a reporting U.S. financial institution, a reporting Model 1 FFI, or a participating FFI and is authorized to act on behalf of the financial institution (such as a professional manager or trustee).
5. The sponsoring entity has registered as a sponsoring entity on the IRS FATCA registration website (it does not need to register the sponsored financial institution) and performs, on behalf of the financial institution, all the due diligence, reporting, and other requirements that the financial institution would have been required to perform if it were a reporting Canadian financial institution and retains documentation collected with respect to the financial institution for a period of six years.

Restricted funds

3.54 An NRCFI includes a financial institution that qualifies as a restricted fund as described in the relevant U.S. Treasury Regulations (see section 1.1471-5(f)(1)(i)(D)), applying the procedures of Annex I of the Agreement instead of the procedures required under section 1.1471-4 of the U.S. Treasury Regulations and applying references to "report(s)" instead of references to "withhold(s) and report(s)", provided that the financial institution gives any immediate payer the information described in subparagraph 1(e) of Article 4 of the Agreement or fulfills the requirements described in subparagraph 1(d) of Article 4 of the Agreement, as applicable.

Chapter 4 – Important terminology and classifications

4.1 Determining whether an entity is a reporting Canadian financial institution and what obligations it has under the Agreement requires an understanding of certain terminology introduced by the reporting regime. Moreover, financial institutions need to understand the various classifications into which they and their account holders, their affiliates, and others may fall. This chapter describes key terms and classifications to help readers understand the chapters that follow.

Non-financial foreign entity (NFFE)

4.2 Any non-U.S. entity that is not a financial institution is a non-financial foreign entity (NFFE). An entity resident in Canada is not a NFFE if it is a reporting Canadian financial institution or a non-reporting Canadian financial institution within the meaning of Part XVIII. (Part XVIII clarifies which financial institutions have Part XVIII obligations in Canada without modifying the definition of financial institution for any other purpose.) An entity that is not a resident of Canada is a financial institution if it is classified as such in its jurisdiction of residence for the purposes of enhanced information exchange with the U.S.

4.3 There are two types of NFFEs: active and passive. The distinction is important since a Canadian financial institution is required to apply a higher standard of due diligence to financial accounts held by a passiveNFFE. The financial institution is required to determine whether the passive NFFE is controlled by one or more specified U.S. persons.

4.4 A passive NFFE and an active NFFE are defined in subparagraphs B(3) and (4) of section VI of Annex I of the Agreement, respectively. A passive NFFE is defined as any NFFE that is not an active NFFE or a withholding foreign partnership or withholding foreign trust under the relevant U.S. Treasury Regulations.

4.5 A withholding foreign partnership or withholding foreign trust is a non‑U.S. partnership or trust that has entered into a withholding agreement with the IRS under which it agrees to assume primary withholding responsibility for all payments that are made to it for its partners, beneficiaries, or owners. For more information, refer to IRS Revenue Procedures 2003-64, 2004-21, and 2005-77.

4.6 An active NFFE is defined as any NFFE that meets one of the following criteria:

• Less than 50% of the NFFE’s gross income for the preceding calendar year or other appropriate reporting period is passive income and less than 50% of the assets held by the NFFE during the preceding calendar year or other appropriate reporting period are assets that produce or are held for the production of passive income.
  
  Passive income is not a defined term in the Agreement and the competent authorities have not agreed to a common meaning. However, the term is understood to include income from the mere holding of property, such as interest, dividends, rents, and royalties.
  
  Income received on assets used as capital in an insurance business is treated as active rather than passive income.
  
  
• The stock of the NFFE is regularly traded on an established securities market or the NFFE is a related entity of an entity, the stock of which is regularly traded on an established securities market (see Chapter 6 of this guidance).
  
  Not all classes of shares of a NFFE are required to be regularly traded for the stock of a NFFE to be considered "regularly traded" for the purposes of this test so long as the creation or existence of a particular class of shares did not have the principal purpose of causing the NFFE to meet this criterion.
  
  The NFFE is organized in a "U.S. territory" (as defined in subparagraph 1(b) of Article 1 of the Agreement) and all of its owners are bona fide residents of that U.S. territory.
  
  
• The NFFE is a non-U.S. government, a government of a U.S. territory, an international organization, a non-U.S. central bank, or an entity wholly owned by one or more of the foregoing.
  
  
• Substantially all of the activities of the NFFE consist of holding (in whole or in part) the outstanding stock of, and providing financing and services to, one or more subsidiaries that engage in trades or businesses other than the business of a financial institution, except that a NFFE shall not qualify for this status if the NFFE functions (or holds itself out) as an investment fund, such as a private equity fund, a venture capital fund, a leveraged buyout fund, or any investment vehicle whose purpose is to acquire or fund companies and then hold interests in those companies as capital assets for investment purposes.
  
  
• The NFFE is not yet operating a business and has no prior operating history, but is investing capital into assets with the intent to operate a business other than that of a financial institution, provided that the NFFE shall not qualify for this exception after the date that is 24 months after the date of the initial organization of the NFFE.
  
  
• The NFFE was not a financial institution in the past five years and is in the process of liquidating its assets or is reorganizing with the intent to continue or recommence operations in a business other than that of a financial institution.
  
  
• The NFFE primarily engages in financing and hedging transactions with or for related entities that are not financial institutions and does not provide financing or hedging services to any entity that is not a related entity, provided that the group of any such related entities is primarily engaged in a business other than that of a financial institution.
  
  
• The NFFE is an "excepted NFFE" as described in section 1.1472‑1(c)(1) of the U.S. Treasury Regulations.
  
  
• The NFFE meets all of the following requirements:
  • It is:
    • established and operated in its jurisdiction of residence exclusively for religious, charitable, scientific, artistic, cultural, athletic, or educational purposes; or
    • established and operated in its jurisdiction of residence and is a professional organization, a business league, a chamber of commerce, a labour organization, an agricultural or horticultural organization, a civic league, or an organization operated exclusively for the promotion of social welfare.
      
      
  • It is exempt from income tax in its jurisdiction of residence.
    
    
  • It has no shareholders or members who have a proprietary or beneficial interest in its income or assets.
    
    
  • The applicable laws of the entity’s jurisdiction of residence or the entity’s formation documents do not permit any income or assets of the entity to be distributed to, or applied for the benefit of, a private person or a non-charitable entity other than according to the conduct of the entity’s charitable activities, as payment of reasonable compensation for services rendered, or as payment representing the fair market value of property that the entity has purchased.
    
    
  • The applicable laws of the entity’s jurisdiction of residence or the entity’s formation documents require that, upon the entity’s liquidation or dissolution, all of its assets be distributed to a governmental entity or other non-profit organization, or escheat to the government of the entity’s jurisdiction of residence or any political subdivision thereof.

4.7 A general insurance company is not generally treated as a financial institution under the Agreement. It is instead classified as a NFFE unless it has financial accounts.

4.8 For details on reporting requirements related to NFFEs, see the information provided in Chapters 6, 10, and 12 of this guidance.

Nonparticipating financial institution (NPFI)

4.9 For the years 2015 and 2016, Canadian financial institutions must report certain payments made to financial accounts held by nonparticipating financial institutions (NPFIs) (see paragraphs 12.30 to 12.34). An NPFI is defined in subparagraph 1(r) of Article 1 of the Agreement as a financial institution that is not FATCA compliant. This situation will arise when:

• the financial institution is in a jurisdiction that does not have an intergovernmental agreement with the U.S. and the financial institution has not entered into an FFI agreement with the IRS; or
• the financial institution is listed by the IRS as being an NPFI after the procedures for significant non-compliance under an intergovernmental agreement have been followed.

4.10 No Canadian financial institution is an NPFI. Moreover, when this guidance was published, no other financial institution is known to be classified as an NPFI by virtue of significant non-compliance with an intergovernmental agreement. The IRS website will list any institution that it considers to be an NPFI as a result of significant non-compliance.

4.11 For details on reporting requirements related to NPFIs, see the information in Chapters 6, 7, 10, and 12 of this guidance.

Related entity

4.12 The term "related entity" is defined in subparagraph 1(jj) of Article 1 of the Agreement. An entity is considered to be related to another entity if one entity controls the other or the two entities are under common control (the "related entity group"). Control means direct or indirect ownership of more than 50% of the vote and value in an entity. The reference to "vote and value" is taken from the U.S. Treasury Regulations as allowed by paragraph 7 of Article 4 of the Agreement.

Chapter 5 – Investment funds and introducing and carrying services relationships

5.1 The meaning of the term "financial account" for the purposes of Part XVIII is set out in subsection 263(3) of the ITA. That provision, together with subsections 265(7) and (8) of the ITA, ensures responsibilities under Part XVIII align with the structure of the investment fund industry in Canada.

Investment funds and their dealers

5.2 Canadian investment funds include conventional mutual funds, non‑conventional investment funds (for example, exchange traded funds), and specialized funds (for example, labour-sponsored investment funds). These funds operate in diverse portions of the capital markets and rely on both public offerings and private placements. These funds are subject to a number of regulatory requirements under provincial securities legislation and nationally‑applied rules. Securities (hereinafter simply referred to as "units") in investment funds are typically sold through dealers that must be registered in each province in which they have clients. They are subject to examinations by provincial securities commissions and self-regulatory organizations. The sales representatives and advisors of dealers are also registered and subject to account opening and KYC requirements under securities legislation, as well as to client identification requirements under the PCMLTFA and related regulations.

5.3 When investment fund units are sold through fund dealers, they may be issued in the name of the beneficial owner (client-name) or recorded in the name of the dealer (nominee-name).

Holdings in nominee-name

5.4 If a dealer holds legal title to units of an investment fund on behalf of a client (the ultimate investor), the dealer maintains the account of the client, and in turn will be an account holder of the fund. In this circumstance, the issuance of the fund units in nominee-name separates the ultimate investors from the fund in the sense of not creating an account holder relationship between the two. Therefore, the fund has to understand only the status of the fund dealer that is its direct account holder. It may determine the dealer’s status by verifying the dealer has a GIIN (by referring to the IRS FFI list). The fund has no obligation to ascertain information or perform reporting in connection with the ultimate investors.

5.5 Fund dealers are financial institutions in their own right (by virtue of being within the definition of a custodial institution or an investment entity) and have due diligence and reporting requirements in connection with the client accounts they maintain.

5.6 For the purpose of applying the relevant aggregation requirements (as set out in Chapter 7 of this guidance) to aggregate accounts to determine whether any preexisting custodial account is below a particular monetary threshold provided for in Annex I of the Agreement, a dealer will need to consider all the financial accounts it maintains for its clients without reference to whether the clients’ underlying interests are in different funds or other investments.

Holdings in client-name

5.7 In Canada, certain investments made by individuals and other investors, even with the assistance of a dealer, are made directly with a fund such that the units are registered in the fund in client-name. Indeed, many fund dealers place their clients in mutual fund units without holding legal title to the investment or having custody over the asset.

5.8 Mutual fund dealers, exempt-market dealers, and other investment dealers have due diligence and reporting obligations in connection with the financial accounts they maintain. These accounts are inclusive of investments in fund units regardless of whether the dealer purchased units on behalf of a client in nominee-name or in client-name. This outcome is supported by how subsection 263(3) of the ITA instructs the definition of "financial account" to be read for the purposes of Part XVIII and is consistent with the Canadian fund industry’s "Allocated Compliance Model" (as contemplated under subparagraph 62(1)(b)(i) of the regulations to the PCMLTFA) and the responsibilities that industry participants have for client identification under Canada’s AML regime.

5.9 An investment fund unit held in client-name will be a financial account maintained by the fund for the purposes of the Agreement even if that unit is also contained in an account of a fund dealer. However, in view of the overlap with responsibilities that exist at the dealer level, subsection 265(8) of the ITA offers funds relief from having to perform due diligence under the Agreement in connection with a unit held in client-name that is also contained in an account of a dealer that is a financial institution.

5.10 In view of the current compliance practices between dealers and fund managers for client-name accounts, subsection 265(8) of the ITA is generally expected to apply in respect of such accounts. The CRA expects dealers to perform due diligence and account classification and funds to perform reporting, unless a fund is advised by a dealer that the dealer will take responsibility for its own reporting.

5.11 Where there is no written agreement between a dealer and a fund and the dealer has failed to provide a classification as to whether an account is reportable for a unit of the fund held in client-name that the dealer is considered to maintain, the fund ought to notify the dealer in writing that the account remains undocumented as of year-end. (A copy of the notification should be retained as a record that the fund creates for the purpose of complying with Part XVIII, as required under subsection 267(1) of the ITA.) This will provide the dealer (typically the person with the most proximate relationship with the underlying investor) with an opportunity to obtain the required information from the account holder and provide the classification of the U.S. reportable status to the fund before reporting is due to the CRA. U.S. reportable status does not need to be provided for accounts that are exempt from reporting by virtue of Annex II of the Agreement – information understood to be provided from the dealer to the fund upon account opening.

Where there is a written agreement that addresses matters in connection with Part XVIII between a dealer and a fund, it suffices with respect to notifications from the dealer to the fund that the dealer provides to the fund only the account status of U.S. reportable accounts. And, in the case where no account has that status, the dealer must provide a "nil report" to the fund. (A nil report is not required if the dealer relies on a deemed compliant status, as described in paragraph 5.15).

5.12 Consultations with investment funds and fund dealers reveal that dealers that maintain financial accounts because they placed their clients in fund units in client-name may want to make arrangements with the funds to perform information reporting on their behalf. Canada’s implementation of the Agreement contemplates cooperation in this regard and places the reporting obligation on the fund should the dealer request such an arrangement. The dealer would need to make this request of the fund in writing (and provide both the request that the fund perform the reporting, and the account information required by the fund to complete the reporting, in a timely fashion). If a fund dealer that maintains a financial account by virtue of having placed a client in a fund unit in client-name makes such an arrangement and communicates in a timely fashion its determination of the account holder’s status to the fund (that is, its initial assessment together with any update related to a change in circumstances regarding whether the account is a U.S. reportable account), the fund shall rely on that determination to complete its reporting obligations.

5.13 If an investment fund dealer has arrangements in place with a fund to communicate its determination of an account holder’s status to the fund on a timely basis, the dealer is not required to take separate steps to ensure that the Part XVIII Information Return is filed with the CRA in connection with any financial account of the account holder that exists just because it placed its client in the fund in client-name. This approach avoids duplicate reporting when a dealer makes arrangements with a fund to fulfill its reporting obligations (if any) in connection with the unit.

5.14 Rather than communicate its determination of the account holder’s status, a fund dealer may choose to perform the reporting obligations in respect of a unit. In that case, the dealer has to file any required Part XVIII Information Return with the CRA in respect of the unit and inform the fund in writing that the dealer is doing this. The fund can rely on this written notification and is not required to take additional steps in this regard unless the fund reasonably concludes that the dealer has not complied with its reporting obligations. This approach avoids duplicative reporting obligations (if any) in connection with the unit.

5.15 To the extent that a fund relies on due diligence performed at the dealer level in respect of a financial account, the fund is not entitled to apply any monetary threshold or to rely on any status as a deemed-compliant FFI, other than a sponsored investment entity or sponsored controlled foreign corporation as described in paragraph D of section III of Annex II of the Agreement, that would cause it to be a non-reporting Canadian financial institution under Annex II of the Agreement to avoid having to perform any required reporting in connection with the account. Designations made under subsection 264(1) of the ITA (that is, the application of thresholds) and reliance on deemed compliant financial institution status may be used only at the dealer level. Where a dealer has arrangements with a fund to have the fund perform Part XVIII information reporting on its behalf, and has made a designation under subsection 264(1) of the ITA or is relying on a deemed compliant status listed in section III of Annex II of the Agreement, the dealer must provide details to the fund on any U.S. reportable account required to be reported in accordance with the designation or as required as a condition of the deemed compliant status. In such a case, the fund will not be required to obtain documentation for or report unit holders covered under the arrangement simply because the dealer has not provided a designation as to whether a particular unit is reportable.

Carrying and introducing broker relationships

5.16 For the remainder of this Chapter, the term "investment dealer" is used to refer specifically to investment dealers that are subject to membership and regulation requirements of the Investment Industry Regulatory Organization of Canada (IIROC). Within the industry, an IIROC investment dealer (the "introducing broker" or "IB") may enter into an agreement with another IIROC investment dealer (the "carrying broker" or "CB") to allow it to use the back office of the carrying broker to perform certain trading-related functions on its behalf.

5.17 IIROC Rule 35 details four types of permissible IB/CB arrangements. The four types of arrangements allow firms the flexibility to use the back office capacity of other firms. The carrying broker is relied on most heavily to perform trading-related functions on behalf of the introducing broker under a Type 1 Arrangement and progressively less heavily under a Type 2, Type 3, or Type 4 Arrangement.

5.18 IIROC investment dealers are financial institutions and have due diligence and reporting obligations in connection with the financial accounts they maintain. The implementation and administration of the Agreement is understood within the context of carrying services relationships that exist in Canada.

Financial accounts of the introducing broker/carrying broker

5.19 The definition of "financial account" in the Agreement includes the accounts that an introducing broker maintains for its clients. An introducing broker is considered to maintain an account even if it has introduced the holder of the account to a carrying broker under a Type 2, 3, or 4 Arrangement. When an introducing broker has so introduced a client to a carrying broker, the arrangement does not result in the carrying broker being considered to maintain an account for the client.

5.20 A Type 1 Arrangement is distinguished from the other types of IIROC IB/CB arrangements because of the degree to which the carrying broker is required to administer client accounts. In a Type 1 context, the carrying broker generally carries out all account supervision and the back office functions in respect of the introducing broker’s clients, including ascertaining the client’s identity for purposes of the AML/KYC Procedures. In such circumstances, the introducing broker is considered to have relinquished the account maintenance role to the carrying broker to such a degree that the carrying broker is viewed as maintaining the financial account held by the client introduced to it. Therefore, when an introducing broker has introduced a client to a carrying broker for whom the carrying broker has opened an account governed by a Type 1 Arrangement, the introducing broker is not considered to maintain the account it keeps for such client.

5.21 It is understood that an introducing broker may contractually agree to use the services of a carrying broker to fulfill its obligations under Part XVIII.

5.22 While the guidance in this Chapter relates to the affairs of IIROC members, it may nevertheless assist non-IIROC members to understand the consequences associated with arrangements analogous to the types discussed herein.

Chapter 6 – Financial accounts and account holders

6.1 Under the Agreement, a reporting Canadian financial institution must report information to the CRA on an annual basis regarding financial accounts that are U.S. reportable accounts. To report properly, reporting Canadian financial institutions must also be able to determine certain categories into which the financial accounts fall.

Financial accounts

6.2 For the purposes of the Agreement, the term "financial account" is defined as an account maintained by a financial institution. The definition also lists as being within its scope certain cash value insurance contracts and annuity contracts together with certain equity and debt interests in financial institutions. Subsection 263(3) of the ITA makes clear that a financial account includes a client-name account maintained by a person or entity that is authorized under provincial law to engage in the business of dealing in securities or any other financial instrument or to provide portfolio management or investment advising services. This clarification is considered most applicable to mutual fund dealers that cause their clients to be invested in client-name with other financial institutions (see Chapter 5 of this guidance).

6.3 However, certain accounts are excluded from the definition of a financial account and are not financial accounts for the purposes of the Agreement. For example, accounts in the form of, or held by, an RRSP, a RRIF, or a tax‑free savings account (TFSA) are not treated as financial accounts (and are not subject to any reporting) under the Agreement (see paragraph 6.5 for the list of excluded accounts).

6.4 A financial institution may maintain more than one type of financial account. For example, a depository institution may maintain a custodial account as well as a depository account.

Products that are not financial accounts

6.5 The definition of financial account does not include any account, product, or arrangement identified as excluded from the definition of financial account in Annex II of the Agreement. The following accounts are listed in Annex II and are not to be treated as financial accounts:

• registered retirement savings plans (RRSPs) – as defined in subsection 146(1) of the ITA
• registered retirement income funds (RRIFs) – as defined in subsection 146.3(1) of the ITA
• pooled registered pension plans (PRPPs) – as defined in subsection 147.5(1) of the ITA
• registered pension plans (RPPs) – as defined in subsection 248(1) of the ITA
• tax-free savings accounts (TFSAs) – as defined in subsection 146.2(1) of the ITA
• registered disability savings plans (RDSPs) – as defined in subsection 146.4(1) of the ITA
• registered education savings plans (RESPs) – as defined in subsection 146.1(1) of the ITA
• deferred profit-sharing plans (DPSPs) – as defined in subsection 147(1) of the ITA
• AgriInvest accounts – as defined under "NISA Fund No. 2" and "net income stabilization account" in subsection 248(1) of the ITA, including Quebec’s Agri-Quebec Program as prescribed in section 5503 of the Income Tax Regulations
• eligible funeral arrangements – as defined under section 148.1 of the ITA
• escrow accounts – accounts maintained in Canada established in connection with any of the following:
  • a court order or judgment;
  • a sale, exchange, or lease of real or immovable property or of personal or movable property, provided that the account satisfies the following requirements:
    • the account is funded solely with a down payment, earnest money, deposit in an amount appropriate to secure an obligation directly related to the transaction, or a similar payment, or is funded with a financial asset that is deposited into the account in connection with the sale, exchange, or lease of the property;
    • the account is established and used solely to secure the obligation of the purchaser to pay the purchase price for the property, the seller to pay any contingent liability, or the lessor or lessee to pay any amount owing for any damages relating to the leased property as agreed under the lease;
    • the assets of the account, including the income earned thereon, will be paid or otherwise distributed for the benefit of the purchaser, the seller, the lessor, or the lessee (including to satisfy such person’s obligation) when the property is sold, exchanged, or surrendered, or when the lease terminates;
    • the account is not a margin or similar account established in connection with a sale or exchange of a financial asset; and
    • the account is not associated with a credit card account;
  • an obligation of a financial institution servicing a loan secured by real or immovable property to set aside a portion of a payment solely to facilitate the payment of taxes or insurance related to the real or immovable property at a later time; or
  • an obligation of a financial institution solely to facilitate the payment of taxes at a later time
• an account maintained in Canada and excluded from the definition of financial account under an agreement between the U.S. and another partner jurisdiction to facilitate the implementation of FATCA, provided that such account is subject to the same requirements and oversight under the laws of such other partner jurisdiction as it would be if it were established in that partner jurisdiction and maintained by a partner jurisdiction financial institution in that partner jurisdiction.

6.6 Annex II has not been modified by any mutual agreement entered into by the competent authorities of Canada and the U.S. Notice of any competent authority agreement that modifies Annex II of the Agreement will be posted on the CRA website.

6.7 When a financial account held by a non-financial intermediary (for example, a law firm) is not referred to in paragraph 6.5 but is an account holding, on a pooled basis, the funds of underlying clients of the non-financial intermediary where:

• the only person listed or identified on the financial account with the financial institution is the non-financial intermediary; and
• the disclosure or passing by the non-financial intermediary of its underlying clients’ information to the financial institution contravenes provincial/territorial law in Canada,

the financial institution is required to undertake the due diligence procedures only in respect of the non-financial intermediary. The same applies in connection with any client trust account held by a lawyer in trust for a single client in connection with legal services if the above-referenced conditions are satisfied and the lawyer’s actions in connection with the opening, use and management of the account are regulated by a law society in Canada.

Maintaining a financial account

6.8 To be a financial account, the account must be maintained by a financial institution.

6.9 Determining whether a financial account is a depository account, a custodial account, or another type of account will assist in understanding whether it is maintained by a financial institution and will allow the financial institution to distinguish account types for reporting purposes.

6.10 For example, a financial account may be in the form of:

• a depository account;
• a custodial account;
• a cash value insurance contract;
• an annuity contract;
• an equity or debt interest; or
• a client-name account (see subsection 263(3) of the ITA).

6.11 A depository account is maintained by a financial institution if it is obligated to make payments with respect to the account even if an agent performs administrative functions in connection with the account on behalf of the institution. The agent, itself, is not considered to be maintaining the account regardless of whether such agent is a financial institution under the Agreement.

6.12 A custodial account is maintained by the financial institution that holds custody over the assets in the account (including a financial institution that holds assets in "nominee-name" for an account holder), see Chapter 5 of this guidance.

6.13 An insurance contract or an annuity contract is maintained by the financial institution that is obligated to make payments with respect to the contract.

6.14 Any equity or debt interest in a financial institution referred to in clauses (1) and (2) of the definition of the term "financial account" in subparagraph 1(s) of Article 1 of the Agreement is treated as being maintained by that financial institution.

6.15 When a financial institution is acting as a broker and simply executing trading instructions, or is receiving and transmitting such instructions to another person, the financial institution is not required to treat the facilities established for the purposes of executing a trading instruction, or of receiving and transmitting such instructions, as a financial account under the Agreement (for example, so-called delivery versus payment (DVP) accounts benefit from this understanding). The financial institution acting as custodian will be responsible for performing due diligence procedures and reporting where necessary.

Separately managed accounts

6.16 Where a portfolio manager is appointed to provide only investment advice in connection with a separately managed account that is custodied at another reporting Canadian financial institution, and where that custodian is responsible for AML procedures with respect to the underlying investor, the account held by the underlying investor will not be considered to be maintained by the portfolio manager, but will instead be an account maintained by the custodian. This could include situations where the portfolio manager provides a model portfolio to the underlying investor or where the portfolio manager provides management services for a custodial institution where that institution maintains the relationship with the underlying investor.

6.17 The granting by an account holder to a portfolio manager of discretionary management authority in connection with an account maintained by another financial institution does not cause the maintenance of the account by the other financial institution to cease.

Centralized facilities for the clearing, settlement and deposit of securities

6.18 In Canada, an entity designated under federal legislation to provide centralized facilities for the clearing, settlement and deposit of securities, commonly referred to as a CSD, will not be treated as maintaining financial accounts. The participants of Canadian securities settlement systems that hold interests recorded in the CSD are either financial institutions in their own right, or they access the system through a financial institution. It is these financial institutions that maintain the accounts and it is these participants that are responsible for undertaking any reporting obligations. This treatment will also apply to a Canadian entity which is a direct or indirect subsidiary used solely to provide services ancillary to the business operated by that CSD (CSD Related Entity). The relationship between the securities settlement system and its participants is not a financial account and accordingly the CSD and any CSD related entity is not required to undertake any reporting required in connection with interests held by, or on behalf of, participants. Notwithstanding the foregoing, the CSD may report on behalf of such participants in respect of interests recorded as a service provider.

Reportable accounts

6.19 Not all financial accounts maintained by a Canadian financial institution give rise to reporting requirements. Only U.S. reportable accounts are covered.

6.20 A financial account is a U.S. reportable account if it is identified as being held by one or more specified U.S. persons or by a passive NFFE with one or more controlling persons that are specified U.S. persons. If a reporting Canadian financial institution maintains no such accounts, it will have no reporting obligations (unless it makes certain payments to a financial account of an NPFI in 2015 or 2016) see paragraphs 12.27 to 12.31.

6.21 The due diligence procedures that must be followed to identify U.S. reportable accounts are discussed starting in Chapter 7 of this guidance.

Account types in more detail

Depository account

6.22 A depository account is any commercial current account, savings account, or account that is evidenced by a certificate of deposit, an investment certificate, a certificate of indebtedness, or another similar instrument where cash is placed on deposit with an entity engaged in a banking or similar business.

6.23 For the purposes of the Agreement, a depository account includes:

• an account the principal purpose of which is lending, such as a credit card account, and which has a credit balance. However, a credit card account (or other revolving credit facility) will not be considered a depository account (or another form of financial account) when the financial institution maintaining the account has policies and procedures in place to prevent an account balance on the credit card that exceeds US$50,000. That test can be met if a financial institution ensures that any balance in excess of US$50,000 is refunded to the account holder, or other charges are made to the account (for example, as a result of additional purchases) within 60 days of that limit having been exceeded. A credit balance does not include credit balances in relation to disputed charges but does include credit balances resulting from refunds of purchases;
• a reloadable payment card; and
• an amount held by an insurance company under a guaranteed investment contract or similar agreement to pay or credit interest thereon.

6.24 The account does not have to be an interest-bearing account.

6.25 Amounts held by an insurance company awaiting payment in relation to a cash value insurance contract the term of which has ended will not constitute a depository account.

Custodial account

6.26 A custodial account is an account (other than an insurance contract or an annuity contract) for the benefit of another person that holds any financial instrument or contract held for investment.

6.27 Financial instruments/contracts which can be held in such accounts can include, but are not limited to:

• a share or stock in a corporation;
• fund units;
• a note, a bond, a debenture, or other evidence of indebtedness;
• a currency or commodity transaction;
• a credit default swap;
• a swap based upon a nonfinancial index;
• a notional principal contract (In general, these are contracts that provide for the payment of amounts by one party to another at specified intervals. These are calculated by reference to a specified index upon a notional principal amount in exchange for specified consideration or a promise to pay similar amounts.);
• an insurance contract or an annuity contract; and
• any option or other derivative instrument.

6.28 Insurance contracts and annuity contracts are not considered to be custodial accounts. However, such contracts could be assets that are held in a custodial account. When they are assets in a custodial account, it suffices for the insurer or custodian to perform any due diligence and reporting required under Part XVIII.

6.29 A custodial account does not exist just because of a financial institution holds shares in a corporation in connection with the administration of the corporation’s (or related corporation’s) employee stock purchase plan.

Cash value insurance contract

6.30 An insurance contract is a contract, other than an annuity contract, under which the issuer agrees to make payments upon the occurrence of a specified contingency involving mortality, morbidity, accident, liability, or property risk.

6.31 A cash value insurance contract is an insurance contract where the cash surrender or termination value (determined without reduction of any surrender charges or policy loan) or the amount the policyholder can borrow under (or with regard to) the contract, is greater than US$50,000. The definition excludes:

• indemnity reinsurance contracts between two insurance companies; and
• term life and pure protection insurance contracts, including any refund of any policy premium due to cancellation or termination of the policy, a reduction in the amount insured, or a correction of an error in relation to the premium due.

6.32 The cash value of a cash value insurance contract does not include an amount payable on the death of an individual insured under a life insurance contract.

6.33 When a policy becomes subject to a claim and an amount is payable, this does not create a new account. It is still the same policy if the policy has not altogether terminated.

Annuity contract

6.34 An annuity contract is a contract under which the financial institution agrees to make payments for a period of time, determined in whole or in part by reference to the life expectancy of one or more individuals. The term also includes a contract that is considered to be an annuity contract according to the law, regulations, or practice of the jurisdiction in which the contract was issued, and under which the issuer agrees to make payments for a term of years.

6.35 The following are not considered to be an annuity contract:

• annuities that are, or are held within, exempt products under Annex II;
• structured settlements that qualify for treatment as such under the ITA or annuities issued to fund such structured settlements; and
• contracts of reinsurance between two insurance companies in respect of one or more annuity contracts.

6.36 An annuity contract purchased under an RRSP, a RRIF, an RPP, a PRPP, a DPSP, or the Saskatchewan Pension Plan for the benefit of an individual under circumstances in which the ITA provides a tax-deferred rollover to an individual does not have to be reviewed or reported.

Equity or debt interests

6.37 A financial account includes certain equity and debt interests in financial institutions that maintain accounts.

6.38 The term "equity interest" is defined in subparagraph 1(v) of Article 1 of the Agreement.

6.39 In the case of a partnership that is a financial institution, the equity interest means either a capital or profits interest in the partnership. This means that a financial institution that is a partnership will be required to identify and where necessary report on the capital or profits interest of any of the partners who are specified U.S. persons, passive NFFEs, or NPFIs.

6.40 In the case of a trust that is a financial institution, an equity interest means either an interest held by any person treated as a settlor or beneficiary of all or a portion of the trust or any other natural person exercising ultimate effective control over the trust.

6.41 A specified U.S. person shall be treated as being a beneficiary of a trust if such person has the right to receive, directly or indirectly, a mandatory distribution or may receive, directly or indirectly, a discretionary distribution from the trust. For these purposes, a beneficiary who may receive a discretionary distribution from the trust will be treated as a beneficiary of the trust if such person receives a distribution in the calendar year or other appropriate reporting period (for example, either the distribution has been paid, or the beneficiary is unconditionally entitled to the distribution, even if it has not been paid).

Equity or debt interests in an investment entity

6.42 When an entity is a financial institution solely because it is an investment entity, any equity or debt interest (other than interests that are regularly traded on an established securities market) in the entity will constitute a financial account. This is by virtue of the definition of the term "financial account" in subparagraph 1(s) of Article 1 of the Agreement. For the purpose of that definition, an interest in a financial institution is not considered to be "regularly traded" and is considered a financial account if the holder of the interest (other than a financial institution acting as an intermediary) is registered on the books of the financial institution. However, this treatment only applies to interests first registered on the books of any such financial institution after June 30, 2014, and no such interest is required to be reported until the 2016 reporting year.

6.43 An exchange traded fund is a fund composed of a group of stocks that track a specific market index, sector group, or commodity. Unlike a traditional mutual fund, units of exchange traded funds trade like individual stocks on stock exchanges.

6.44 If an investment dealer or other financial institution intermediates the purchase for a client of a unit in an exchange traded fund or a closed-end fund (in the remainder of this paragraph, the term "ETF" is used to refer to both), that regularly trades on an established securities market and the unit is registered in nominee-name on the books of the ETF, the ETF would not be considered to maintain a financial account. If, however, a purchase results in a unit being first registered in client-name on the books of an ETF on or after July 1, 2014, the ETF would be considered to maintain a financial account held by the unit holder (but only in respect of the 2016 reporting year and subsequent years). Since an ETF will have outcomes similar to a traditional mutual fund beginning in 2016 in connection with units held in client-name, the guidance on coordination between funds and the fund dealers set out in paragraphs 5.7 to 5.13 may be of interest.

Equity or debt interests in other cases

6.45 Under the Agreement, when an entity is a financial institution other than solely because it is an investment entity, any equity or debt interest (other than interests that are regularly traded on an established securities market) in the entity will constitute a financial account if:

• the value of the interest is determined, directly or indirectly, primarily by reference to assets that give rise to U.S. source withholdable payments; and
• the class of interests was established to avoid reporting or withholding according to the Agreement.

6.46 The term "U.S. source withholdable payment" is defined in subparagraph 1(ii) of Article 1 of the Agreement.

Established securities market

6.47 The definition of "financial account" treats equity or debt interest in a financial institution as a financial account unless the interest is "regularly traded on an established securities market". An interest is considered "regularly traded" if there is a meaningful volume of trading on an ongoing basis. Further guidance is expected to be provided after the commentary to the Common Reporting Standard is issued by the OECD.

6.48 An "established securities market" means an exchange that is officially recognized and supervised by a governmental authority in which the market is located and that has a meaningful annual value of shares traded on the exchange. The term includes, but is not limited to, exchanges that are "designated stock exchanges" under the ITA.

Account holders

6.49 To identify the account holder, a financial institution must consider the type of account and the capacity in which it is held.

6.50 In most cases, the identification of the holder of a financial account by a financial institution will be straightforward. Normally, the account holder is the person listed or identified as the holder of the financial account by the financial institution that maintains the account.

6.51 However, if a person (other than a financial institution) holds an account for the benefit of another person (for example, as agent or as nominee), the first-mentioned person will not be treated as holding the account. Instead, the person on whose behalf the account is held is the account holder.

"In trust for" accounts

6.52 Many financial institutions open accounts under an "in trust for" (ITF) convention but there is no consistent industry approach to ITF account naming conventions. An ITF account naming convention is often used to recognize a stated intent by an account opener to commit something to another without any legal obligation to actually do so. In such cases, the person identified as the holder of the account would not be considered to be holding the account for the benefit or account of another person.

Accounts held by partnerships

6.53 When a financial account is held in the name of the partnership, it will be the partnership that is the account holder rather than the partners in the partnership.

Accounts held by estates

6.54 When an estate is listed as the holder of a financial account, it is to be treated as the account holder, rather than any beneficiary or other person.

6.55 An account of a deceased person will continue to be treated as an account held by an individual until such time as the financial institution that maintains the account receives and is in possession of formal notification of the account holder’s death (for example, a copy of the deceased’s death certificate or will). Once such notification is received, an account that is held solely for the estate will not be considered a financial account in the year the notification is received or in subsequent years.

Joint accounts

6.56 When an account is jointly held, each of the joint holders is considered an account holder for the purposes of the Agreement. Moreover, the balance or value in the account is to be attributed in full to each holder of the account. This will apply for both aggregation and reporting purposes.

6.57 If an account is jointly held by an individual and an entity, the financial institution will need to apply both the individual and the entity due diligence requirements in relation to that account.

Holders of cash value insurance contracts and annuity contracts

6.58 An insurance or annuity contract is held by each person entitled to access the contract’s value (for example, through a loan, a withdrawal, a surrender, or otherwise) or with the ability to change a beneficiary under the contract.

6.59 When no person can access the contract’s value or change a beneficiary, the account holder is any person named in the contract as an owner and any person who is entitled to receive a future payment under the terms of the contract.

6.60 When an obligation to pay an amount under the contract becomes fixed, each person entitled to receive a payment is an account holder.

Chapter 7 – Due diligence general requirements

Due diligence general requirements

7.1 Reporting Canadian financial institutions must comply with verification and due diligence procedures in connection with the accounts they maintain. The due diligence responsibilities of Canadian financial institutions arise under Part XVIII. Part XVIII implements the due diligence procedures set out in Annex I of the Agreement. The required procedures are, in many respects, determined by reference to whether a particular account is:

• an individual or an entity account;
• a preexisting or a new account; or
• a lower value or a high value account (see paragraphs 8.21 and 8.41 , respectively).

7.2 The due diligence is required to be undertaken to identify U.S. reportable accounts and certain payments to NPFIs. Financial institutions are required to take certain actions, such as collecting information and/or reviewing information in their possession to determine whether to treat an account as a U.S. reportable account. These requirements result in a financial institution having to:

• search for certain defined U.S. indicia linked to an account holder; and/or
• request that account holders self-certify their status.

7.3 A financial institution may be asked to clarify the rules of determining a U.S. person. These rules are complex, and financial institutions are not expected to provide information on all aspects of U.S. tax residency. If an account holder asks for such a clarification, a financial institution can refer the account holder to U.S. government sources, such as the IRS website or U.S. Citizenship and Immigration Services. It is the responsibility of account holders to determine whether they are U.S. persons (see paragraph 8.69).

7.4 This chapter discusses certain common concepts that support the due diligence and identification processes that are covered in more detail in Chapters 8, 9, and 10 of this guidance.

Obligations rest with financial institutions

7.5 A financial institution can rely on service providers to fulfill its obligations under the Agreement; however, the due diligence and information reporting obligations remain the responsibility of the financial institution. The mere provision of service by a third party does not cause it to maintain a financial account for the purposes of the Agreement, even if it is a financial institution in its own right.

Record keeping

7.6 Every financial institution must keep records that were obtained or created in connection with its Part XVIII obligations, such as self-certifications and documentary evidence. A financial institution must also keep records of its policies and procedures that establish its governance and due diligence processes, including procedures for regular relationship manager enquiries.

7.7 Section 265 of the ITA sets out that a reporting Canadian financial institution must establish, maintain, and document the due diligence procedures it uses to identify U.S. reportable accounts. Section 267 of the ITA provides rules in respect of record keeping.

7.8 A Canadian financial institution must retain records used to support an account holder’s status for at least six years after the end of the year in which the status was established. A self-certification must be retained for a minimum of six years from the date that the last financial account to which it relates was closed.

7.9 The records can be retained as originals or photocopies and can exist in paper or electronic format. Records that are retained electronically must be retained in an electronically readable format. Records are to be retained at the financial institution’s place of business, or at any other place they are equally accessible and as secure as they would be if they were maintained at the financial institution’s place of business.

7.10 A financial institution may rely on documentary evidence received by:

• a form or document scanned and received electronically, for example, an image embedded in an e-mail;
• a portable document format (.pdf) attached to an e-mail, or
• a facsimile;

unless it knows the document was transmitted by a person not authorized to do so.

7.11 When for the AML/KYC Procedures in Canada a financial institution can rely on notations of records or documents reviewed, it will be treated as having retained a record of such documentation if it retains in its files:

• the date the documentation was reviewed;
• the type of document and jurisdiction of issue (for example, a Canadian passport, California driver’s licence); and
• the document’s identification number where present (for example, passport number).

(Notations cannot be relied upon in the case of a self-certification form.)

Form of self-certification

7.12 Under the Agreement, Canadian financial institutions are, under certain circumstances, required to obtain self-certifications to establish whether an account holder is a specified U.S. person or to clarify the status of particular entities. No forms have been prescribed for these purposes. While forms issued by the IRS (such as the W-8 and W-9 series) may be used in connection with establishing an account holder’s status, there is no requirement to use them. (Some industry participants may already rely on W-8 forms to ensure that their clients can receive U.S. tax treaty benefits provided for under the Convention between Canada and the United States with Respect to Taxes on Income and on Capital.)

7.13 No matter the type of self-certification used, there must be an element to it that allows the account holder to positively acknowledge, by signature or other means, that the certification is correct. A financial institution may accept an electronic signature of the account holder (or person formally authorized to sign). The signature must positively acknowledge that the certification is correct.

7.14 More information on acceptable self-certification procedures is found in Chapters 8 to 10 of this guidance.

Confirming the reasonableness of self-certifications

7.15 A self-certification or documentary evidence cannot be relied upon if a financial institution knows or has reason to know that it is incorrect or unreliable.

7.16 In assessing whether reliance can be placed on a self-certification, a financial institution must consider other information that it has obtained concerning the account holder in connection with the account opening, including any documentation obtained for purposes of the AML/KYC Procedures, including any information that an account holder voluntarily provides to it.

7.17 The Agreement exists in the context of the U.S. having concluded similar agreements with other jurisdictions. As such, there is an interest to promote consistent applications across jurisdictions. However, all such agreements must be translated into domestic law and this may give rise to differences in domestic implementation. Therefore, in the cross-border context, reference needs to be made to the law of the implementing jurisdiction. For example, the question may arise as to whether a particular entity that is resident in a particular partner jurisdiction that has a financial account with a Canadian financial institution meets the definition of a "financial institution". In such a case, the classification of the entity ought to be resolved under the law of the partner jurisdiction in which the entity is resident. A Canadian financial institution should not treat the self‑certification as unreliable or incorrect just because a non-resident entity declares a status other than it would be if determined under Part XVIII.

Aggregation

7.18 To determine whether accounts are reportable, a financial institution may be required to aggregate accounts held by individuals and entities.

When do the aggregation rules apply to lower value accounts?

7.19 Aggregation will be required if a financial institution decides to use the monetary thresholds set out in Annex I of the Agreement that relieve a financial institution of having to review, identify, and report certain accounts. The authority for a financial institution to use the monetary thresholds is provided for in section 264 of the ITA.

7.20 The Agreement contemplates accounts being aggregated in the context of a computerized process, but only when the financial institution’s current computerized systems link the accounts by reference to a data element (for example, a customer number or a taxpayer identification number) and allow account balances to be aggregated. Subsection 263(4) of the ITA makes clear that a social insurance number can be used for this purpose.

7.21 If the system can link accounts by a common identifier, but does not provide details of the balance or value of the accounts, a financial institution is not required to undertake the aggregation requirements.

7.22 When a system can link accounts by a data element and details of the balances are provided (for example, the system is able to display all balances of a suite of accounts held by an individual), the system will be considered to allow the account balances to be aggregated if the system is capable of performing the aggregation. There is no requirement to aggregate separate account balances linked to an account holder if the system does not aggregate them and cannot be made to do so with minor modifications carried out at modest expense.

Exempt products

7.23 If a product is exempt from being treated as a financial account, it should not be included for the purposes of aggregation. Consequently, if an individual holds an RRSP as well as several depository accounts with the same financial institution and its information technology systems allow all these holdings to be linked, the depository accounts are aggregated, but the RRSP is not.

Related entities

7.24 When a computer system links accounts across related entities, the financial institution is required to aggregate the accounts when it considers whether any of the reporting thresholds apply. However, once it has considered the thresholds, the financial institution will be responsible for reporting only on the accounts it holds.

Aggregation of preexisting individual accounts

7.25 The following examples illustrate the outcomes that result from the aggregation rules. Unless otherwise stated, all balances or values referred to in the following examples are balances or values as at June 30, 2014.

Reporting

7.26 If the aggregation rules result in two or more accounts being subject to review and the review determines that the accounts are reportable, the accounts must be reported on individually. A financial institution must not consolidate the accounts for reporting purposes.

Aggregation of preexisting entity accounts

7.27 For purposes of determining the aggregate balance or value of accounts held by an entity, all accounts held by the entity will need to be aggregated when the financial institution applies the thresholds set out in Annex I of the Agreement and the financial institution’s computerized system can link the accounts by reference to a common data element and allow the account balances to be aggregated.

Aggregation of sponsored funds

7.28 In the context of a family of funds, accounts may be linked for purposes of centralized statement preparation. However, if no fund controls another fund and none of the funds are under common control from an ownership perspective, aggregation of unit holdings outside of a particular fund is not required unless the fund is sponsored by a sponsoring entity.

7.29 The sponsor (typically a fund manager) of a family of funds acts on behalf of the funds and stands in their place in relation to meeting the obligations of the funds under the Agreement.

7.30 Aggregation is required across the family of funds within the same sponsoring group when the fund manager or its service provider uses the same computerized systems to link the accounts.

7.31 A fund manager may use a service provider to manage the client relationships of the account holders (the investors in the funds). When different service providers are used by the same fund manager, the systems may not link account information across service providers and aggregation is required only at the level of the service provider.

7.32 For example, when a fund manager manages all the client relationships through a single transfer agent, aggregation is performed at the level of the fund manager (to the extent that the system links accounts).

7.33 When a fund manager has two fund families each using a different transfer agent, it is appreciated that, in practice, aggregation may be possible only at the fund family or service provider level, since this is where the client relationship is held.

Threshold limits – Currency conversion

7.34 Most accounts maintained by Canadian financial institutions are denominated in Canadian dollars.

7.35 When accounts are denominated in a currency other than U.S. dollars, the threshold limits must be converted into the currency in which the accounts are denominated before determining if they apply. For Canadian dollar denominated accounts (or other non-U.S. dollar denominated accounts), this conversion can be done using the spot rate for the relevant date published by the Bank of Canada or a reputable and widely-used financial service.

However, a Canadian financial institution may treat the Canadian dollar at par with the U.S. dollar in respect of a particular year when the Canadian dollar was, at all times in that year, valued at less than the U.S. dollar.

7.36 In determining whether a preexisting account meets a threshold, the relevant date is the spot rate on June 30, 2014 (or, in the case of an insurance contract or an annuity contract, the most recent contract anniversary date). In determining whether a preexisting account continues to meet a threshold in subsequent years or a new account meets or continues to meet a threshold, the relevant date is the spot rate on the last day of the calendar year or other appropriate period. In the case of a closed account, the relevant date is the spot rate on the date the account is closed.

7.37 Alternatively, a financial institution could convert the Canadian dollar denominated balances into U.S. dollars and then apply the U.S. dollar thresholds. Regardless of the method of conversion, the rules for determining the spot rate apply.

7.38 The method of conversion must be applied consistently.

Chapter 8 – Preexisting individual accounts

8.1 If a Canadian financial institution maintains a financial account held by an individual, it must determine whether it is a U.S. reportable account. Doing so requires assessing whether a particular individual account has to be reviewed given that certain exemptions exist, as explained below. If an individual account has to be reviewed, the financial institution must perform required procedures to determine whether the account holder is a specified U.S. person. When the financial institution determines that the account holder is a specified U.S. person, reporting obligations to the CRA will exist in connection with the account.

8.2 This chapter covers preexisting individual accounts. New individual accounts are covered in Chapter 9 and entity accounts are discussed in Chapter 10 of this guidance.

Preexisting individual accounts

8.3 A preexisting individual account is an account maintained by a financial institution held by an individual as of June 30, 2014. A financial institution is not required to perform review procedures on accounts that were closed before July 1, 2014 (see paragraphs 12.26 to 12.27 for account closures).

8.4 Preexisting individual accounts fall into one of four categories. These are:

• accounts exempted by a monetary threshold;
• cash value insurance contracts and annuity contracts unable to be sold to U.S. residents;
• lower value accounts; and
• high value accounts.

Threshold exemptions that apply to preexisting individual accounts

8.5 Monetary threshold exemptions are set out in section II of Annex I of the Agreement in connection with the review of preexisting individual accounts. If a financial institution wants to rely on an exemption in connection with a preexisting account, it must designate the account under paragraph 264(1)(a) of the ITA.

8.6 When a financial institution does not rely on paragraph 264(1)(a) of the ITA to designate any accounts, it must review all of its preexisting individual accounts.

8.7 A financial institution that wants to use any threshold exemptions that may be applied to preexisting individual accounts is required to document that it has done so in its internal procedures. Doing so would result in not having to review, identify, or report to the CRA the following accounts:

• a depository account with a balance or value of US$50,000 or less on June 30, 2014;
• a preexisting individual account with a balance not exceeding US$50,000 on June 30, 2014, unless the account subsequently becomes a high value account; and
• a preexisting individual account that is a cash value insurance contract or an annuity contract with a balance or value of US$250,000 or less on June 30, 2014, unless the account subsequently becomes a high value account.

8.8 The rules in paragraph C of section VI of Annex I of the Agreement (for example, the aggregation rules) apply for the purposes of determining whether a financial account has to be reviewed, identified, or reported (see paragraphs 7.18 to 7.30 and subsection 264(3) of the ITA).

8.9 A financial institution may make selective use of the threshold exemption provided in paragraph 264(1)(a) of the ITA. However, in doing so, the threshold exemptions must be applied to a clearly identifiable group of accounts, such as by line of business or the location at which accounts are maintained (see subsection 264(2) of the ITA).

8.10 A financial institution is not required to advise the CRA of whether it has designated an account under paragraph 264(1)(a) of the ITA. However, it is required to record its decision, including the basis of its determination of a clearly identifiable group of accounts (if any) in respect of which it has made a designation for a calendar year.

8.11 If an account is not reportable because of the application of a threshold exemption, the financial institution that maintains the account is not required to monitor the account for U.S. indicia until the account becomes a high value account.

Preexisting cash value insurance contracts or annuity contracts

8.12 Preexisting cash value insurance contracts or annuity contracts that are effectively unable to be sold to U.S. residents by virtue of laws or regulations in Canada or the U.S. do not need to be reviewed, identified, or reported.

8.13 The sale of contracts to U.S. residents will be considered effectively prevented if the issuing specified insurance company (excluding any branch located outside of Canada) is not licensed to sell insurance in any state of the U.S. and the products are not registered with the U.S. Securities and Exchange Commission (SEC). The Canadian operations of an insurer incorporated in Canada are considered to be effectively prevented from selling to U.S. residents. This is the case even though that insurer has a U.S. branch that is licensed to carry on insurance business in the U.S. or some of the products of the U.S. branch are registered with the SEC.

Assignment of preexisting insurance contracts

8.14 When ownership of a preexisting cash value insurance contract or annuity contract is assigned to another person (referred to as an "absolute assignment" in the insurance industry), the contract will be treated as a new account. This is to ensure that preexisting insurance contracts assigned after June 30, 2014, to specified U.S. persons are correctly identified and reported, where necessary.

8.15 Once the Canadian insurance company becomes aware that an assignment has been made, it will need to perform due diligence procedures on the new account holder (see the procedures in Chapter 9 of this guidance).

Reportable accounts

8.16 A preexisting account in respect of which a designation has not been made under paragraph 264(1)(a) of the ITA will be reportable if the financial institution has identified U.S. indicia (see paragraph 8.22) and those indicia have not been cured by receiving a self-certification and/or documentary evidence as required by the specific circumstances.

8.17 If one or more U.S. indicia is discovered in connection with an account, reporting would not be required if the financial institution cures the indicia by following the applicable procedures in subparagraph B(4) of section II of Annex I of the Agreement.

8.18 If a financial institution identifies one or more U.S. indicia, the financial institution must attempt to cure the indicia by applying the appropriate steps set out in subparagraph B(4) of section II of Annex I of the Agreement. This is mandated by subsection 265(5) of the ITA. Reasonable efforts to cure the indicia must be made sufficiently in advance of the relevant reporting deadline to the CRA so that the results of those efforts inform information reported to the CRA. If a financial institution is unable to cure the indicia, the financial institution is required to treat the account as a U.S. reportable account.

8.19 Once a financial account (other than a depository account) is identified as a U.S. reportable account, the account will remain reportable for all subsequent years unless the account holder ceases to be a specified U.S. person.

8.20 Whether a depository account remains a reportable account is dependent on whether its balance is above the reporting threshold of US$50,000. Similarly, for an insurance contract to be reportable it must have a cash value greater than US$50,000. In both cases, the reporting requirement can alter annually even if the account holder remains a specified U.S. person.

Lower value accounts

8.21 Generally, a lower value account is a preexisting individual account with a balance or value that is less than US$1,000,000 on June 30, 2014, and which is not eligible for a threshold exemption. Such an account remains a lower value account until it exceeds US$1,000,000 on December 31, 2015, or on December 31 of any subsequent year.

Electronic record searches and lower value accounts

8.22 A financial institution must review its electronically searchable data for any of the following U.S. indicia:

• identification of the account holder as a U.S. resident or a U.S. citizen;
• an unambiguous indication of a U.S. place of birth;
• a current U.S. mailing or residence address (including a P.O. Box);
• a current U.S. telephone number;
• standing instructions to transfer funds to an account maintained in the U.S. (regardless of who holds the account);
• a current effective power of attorney or signatory authority granted to a person with a U.S. address; and
• an "in-care-of" address in the U.S. that is the sole address the financial institution has on file for the account holder.

8.23 When none of the indicia listed above are discovered through an electronic search, no further action is required in respect of lower value accounts, unless there is a subsequent change of circumstance that results in one or more U.S. indicia being associated with the account. When that happens, the account will become reportable unless further action is taken by the financial institution to cure the indicia. By virtue of subsection 265(5) of the ITA, a financial institution is required to apply subparagraph B(4) of section II of Annex I of the Agreement and attempt to cure the indicia before determining that an account is reportable (see paragraph 8.18).

8.24 A financial institution will not be treated as having reason to know that an account holder’s status is incorrect merely because it retains information or documentation that may conflict with its review of the account holder’s status if it was not necessary under the procedures described in this section to review that information or documentation. There is no requirement that information or documentation be reviewed beyond what is necessary under those procedures.

Qualified intermediaries

8.25 A Canadian financial institution that has previously established an account holder’s status to meet obligations under a Qualified Intermediary, Withholding Partnership, or Withholding Trust Agreement, or to fulfill reporting obligations of a U.S. payer under chapter 61 of the IRC, can rely on that status for the purposes of the Agreement. The financial institution is not required to perform the electronic record search (or the paper record search with respect to high value accounts) in relation to those accounts. It will, however, have to apply the appropriate due diligence procedures to all other preexisting individual accounts it maintains.

Identification as a U.S. resident or a U.S. citizen

8.26 When the indicium is that set out in subparagraph B(1)a) of section II of Annex I of the Agreement (for example, identification of an account holder is a U.S. resident or a U.S. citizen), the account must be reported unless the financial institution obtains or currently maintains a record of all of the following:

• a self-certification showing that the account holder is neither a U.S. resident nor a U.S. citizen; and
• evidence of the account holder’s citizenship in a country other than the U.S. (for example, a passport or other government-issued identification).

Unambiguous U.S. place of birth

8.27 When the indicium found is an unambiguous indication of a U.S. place of birth, the account must be reported unless the financial institution obtains or currently maintains a record of all of the following:

• a self-certification showing that the account holder is neither a U.S. resident nor a U.S. citizen;
• evidence of the account holder’s citizenship in a country other than the U.S. (for example, a passport or other government-issued identification); and
• a copy of the account holder’s Certificate of Loss of Nationality of the United States (a "CLN") or a reasonable explanation of why:
  • the account holder does not have such a certificate despite having relinquished U.S. citizenship; or
  • the account holder did not obtain U.S. citizenship at birth.

8.28 In the context of an electronic record search, an "unambiguous indication of a U.S. place of birth" must include identification of the U.S. as the country of birth. Identification of a city and/or a state as the place of birth, without identification of the country of birth as the U.S., is not considered to be unambiguous.

The CRA’s views of what may be accepted as a reasonable explanation for not having a CLN despite relinquishing U.S. citizenship for purposes of Part XVIII and the Agreement are informed by certain practical realities and how changes in law over time would have influenced reasonable courses of actions taken by individuals.

Generally, it is the CRA’s view that an explanation demonstrating a relinquishment of U.S. citizenship (other than by a renunciation before a U.S. consular or diplomatic official) before June 4, 2004, and in accordance with the U.S. Immigration and Nationality Act (Title 8 of the U.S. Code) as it existed at the time of relinquishment, is sufficient to demonstrate a reasonable explanation as to why an account holder does not have a CLN. Financial institutions are not expected to be experts in U.S. nationality law; any such explanation accepted by a financial institution is accepted for the purposes of Part XVIII and the Agreement only and is not finally determinative of tax or nationality status.

Other reasonable explanations as to why an account holder does not have a CLN despite having relinquished U.S. citizenship include:

• they applied for a CLN or formally renounced their U.S. citizenship before a U.S. diplomatic or consular official and are waiting to receive the CLN;
• they applied for a replacement copy of a previously issued CLN that they lost and are waiting to receive it; or
• they made and are waiting to attend an appointment with a U.S. consular office to apply for a CLN in respect of a relinquishing act performed after June 3, 2004 (other than a formal renunciation before a U.S. diplomatic or consular official)

Once an account holder receives a CLN in one of these circumstances they are expected to provide a copy to the financial institution. Financial institutions should follow up with account holders who have given an explanation described in this paragraph in order to ensure that a full documentary record as described in paragraph 8.27 is maintained.

An account holder spending little time in the U.S. subsequent to being born in the U.S. and/or that they are (or identify as) a Canadian despite also being a U.S. citizen is not grounds upon which to accept an explanation as reasonable.

Financial institutions should not accept as reasonable any explanation which is unlikely or ambiguous in light of an account holder’s actions. For example, if a financial institution knows that the individual voted in an U.S. election or travelled from Canada to a country (other than the U.S.) under a U.S. passport after the date the account holder claims to have relinquished U.S. citizenship, the financial institution does not have to accept the explanation.

Financial institutions may accept as reasonable an explanation as to why an account holder did not obtain U.S. citizenship at birth if the individual can explain why, despite being born in the U.S., they were not subject to U.S. jurisdiction. This would include individuals born in the U.S. while one or both of their parents were in the U.S. as the head or member of a diplomatic mission.

Current U.S. address

8.29 When the indicium found is a current U.S. mailing address or residence address (including a U.S. P.O. Box), the account must be reported unless the financial institution obtains or currently maintains a record of all of the following:

• a self-certification that the account holder is neither a U.S. resident nor a U.S. citizen; and
• documentary evidence that establishes the account holder’s non-U.S. status.

U.S. telephone numbers that are the only telephone numbers associated with the account

8.30 When the indicium found is one or more U.S. telephone numbers and these are the only telephone numbers associated with the account, the account must be reported unless the financial institution obtains or currently maintains a record of all of the following:

• a self-certification that the account holder is neither a U.S. resident nor a U.S. citizen; and
• documentary evidence that establishes the account holder’s non-U.S. status.

8.31 A telephone number is not considered a U.S. telephone number unless it is clearly identifiable as a U.S. telephone number (for example, contains a published U.S. area code). In the case of any uncertainty as to whether the telephone number is a U.S. number, it is not treated as U.S. indicia.

A U.S. telephone number and a non-U.S. telephone number are associated with the account

8.32 When the indicium found is one or more U.S. telephone numbers and there is also a non-U.S. telephone number associated with the account, the account must be reported unless the financial institution obtains or currently maintains a record of one of the following:

• a self-certification that the account holder is neither a U.S. resident nor a U.S. citizen; or
• documentary evidence that establishes the account holder’s non-U.S. status.

Standing instructions to transfer funds to an account maintained in the U.S.

8.33 When the indicium found is a current standing instruction to transfer funds to an account maintained in the U.S., the account must be reported unless the financial institution obtains or currently maintains a record of the following:

• a self-certification that the account holder is neither a U.S. resident nor a U.S. citizen; and
• either:
  • documentary evidence that establishes the account holder’s non-U.S. status; or
  • a written reasonable explanation to establish non-U.S. status.

8.34 There will be a standing instruction if the account holder has mandated the financial institution to make repeat payments, without further instruction from the account holder, to another account that can clearly be identified as being an account maintained in the U.S.

8.35 Instructions to make an isolated payment will not be a standing instruction even when given well in advance of the payment being made.

Effective power of attorney or signatory authority

8.36 When the indicium found is a current effective power of attorney or signatory authority granted to a person with a U.S. address, the account must be reported unless the financial institution obtains or currently maintains a record of one of the following:

• a self-certification that the account holder is neither a U.S. resident nor a U.S. citizen; or
• documentary evidence that establishes the account holder’s non-U.S. status.

An "in-care-of" address that is the sole address identified for the account holder

8.37 When the indicium is an "in-care-of" address in the U.S. that is the sole address identified for the account holder, the account must be reported unless the financial institution obtains or currently maintains a record of either:

• a self-certification that the account holder is neither a U.S. resident nor a U.S. citizen; or
• documentary evidence that establishes the account holder’s non-U.S. status.

Relevance of records previously reviewed and maintained

8.38 Curing the indicia listed under the foregoing headings requires that the financial institution obtain certain records unless it has "previously reviewed and maintained" the required documents. A document previously reviewed and maintained does not lose its reliability for the purposes of curing the indicia just because it expired between the time it was earlier reviewed and the time due diligence to cure indicia is performed (for example, A driver’s licence with an expiry date of December 31, 2013, that was reviewed by a financial institution earlier in 2013 and maintained by it since that time is not, by virtue of that expiry alone, ineligible to be relied upon by the financial institution in 2014).

8.39 At the same time, the reliability of a previously reviewed document erodes over time. A self-certification from an account holder that declares the status of not being a U.S. resident or a U.S. citizen obtained a week before finding U.S. indicia will be significantly more reliable in curing that indicia compared to what would be the case if the certification were a year old. The time at which an earlier obtained self-certification or document becomes unreliable depends on the circumstances.

8.40 Documentary evidence (or a self-certification with an expiry date, such as a W-8BEN) does not become invalid for purposes of Part XVIII merely because it expires subsequent to a financial institution having received it.

High value accounts

8.41 A high value account is a preexisting individual account (other than a contract referred to in subparagraph A(3) of section II of Annex I of the Agreement) with a balance or value that exceeds US$1,000,000 on June 30, 2014, or on December 31, 2015, or on December 31 of any subsequent year.

8.42 The aggregation rules described in paragraph C of section VI of Annex I of the Agreement apply to determine whether the aggregate balance or value of a financial account exceeds the US$1,000,000 threshold.

Electronic record searches and high value accounts

8.43 A financial institution must review its electronically searchable data for U.S. indicia as is required for lower value accounts. It must also review the data it maintains for an "in-care-of" or "hold mail" address that is the sole address on file for the account holder. Any such address constitutes U.S. indicium regardless of whether the address is inside or outside of the U.S.

8.44 If a financial institution has previously obtained documentation from a preexisting individual account holder to establish that person’s status to:

• meet its obligations under a Qualified Intermediary, Withholding Partnership, or Withholding Trust Agreement; or
• fulfill its reporting obligations as a U.S. payer under chapter 61 of the IRC;

it will not have to carry out the electronic record search or the paper record search in respect of such accounts. However, it must still perform the relationship manager enquiry.

Paper record searches and high value accounts

8.45 A paper record search is not required if the financial institution can possess all of the following information from an electronic record search for any U.S. indicia:

• the account holder’s residence or citizenship status;
• the account holder’s residence or mailing address currently on file;
• the account holder’s telephone number(s) currently on file;
• whether there are standing instructions to transfer funds to another account;
• whether there is a current "in-care-of" address or "hold mail" address for the account holder; and
• whether there is any power of attorney or signatory authority for the account.

8.46 If a financial institution does not have this capacity, a paper record search for U.S. indicia is required and it must include a review of the current customer master file and, to the extent they are not contained in the current master file, the following documents associated with the account and obtained by the financial institution within the last five years:

• the most recent documentary evidence collected with respect to the account;
• the most recent account opening contract or documentation;
• the most recent documentation obtained by the financial institution for the AML/KYC Procedures or for other regulatory purposes;
• any power of attorney or signature authority forms granted to a person with a U.S. address, currently in effect; and
• any standing instructions to transfer funds to an account maintained in the U.S. currently in effect.

8.47 In the context of a paper record search, a place of birth will only be considered an "unambiguous indication of a U.S. place of birth" if the U.S. is identified as the country of birth or if the information on the place of birth renders the U.S. the only possible place of birth without any form of review. For example, if "Georgia" is identified as a person’s place of birth (without reference to the U.S.), an "unambiguous indication of a U.S. place of birth" does not exist.

8.48 A financial institution is not required to perform the paper record search for any preexisting individual account for which it has retained a self-certification and documentary evidence which establishes the account holder’s non-U.S. status.

Relationship manager inquiry

8.49 The due diligence procedures outlined in the Agreement requires financial institutions to make certain inquiries of relationship managers. A relationship manager has a role in connection with a financial institution’s understanding of:

• whether two or more account balances are required to be aggregated to determine whether the accounts qualify as high value accounts; and
• whether a high value account assigned to the relationship manager must be treated as a U.S. reportable account.

8.50 The term "relationship manager" is not defined in the Agreement or in Part XVIII. The CRA views a relationship manager as an officer or employee of a financial institution who oversees or manages the financial accounts of particular account holders on an ongoing basis.

8.51 Relationship management must be more than ancillary or incidental to the job function of a person for the person to be considered a relationship manager. Therefore, a person whose functions do not involve direct client contact or which are of a back office, administrative, or clerical nature is not considered a relationship manager.

8.52 A person that is a relationship manager is generally expected to be part of a sales team or otherwise be outward-looking toward customers. Moreover, such a person would be viewed as a relationship manager only if actions taken or advice offered in connection with an account cause that person and the account holder to communicate regularly on matters of importance pertaining to the account. For example, an investment advisor at a financial institution with a book of clients is a relationship manager in respect of each client that relies on the advisor’s expertise, advice, and/or stewardship to achieve investment objectives.

8.53 Relationship managers typically offer a degree of ongoing care and attention toward high net worth account holders that can be distinguished from other forms of customer service which require less familiarity with an account holder’s financial affairs and overall objectives. It is appreciated that a good rapport and regular contact can exist between an account holder and an employee of a financial institution without causing the employee to be a relationship manager. For example, a person at a financial institution who is largely responsible for processing transactions/orders or ad hoc requests may end up knowing an account holder well. However, the person is not considered a relationship manager unless that person is ultimately charged with managing the account holder’s affairs at the institution—a responsibility that is expected to involve interfacing regularly with the account holder to report information and keep abreast of the account holder’s overall investment needs. Similarly, a financial institution employee who generally performs front-desk services for walk-in customers is not a relationship manager.

8.54 For purposes of the Agreement, it would be exceptional for the CRA to view more than one person as a relationship manager for any particular account.

8.55 A relationship manager plays a role in connection with determining whether a preexisting individual account is a high value account. A relationship manager assigned to a preexisting account held by an individual must be asked to determine whether he or she knows of any more accounts at the financial institution that are directly or indirectly owned, controlled, or established (other than in a fiduciary capacity) by the same individual which, when all the accounts are considered collectively, their account balances aggregate to more than US$1,000,000. If that is the case, the financial institution must treat each account held by the individual as a high value account.

8.56 The second role of a relationship manager is to assist with the proper identification of U.S. reportable accounts. In addition to the electronic and paper record searches, the financial institution must consider whether a relationship manager associated with the high value account has actual knowledge that identifies the account holder as a specified U.S. person.

8.57 If a relationship manager actually knows that the account holder is a specified U.S. person, the high value account (and any other financial account aggregated with the high value account) must be reported.

8.58 A financial institution must have appropriate communication channels and procedures in place to capture any change of circumstance in relation to a high value account that is made known to the relationship manager in respect of the account holder’s status. The financial institution is required to establish and maintain a record of its procedures.

8.59 Notwithstanding the preceding paragraphs in this section, for the purposes of subparagraphs D(4) and E(5) of section II of Annex I of the Agreement, a person need not be considered a relationship manager with respect of an account unless it has an aggregated balance of more than US$1,000,000, taking into account the rules in paragraph C of section VI of Annex I of the Agreement.

Effects of finding U.S. indicia

8.60 When one or more indicia are discovered through the enhanced review procedures (the electronic and paper record searches), a financial institution is required, by virtue of subsection 265(5) of the ITA, to apply subparagraph B(4) of section II of Annex I of the Agreement (with the understanding that the cure for a "hold mail" indicium is the same as for an "in-care-of" address) and attempt to cure the indicia (see paragraph 8.18). If no cure can be applied, the financial institution must treat the account as a U.S. reportable account for the current and all subsequent years unless the account holder ceases to be a specified U.S. person (or the account is a depository account or cash value insurance contract and its balance or value falls under the US$50,000 threshold in the case of a financial institution that has designated the account under paragraph 264(1)(a) of the ITA).

8.61 When no indicia are discovered in the electronic record search, in the paper record search, or by making enquiries of the relationship manager, no further action is required unless there is a change in circumstances.

8.62 A financial institution that finds U.S. indicia should have ample time to attempt to contact an account holder to verify or cure the indicia on or before the reporting deadline of May 1. However, it is appreciated that attempts to reach out to an account holder may not solicit a response. If no information is forthcoming to allow the financial institution to cure the indicia before it is required to submit the information to the CRA, it is expected that the financial institution will report the account based on the information in its possession.

Form of self-certification

8.63 Earlier sections of this chapter describe various situations in which a financial institution may seek to obtain a self-certification.

8.64 Self-certifications must result in a clear declaration from account holders as to whether they are specified U.S. persons. There is no prescribed form for the certification. While forms issued by the IRS (such as the W-8 and W-9 series) may be used in connection with establishing an account holder’s status, there is no requirement to use them (see paragraph 7.12). Financial institutions may choose the form. Such a form must be designed to ask the account holder to declare his or her residency for tax purposes. Also, the approach adopted by a particular financial institution must address directly the question of U.S. citizenship or clearly indicate that a U.S. citizen is a specified U.S. person. Examples of the types of questions and instructions that are acceptable are provided in Chapter 9 of this guidance.

8.65 Although there is no requirement for a financial institution to report a U.S. TIN (for example, a social security number or an employer identification number) for preexisting accounts before 2017, having a specified U.S. person furnish the U.S. TIN when he or she self-certifies may be a desirable approach considering that this information is required for preexisting accounts for the 2017 and subsequent reporting periods. It should be noted that after 2016, an account holder that does not provide upon request his or her U.S. TIN in connection with a preexisting account, is liable to a penalty for each failure under subsection 162(6) of the ITA.

8.66 Regardless of the type of form used, there must be an element that allows the account holder to positively acknowledge by signature or other means that the certification is correct.

8.67 Chapter 9 of this guidance sets out examples of elements that may be incorporated into a form used for the purposes of obtaining self-certifications from preexisting or new individual account holders.

8.68 Any self-certification obtained in the context of a preexisting account must be retained for at least six years after the account is closed. When the form is electronic in nature, the information must be retained in an electronically readable format.

Determination of whether an individual is a U.S. citizen

8.69 An account holder may be unsure whether he or she is a U.S. citizen and may ask a financial institution for clarification about the rules for U.S. citizenship. These rules are complex, and financial institutions are not expected to provide information on all aspects of U.S. citizenship. If an account holder asks for such a clarification, a financial institution may refer the account holder to relevant U.S. government websites and/or resources. It is the responsibility of the account holder to determine whether he or she is a U.S. citizen.

8.70 A financial institution should assume that an account holder is not a U.S. citizen unless the account holder self-certifies that he or she is a U.S. citizen, or provides documentation that either identifies himself or herself as a U.S. citizen (such as a U.S. passport) or reveals an unambiguous indication of a U.S. place of birth. However, it is possible that an account holder is not a U.S. citizen despite having an indication of an unambiguous U.S. place of birth, see paragraphs 8.27 through 8.28.

Optional certification for snowbirds and other temporary visitors to the U.S.

8.71 If a Canadian financial institution identifies an account with U.S. indicia in the form of a U.S. telephone number, a U.S. address, or standing instructions to transfer funds to an account maintained in the U.S., it will be required to take steps to cure the indicia. If when it does so, it understands or suspects that the U.S. indicia arise only because the account holder is a temporary visitor to the U.S. who makes re-occurring visits of a similar nature from year to year (for example, retirees known as "snowbirds"), it may invite the account holder to provide information beyond what is needed to cure U.S. indicia (see paragraphs 8.29 to 8.35 ).

8.72 The additional information is intended to relieve a Canadian financial institution of having to cure U.S. indicia each time it reappears. For instance, the following can be inserted into the form used to obtain a self-certification:

Optional and only if applicable, such as in the case of certain Canadian individuals, like students, who are receiving an education in the U.S., and retirees or "snowbirds", who spend considerable time vacationing in the U.S.

I certify that I am a resident of Canada. I further certify that any U.S. address, U.S. telephone number, or standing instructions to transfer funds to an account maintained in the U.S. associated with this account exists or will arise only in the context of temporary visits that I make to the U.S. while I remain a resident of Canada and not, at any time, because I am a resident of the U.S. for tax purposes or a U.S. citizen. I agree to notify [name of Canadian financial institution] if events cause this certification to become false or misleading.

□ (check if making this declaration)

8.73 If a Canadian financial institution receives such an optional declaration from an account holder, the CRA will consider it valid only in respect of a U.S. address, a U.S. telephone number, or standing instructions to transfer funds that have become associated with the account up until the end of the calendar year in which seven years have elapsed since the declaration was made. The declaration loses its validity before that time only if the financial institution knows or has reason to know that the declaration is no longer valid, for example, because the account holder has become a U.S. resident (such as by virtue of being informed of a permanent move to the U.S.).

8.74 The optional declaration may be used as part of a self-certification, in a stand-alone form or may be incorporated into another form so long as it is positively acknowledged by the account holder by signature or other means, that the certification is correct.

Acceptable documentary evidence

8.75 Earlier sections of this chapter refer to "documentary evidence" for use in connection with curing U.S. indicia. In respect of individuals, the term "documentary evidence" is limited to:

• a certificate of residence issued by an authorized government body (for example, a government or agency thereof, or a municipality) of the jurisdiction in which the account holder claims to be resident;
• any valid identification issued by an authorized government body that includes the individual’s name and is typically used for identification purposes (for example, a driver’s licence);
• any financial statement, third-party credit report, bankruptcy filing, or U.S. Securities and Exchange Commission report; and
• any of the documents other than Form W-8 referenced in Canada’s attachment to the U.S. Qualified Intermediary Agreement for identifying individuals.

8.76 Canadian documents in Canada’s attachment to the Qualified Intermediary Agreement for individuals include:

• a passport;
• a national identity card;
• a driving licence;
• a provincial health insurance card (if not prohibited by provincial law);
• a birth certificate provided by an individual under the age of 21;
• a government-issued age of majority card;
• a Canadian citizenship card;
• a Record of Landing (IMM1000) or a Confirmation of Permanent Residence (IMM 5292) issued before 1/1/2004;
• a permanent residence card;
• a Canadian Forces identification card;
• a government-issued Certificate of Indian Status;
• an Alberta photo identification card;
• a B.C. identification card;
• a Government of Newfoundland and Labrador photo identification card;
• a Nova Scotia photo identification card;
• a Prince Edward Island voluntary ID;
• a Saskatchewan mandatory photo ID;
• a Manitoba identification card; and
• a NEXUS card.

8.77 Canada’s attachment to the Qualified Intermediary Agreement can be found on the IRS website.

Timing of reviews

Lower value accounts

8.78 The review of preexisting individual accounts that are lower value accounts on June 30, 2014, must be completed by June 30, 2016.

8.79 Lower value accounts that are identified as reportable are only reportable from the year in which they are identified as such.

8.80 Where a preexisting lower value or high value account is closed after June 30, 2014 but prior to the financial institution carrying out its due diligence procedures, the account still needs to be reviewed. Where, following the due diligence procedures the account is found to be reportable, the financial institution must report the information for the closed account. Where the account is closed and the financial institution has no continuing contractual relationship with the account holder and therefore is unable to undertake action in relation to any indicia or is unable to receive a response to any query, the account should be treated as a U.S. reportable account.

High value accounts

8.81 The review of preexisting individual accounts that are high value accounts on June 30, 2014, must be completed by June 30, 2015.

8.82 If an account with a balance over US$1,000,000 on June 30, 2014, is identified as reportable before 2015, the financial institution is required to report the account with respect to 2014 on a Part XVIII Information Return filed with the CRA before May 2, 2015. If an account with a balance over US$1,000,000 on June 30, 2014, is not identified as reportable in 2014 but is so identified before July 1, 2015, the financial institution is required to report the account with respect to 2015 (but not 2014) on a Part XVIII Information Return filed with the CRA before May 2, 2016.

8.83 When the balance or value of an account does not exceed US$1,000,000 on June 30, 2014, but does on December 31, 2015, or on December 31 of any subsequent calendar year, the financial institution must perform the enhanced review procedures described for high value accounts by June 30 of the year after the year in which the balance or value exceeded US$1,000,000. Any such account that is a reportable account is required to be reported in respect of the year in which it was identified as being reportable. Once a financial institution has performed the enhanced review procedures, it is not required to re-apply those procedures, other than a relationship manager enquiry, on the high value account in any subsequent year.

Chapter 9 – New individual accounts

9.1 If a Canadian financial institution maintains a financial account held by an individual, it must determine whether it is a U.S. reportable account. Doing so requires assessing whether a particular individual account is required to be reviewed given that certain exemptions exist, as explained below. If an individual account is required to be reviewed, the financial institution must apply required procedures to determine whether the account holder is a specified U.S. person. When that is the case, reporting obligations to the CRA will exist in connection with the account.

9.2 This chapter covers new individual accounts. Chapter 8 discusses preexisting individual accounts, and entity accounts are covered in Chapter 10 of this guidance.

New individual accounts

9.3 A new individual account is an account opened on or after July 1, 2014.

Threshold exemptions that apply to new individual accounts

9.4 A financial institution may apply the monetary threshold exemptions set out in section III of Annex I of the Agreement in connection with the review of new individual accounts. More specifically, a financial institution may rely on paragraph 264(1)(b) of the ITA to designate accounts for a calendar year in relation to which it wants to apply the thresholds.

9.5 A financial institution may apply paragraph 264(1)(b) of the ITA to trigger the threshold exemption for all new individual financial accounts or for a clearly identifiable group of accounts, such as by line of business or the location at which the account is maintained.

9.6 If a financial institution does not apply paragraph 264(1)(b) of the ITA with respect to any account, it will be required to review all new individual accounts.

9.7 A financial institution that applies paragraph 264(1)(b) of the ITA to a group of accounts is not required to review, identify, or report to the CRA the following accounts that fall within that group:

• depository accounts, unless the account balance or value exceeds US$50,000 on December 31, 2014, or on December 31 of any subsequent year thereafter; or
• cash value insurance contracts, unless the cash value exceeds US$50,000 on December 31, 2014, or on December 31 of any subsequent year thereafter.

9.8 A financial institution is not required to advise the CRA of whether it has applied a threshold exemption in paragraph 264(1)(b) of the ITA. However, it is required to record its decision, including the basis of its determination of a clearly identifiable group of accounts (if any) in respect of which it has made a designation for a calendar year.

9.9 If an account is not reportable because of a designation under paragraph 264(1)(b) of the ITA, the financial institution that maintains the account is not required to monitor the account for U.S. indicia.

New account for holders of preexisting accounts

9.10 When a holder of a preexisting individual account maintained by a financial institution opens a new account with that institution (or another financial institution if it and the first-mentioned institution are sponsored by the same sponsoring entity), there is no need to re-document the account holder as long as:

• the appropriate due diligence requirements have been carried out, or are in the process of being carried out, for the preexisting individual account; and
• when a threshold has been applied in connection with the preexisting individual account, the financial institution’s computerized systems are able to link the new account to the preexisting individual account held by the account holder and allow the account balances or values to be aggregated.

9.11 When the financial institution has reason to know that the account holder’s status is inaccurate in relation to one account, it is considered to know that same concern exists in connection with other accounts held by the account holder.

Reportable accounts

9.12 In respect of a financial account that is opened after June 30, 2014 (and that is not exempt from due diligence by virtue of a designation or other exclusion), a financial institution must determine the account holder’s status using the self-certification procedures or the documentary evidence procedures described below.

Self-certification procedures

9.13 Due diligence can be carried out by obtaining a self-certification that allows the financial institution to determine whether the account holder is a U.S. resident or a U.S. citizen. If a financial institution adopts this approach, it must also confirm the reasonableness of the self-certification based on information it obtains in connection with the opening of the account, including any documentation obtained for the AML/KYC Procedures. If there is an unambiguous indication that an account holder was born in the U.S. but the individual declares in a self-certification that he or she is not a U.S. resident or a U.S. citizen, the certification can be confirmed as reasonable if the financial institution receives the documentation that is relevant to cure the indicia as if the account had been a preexisting account (see paragraph 8.27).

9.14 In the case of U.S. indicia other than a U.S. place of birth appearing when an account is opened (except when the account holder is known to be a U.S. resident or a U.S. citizen), the documentation required for the AML/KYC Procedures that is of non-U.S. issue is normally expected to position a financial institution to confirm the reasonableness of a self-certification of non-U.S. status.

9.15 A financial institution is required to make reasonable efforts to obtain a self-certification in connection with the account opening process from an account holder who opens a new financial account that is required to be reviewed. If a self-certification is not provided by an account holder or the reasonableness of a self-certification cannot be confirmed, the account is reportable.

9.16 The implementation of the Agreement in no way requires or encourages financial institutions to refuse to open an account or to otherwise deny service.

9.17 The guidance provided in paragraphs 8.63 to 8.68 applies equally to self-certifications for new accounts except that the requirement to report a U.S. TIN applies from the outset.

Documentary evidence procedures

9.18 Instead of relying on the self-certification approach described above, subparagraph 265(2)(c)(ii) of the ITA permits a Canadian financial institution to rely on the due diligence procedures that apply to preexisting individual accounts outlined in Annex I of the Agreement. This alternative means that the financial institution does not have to obtain a self-certification at account opening.

9.19 As provided for in subparagraph 265(2)(c)(ii) of the ITA, this alternative approach must be applied in connection with all new individual accounts, or separately, with respect to any clearly identified group of such accounts (such as by line of business or the location at which the account is maintained). For these purposes, accounts held by individuals that refuse to self-certify cannot be made to constitute a group.

9.20 If the information provided during the account opening process contains any U.S. indicia (as described in paragraph 8.22), the account will become reportable unless further action is taken by the financial institution to cure the indicia following the procedures described in subparagraph B(4) of section II of Annex I of the Agreement (see paragraphs 8.27 to 8.37).

9.21 The identification of accounts with U.S. indicia should be completed when the account is opened or as soon as possible thereafter. An account holder should also be given a reasonable opportunity to provide the required documentation to cure any U.S. indicia.

Format of self-certifications

9.22 Financial institutions may permit individuals to open accounts in various ways. For example, individuals can initiate account openings by telephone, on-line, or in person at a branch location.

9.23 Regardless of the account opening method, a self-certification must be obtained in the course of the account opening procedures within a reasonable period of time. A reasonable period of time may vary depending on the method used to open the account.

9.24 There is no prescribed form for the certification. For more information about the form of self-certifications, see paragraph 8.64. The following guidance illustrates how the self-certification procedures may operate in various scenarios.

In-person account openings

9.25 A Canadian financial institution must have procedures in place to secure a self-certification from its account holders. There is no prescribed form for the certification. Financial institutions can use any form as long as it asks for the required information. A form will be considered sufficient in this regard if it requires account holders to indicate:

• whether they are specified U.S. persons and clearly indicates that a U.S. citizen is such a person;
• their residency or residencies for tax purposes and clearly indicates that a U.S. citizen is considered to be a resident of the U.S. for tax purposes even if that person is also a tax resident of another country; or
• the country or countries that they reside in for tax purposes and whether they are a U.S. citizen.

9.26 The self-certification can be a stand-alone document or form part of a more comprehensive document used by a financial institution in connection with the account opening.

9.27 The following examples reveal components that a financial institution may embed within a form to obtain a self-certification from an account holder.

9.28 The examples above ask the account holder to provide a foreign TIN. Although there is no requirement to secure such information at the time of the self-certification, having account holders furnish foreign TINs when they self-certify may be a desirable approach considering that the U.S. TIN is a mandatory reporting element in connection with any new account that is a U.S. reportable account. Subsection 162(6) of the ITA requires an account holder to provide his or her U.S. TIN upon request. If the account holder is a specified U.S. person and does not have a U.S. TIN, the account holder must apply to the U.S. government for a U.S. TIN within 90 days after the request and provide it to the financial institution within 15 days of receipt. A financial institution that has identified a U.S. reportable account but has not received a U.S. TIN from an account holder, must still report the account by filing a Part XVIII information return to the CRA.

9.29 If a financial institution wants to give more instructions in connection with the question of where the individual resides for tax purposes, it may explain that a U.S. citizen is, in all cases, a specified U.S. person even if that individual also resides in Canada or another country. Non-U.S. citizens may take into account the application of any relevant tax convention in answering the question of where they reside for tax purposes.

9.30 The due diligence expected under this guidance cannot be satisfied by an unaltered Form NR301, Declaration of Eligibility for Benefits under a Tax Treaty for a Non-Resident Taxpayer, since it considers tax residency only in a limited context. A financial institution may create a comprehensive form that incorporates all the information from Form NR301 and captures the self-certification required to satisfy the due diligence requirements referenced in this guidance.

Telephone account openings

9.31 In the context of an account opening arranged by telephone, a financial institution is expected to provide the same instructions to, and obtain the same information from, any prospective account holder as it would in the context of an in-person account opening.

9.32 The financial institution must retain any verbal self-certification obtained by telephone for the required retention period unless:

• it secures and appropriately retains a self-certification in an alternative form from the account holder such as by way of a follow-up email confirmation; or
• it informs the account holder in writing (whether in paper or electronic form) of how it has recorded the account holder’s status. It must then instruct the account holder to notify it if its record of the declaration made by the account holder is incorrect.

On-line account applications

9.33 In the context of an account opening initiated on-line, a financial institution must secure the same information from the prospective account holder as it would be expected to acquire in the context of an in-person account opening. Therefore, it must secure a self-certification from the account holder. The form can be electronic in nature and the account holder must positively acknowledge, by signature or other means, that the certification is correct. If the information is electronic, the information must be in electronically readable format.

Optional due diligence related to snowbirds and other temporary visitors to the U.S.

9.34 Many Canadian residents visit the U.S. on a regular basis without becoming or having the status of being a specified U.S. person. This group includes Canadians attending university in the U.S., and "snowbirds", who are Canadian residents who spend part of the winter each year in the southern U.S. As a result, a financial institution may want to add elements in the self-certification it uses (such as the optional declaration in paragraph 8.71) in connection with new account openings. If it does so, it has to have procedures in place to ensure that self-certifications that contain these additional elements are not abused. If this approach is taken, it may reduce the number of occurrences when it would otherwise treat the appearance of a U.S. indicium as a change in circumstances that causes it to know, or have reason to know, that an original self-certification is incorrect or unreliable.

9.35 The optional declaration may be used as part of a self-certification, in a stand-alone form or may be incorporated into another form so long as it is positively acknowledged by the account holder by signature or other means, that the certification is correct.

Chapter 10 – Entity accounts

Introduction

10.1 A reporting Canadian financial institution has reporting obligations with respect to:

• an account held by an entity that is a U.S. reportable account; and
• certain payments made to an entity that is a nonparticipating financial institution (NPFI).

U.S. reportable accounts

10.2 If a reporting Canadian financial institution maintains a financial account held by an entity, it must determine whether the account is a U.S. reportable account. In other words, it must determine whether the account holder is a specified U.S. person or a passive NFFE with one or more controlling persons who are individuals who are U.S. residents or U.S. citizens. If the account holder has either status, reporting obligations to the CRA will exist in connection with the account.

10.3 No review is required of an account if the account is exempt by virtue of a threshold exemption that has been applied by a financial institution and that has been made under section 264 of the ITA.

10.4 An account will not be a U.S. reportable account if the account holder is:

• a U.S. person other than a specified U.S. person;
• a Canadian financial institution or partner jurisdiction financial institution;
• a participating FFI, a deemed-compliant FFI, or an exempt beneficial owner;
• an active NFFE; or
• a passive NFFE where none of the controlling persons are specified U.S. persons.

Payments to NPFIs

10.5 For each of 2015 and 2016, a reporting Canadian financial institution must determine if it makes certain payments to an account held by an NPFI. It must report the name and address of each NPFI and the aggregate amount of payments made to each NPFI in the particular year before May 2 of the following year. This requirement exists under subsection 266(2) of the ITA. For a description of the types of payments that must be reported, see paragraphs 12.31 to 12.32.

Preexisting and new entity accounts

10.6 A preexisting entity account is an account held by an entity on June 30, 2014.

10.7 A new entity account is an account opened by an entity after June 30, 2014.

10.8 In view of the IRS Notice 2014-33, a financial institution may treat an entity account opened after June 30, 2014, and before January 1, 2015, as a preexisting entity account for purposes of Part XVIII, so long as:

• no designation is made in connection with the account under paragraph 264(1)(c) of the ITA; and
• the financial institution documents in its procedures that it is relying on this paragraph.

10.9 Due diligence procedures must be applied to determine the status of an account. In certain cases, the procedures differ depending on whether the account under review is a new or a preexisting entity account.

Determining whether an account holder is a specified U.S. person

Preexisting entity accounts

10.10 In the case of a preexisting entity account (other than an account in respect of which a designation has been made under paragraph 264(1)(c) of the ITA), a Canadian financial institution must review information that it maintains for regulatory and customer relationship purposes (including information collected according to the AML/KYC Procedures) to determine whether the information indicates that the account holder is a U.S. person. Information indicating that an account holder is a U.S. person includes:

• a U.S. address;
• a U.S. place of incorporation or organization; or
• a classification of the account holder as a U.S. resident in current customer files.

10.11 If it is believed or information indicates that the entity account holder is a U.S. person, the account must be treated as a U.S. reportable account unless the financial institution reasonably determines that the entity is not a specified U.S. person. That determination must be made by obtaining a self-certification from the account holder unless reasonable reliance can be placed on information in the possession of, or that is publicly available to, the financial institution.

10.12 If the financial institution knows that the account holder has a GIIN, it will have reasonably determined that the account holder is not a specified U.S. person. The financial institution may verify whether the account holder has been issued a GIIN by referring to the IRS FFI list.

New entity accounts

10.13 A Canadian financial institution must determine whether a new entity account holder is a specified U.S. person.

10.14 A specified U.S. person does not include an active NFFE, a Canadian financial institution, or other partner jurisdiction financial institution. If a financial institution reasonably determines that the account holder is an active NFFE or a financial institution based on a review of public information or information in its possession, it will be considered to have determined that the account holder is not a specified U.S. person. A financial institution that verifies that an account holder has a GIIN (by referring to the IRS FFI list) will have made a reasonable determination that the account holder is not a specified U.S. person.

10.15 In all other cases, the financial institution must obtain a self-certification from the entity account holder to determine whether the entity is a specified U.S. person. Obtaining a self-certification from an entity account holder requires cooperation from the entity. If reasonable efforts to obtain self-certification fail, the financial institution is to treat the account as a U.S. reportable account. (In reporting the account, the financial institution can categorize it as an account held by a specified U.S. person or a passive NFFE.)

Determining whether an account holder is a passive NFFE

Preexisting entity accounts

10.16 A Canadian financial institution must determine whether an entity account holder that it has not identified as either a U.S. person or a financial institution is a passive NFFE. It must obtain a self-certification from the entity account holder to make that determination unless it reasonably determines based on a review of public information or information in its possession that the account holder is an active NFFE. Obtaining a self-certification from an entity account holder requires cooperation from the entity. If reasonable efforts to obtain self-certification fail, the financial institution is to treat the account as a passive NFFE.

10.17 A Canadian financial institution can accept a self-certification from an entity account holder unless it knows or has reason to know that it is unreliable or incorrect.

10.18 If it is determined that the entity account holder is a passive NFFE, the financial institution must identify its controlling persons and determine whether any such individual is a U.S. resident or a U.S. citizen.

10.19 A financial institution may rely on publicly-available information (for example, a public registry) or on information collected and maintained according to the AML/KYC Procedures in determining the controlling persons. Those same procedures may also be used to determine whether any such individual is a U.S. resident or a U.S. citizen in a case where the account has a balance or value that does not exceed US$1,000,000 on June 30, 2014. If the balance or value of the account exceeds US$1,000,000 on June 30, 2014, the financial institution must obtain a self-certification from the entity account holder or from each controlling person to determine whether such individuals are U.S. residents or U.S. citizens. A financial institution must obtain a reliable self-certification. If the financial institution requests but does not receive a self-certification from the entity account holder or any controlling person, the account must be treated as a U.S. reportable account.

10.20 If any controlling person of a passive NFFE is a U.S. resident or a U.S. citizen, the account is a U.S. reportable account.

New entity accounts

10.21 A Canadian financial institution must determine whether a new entity account holder is a passive NFFE unless it has earlier determined that the account holder is an active NFFE, a Canadian financial institution, or other partner jurisdiction financial institution.

10.22 The Canadian financial institution may determine that the account holder is an active NFFE, a Canadian financial institution, or other partner jurisdiction financial institution based on information in its possession or that is publicly available if reliance on the information offers reasonable assurances of a proper determination. Knowledge that an entity account holder has a GIIN may help a financial institution determine that an account holder is a Canadian financial institution or other partner jurisdiction financial institution. The financial institution may verify whether the account holder has been issued a GIIN by referring to the IRS FFI list.

10.23 If a Canadian financial institution has not determined that a new entity account holder is an active NFFE, a Canadian financial institution, or other partner jurisdiction financial institution, it is required to obtain a self-certification from the entity account holder to establish its status. Obtaining a self-certification from an entity account holder requires cooperation from the entity. If reasonable efforts to obtain self-certification fail, the financial institution is to treat the account as a U.S. reportable account. (In reporting the account, the financial institution can categorize it as an account held by a specified U.S. person or a passive NFFE.)

10.24 If it is determined that the entity account holder is a passive NFFE, the financial institution must identify its controlling persons and determine whether any such individual is a U.S. resident or a U.S. citizen. A Canadian financial institution may rely on information collected and maintained according to the AML/KYC Procedures to determine the controlling persons of an entity. However, a Canadian financial institution must obtain a self-certification from the entity account holder or from each controlling person to determine whether any such individual is a U.S. resident or a U.S. citizen.

10.25 If any controlling person of a passive NFFE is a U.S. resident or a U.S. citizen, the account is a U.S. reportable account.

Determining whether an account holder is a financial institution that is an NPFI

Preexisting entity accounts

10.26 A reporting Canadian financial institution must determine whether an entity account holder is a financial institution. It may do so by reviewing information maintained for regulatory or customer relationship purposes (including information collected according to the AML/KYC Procedures). If the information indicates that the account holder is a financial institution, the Canadian financial institution that maintains the account must further determine whether the account holder is an NPFI.

(It is generally expected that based on a review of information maintained for regulatory or customer relationship purposes, including information collected according to the AML/KYC Procedures, a reporting Canadian financial institution will be able to determine whether the entity account holder is a financial institution. If a determination cannot be made based on that information, the due diligence review should continue on the basis that the account holder is not a financial institution (unless the account holder is subsequently identified to be a financial institution).)

10.27 A financial institution may determine that an entity account holder is not an NPFI by verifying that the account holder has a GIIN. The financial institution may verify whether the account holder has been issued a GIIN by referring to the IRS FFI list.

10.28 A financial institution may also determine that an account holder is not an NPFI if it has reasonably determined based on a review of public information or information in its possession that the entity account holder is a Canadian financial institution or a partner jurisdiction financial institution (unless the IRS has publicly listed the account holder as an NPFI).

10.29 In all other cases, the financial institution must obtain a self-certification from the entity account holder that is a financial institution to determine whether it is an NPFI. If reasonable efforts to obtain the self-certification fail, the account holder is to be treated as an NPFI.

10.30 If the account holder is an NPFI, the reporting Canadian financial institution must report the aggregate amount of certain payments made by it to an NPFI that is the holder of an account, for each of 2015 and 2016. It must report before May 2 of the following year, the name and address of each NPFI and the aggregate amount of payments made to each NPFI in the particular year under subsection 266(2) of the ITA.

New entity accounts

10.31 A Canadian financial institution must determine whether a new entity account holder is an NPFI. If a financial institution has reasonably determined based on information that is publicly available or in its possession that an entity account holder is an active NFFE, a Canadian financial institution, or other partner jurisdiction financial institution, it will be considered to have determined that the account holder is not an NPFI (unless the IRS has publicly listed the account holder as an NPFI).

10.32 A financial institution may determine that an entity account holder is not an NPFI by verifying that the account holder has a GIIN. The financial institution may verify whether the account holder has been issued a GIIN by referring to the IRS FFI list.

10.33 In all other cases, the financial institution must obtain a self-certification from the entity account holder that is a financial institution to determine whether it is an NPFI. If the account holder that is a financial institution does not provide a reliable self-certification, the account holder is to be treated as an NPFI.

(It is generally expected that based on a review of public information or information in its possession, a reporting Canadian financial institution will be able to make a reasonable determination on whether the account holder is a financial institution. If a reasonable determination cannot be made based on that information and reasonable efforts to obtain self-certification fail, the due diligence review should continue on the basis that the account holder is not a financial institution (unless the account holder is subsequently identified to be a financial institution).)

10.34 If the account holder is an NPFI, the reporting Canadian the financial institution must report the aggregate amount of certain payments made by it to an NPFI that is the holder of an account, for each of 2015 and 2016. It must report before May 2 of the following year, the name and address of each NPFI and the aggregate amount of payments made to each NPFI in the particular year under subsection 266(2) of the ITA.

Form of self-certifications

10.35 The previous section indicates that self-certifications will be required from entity account holders in many cases to determine their entity classification. In essence, the self-certifications are to determine whether an entity account holder is a specified U.S. person, a passive NFFE with a controlling person that is a U.S. resident or a U.S. citizen, or an NPFI.

10.36 There is no prescribed form. Indeed, the design of the form may take into account how Canadian financial institutions sequence and otherwise operationalize their due diligence procedures. However, it may be advisable for Canadian financial institutions to rely on a comprehensive entity self-certification form that assists with all of the potential determinations required to be made by a financial institution in connection with the Agreement. Canadian financial institutions have a broad range of customers and the profile of entity account holders may vary significantly across different parts of the financial industry. Therefore, the complexity of the entity self-certification form may be calibrated to the level of familiarity with entity classification concepts expected to be possessed by the targeted customer base. In all cases, however, Canadian financial institutions are expected to assist entities by presenting information and forms that promote proper classifications and provide links to the CRA’s website.

10.37 No matter the type of self-certification used, there must be an element that allows the account holder to positively acknowledge by signature or other means that the self-certification is correct.

10.38 The self-certification can be a stand-alone document or form part of a more comprehensive document used by a financial institution in connection with the account opening.

10.39 The following example is an approach that can be incorporated within a self-certification form to determine an entity account holder’s status.

10.40 While forms issued by the IRS (such as the W-8 and W-9 series) may be used in connection with establishing an account holder’s status, there is no requirement to use them.

Controlling persons

10.41 Article 1 of the Agreement defines the term "controlling persons" as

the natural persons who exercise control over an entity. In the case of a trust, such term means the settlor, the trustees, the protector (if any), the beneficiaries or class of beneficiaries, and any other natural person exercising ultimate effective control over the trust and in the case of a legal arrangement other than a trust, such term means persons in equivalent or similar positions. The term " c ontrolling person" shall be interpreted in a manner consistent with the FATF recommendations.

10.42 For greater clarity, only individuals fall within the definition.

10.43 Financial institutions can give effect to this definition by reference to the PCMLTFA and related regulations. Therefore, whether an individual is a controlling person is generally determined by reference to the ownership thresholds of PCMLTFA and applicable KYC requirements as set by Canadian financial regulatory authorities. Relevant provisions include section 11.1 of the PCMLTFA Regulations.

Threshold exemptions

10.44 A financial institution may apply the threshold exemptions set out in section IV or V (as the case may be) of Annex I of the Agreement in connection with the review of entity accounts. If a financial institution wants to apply the exemptions provided for in the Agreement, it can do so by designating the accounts (which will be required to form part of a clearly identifiable group of accounts) under section 264 of the ITA.

10.45 When a financial institution does not rely on section 264 of the ITA to designate any accounts, it must review all of its entity accounts.

10.46 A financial institution is not required to advise the CRA of whether it has designated an account under section 264 of the ITA. However, it is required to record its decisions, including the basis of its determination of a clearly identifiable group of accounts (if any) in respect of which it has made a designation for a calendar year.

Preexisting entity accounts

10.47 A financial institution does not have to review an entity account with a balance or value that is equal to or less than US$250,000 on June 30, 2014, if it designates the account under paragraph 264(1)(c) of the ITA. When that designation is made and that account later exceeds US$1,000,000 on December 31, 2015 or any subsequent year, the financial institution will be required to review the account to determine whether the account is reportable.

10.48 A financial institution may designate all preexisting entity accounts or a clearly identifiable group of accounts, such as by line of business or the location at which the account is maintained.

New entity accounts

10.49 A financial institution does not have to review certain credit card accounts and other revolving credit facilities (hereinafter referred to as "credit card accounts") opened after June 30, 2014.

10.50 A credit card account is not required to be reviewed, provided that the Canadian financial institution that maintains the account:

• has policies and procedures in place to prevent a balance of more than US$50,000 being owed to an entity account holder for more than 60 days; and
• designates the account under paragraph 264(1)(d) of the ITA.

10.51 A financial institution may designate all credit card accounts or a clearly identifiable group of accounts, such as by line of business or the location at which the account is maintained.

10.52 While the above provisions in the Agreement apply to new entity accounts, credit card accounts that are individual accounts or preexisting entity accounts may benefit from the general threshold exemptions available to those categories of accounts.

New account for holders of preexisting accounts

10.53 When a holder of a preexisting entity account maintained by a financial institution opens a new account with the same financial institution ( or another financial institution if it and the first-mentioned institution are sponsored by the same sponsoring entity), there will be no need to re-document the account holder at account opening as long as:

• the appropriate due diligence requirements have been carried out, or are in the process of being carried out, for the preexisting entity account; and
• when the financial institution has relied on paragraph 264(1)(c) of the ITA to apply a threshold exemption to a preexisting entity account, the financial institution’s computerized systems are able to link the new account to preexisting accounts held by the entity account holder and allow the account balances or values to be aggregated.

10.54 When the financial institution has reason to know that the account holder’s status is inaccurate in relation to one account, it is considered to know that same concern exists in connection with other accounts held by the entity account holder.

Timing of reviews

10.55 Under the Agreement, the review of a preexisting entity account with an account balance or value that exceeds US$250,000 on June 30, 2014, must be completed by June 30, 2016.

10.56 The review of a preexisting entity account with a balance or value that did not exceed US$250,000 on June 30, 2014, but exceeds US$1,000,000 on December 31, 2015, or on December 31 of any subsequent year, must be completed by June 30 of the year after the year in which the balance or value exceeded US$1,000,000.

10.57 The review of a new entity account is expected to be completed when the account is opened or as soon as possible thereafter. That requirement exists in view of financial institutions having to report to the CRA reportable accounts with respect to a year before May 2 of the following year.

Use of standardized industry codes

10.58 As discussed in paragraph 10.10, a financial institution may, in certain circumstances, rely on information it has in its possession to reasonably determine the status of an entity account holder. Standard industry codes, such as the Standard industrial classification (SIC) and the North American industry classification system (NAICS) codes may help a financial institution in this regard with respect to preexisting entity accounts.

10.59 In the context of a new entity account, the account opening presents a financial institution with the opportunity to obtain the information necessary to determine the status of an account holder without having to refer to a standardized industrial code, which presumably would have been assigned on the basis of the same or similar information. Therefore, the coding systems themselves are not thought to be particularly useful.

Other considerations

10.60 A Canadian financial institution may receive a self-certification from an entity that is not resident in Canada that it is a financial institution. The self-certification should not be considered as unreliable or incorrect just because the entity’s declared status is unsupported under Canadian law, unless the financial institution knows the self-certification is inconsistent with how the entity is classified in its country of residence for purposes of tax co-operation with the U.S. For example, a non-resident personal trust that is professionally managed by an investment entity self-certifies that it is a financial institution. A Canadian financial institution should not treat the self-certification as unreliable or incorrect just because the trust would be viewed as a passive NFFE under Canadian law.

Chapter 11 – Special circumstances

Cash value insurance contracts and/or annuity contracts

Financial accounts held by individual beneficiaries of a cash value insurance contract

11.1 A Canadian financial institution may presume an individual beneficiary (other than the owner) who receives a death benefit under a cash value insurance contract or an annuity contract is not a specified U.S. person and may treat that account as other than a U.S. reportable account unless the financial institution knows, or has reason to know, that the beneficiary is a specified U.S. person. A financial institution has reason to know if the information collected and associated with the beneficiary contains U.S. indicia. In that case, unless the U.S. indicia have been cured, the financial institution must treat the account as a U.S. reportable account.

Employment-based group plans

11.2 Certain financial arrangements administered by financial institutions involve employment-based situations. The enhanced due diligence and reporting arrangements should not unduly affect employers that offer employment-based benefits of a low-risk nature.

Financial accounts that are group cash value insurance contracts / group annuity contracts

11.3 A financial institution may treat an account that is a member's interest in a group cash value insurance contract or group annuity contract as other than a U.S. reportable account until the date on which an amount is payable to the employee/certificate holder or beneficiary if all of the following requirements are met:

• The group cash value insurance contract or group annuity contract is issued to an employer and covers at least 25 employees/certificate holders.
• The employees/certificate holders are entitled to receive any contract value related to their interests and to name beneficiaries for the benefit payable upon the death of the employee/certificate holder.
• The aggregate amount payable to any employee/certificate holder or beneficiary does not exceed US$1,000,000.

Group payroll deduction savings plans

11.4 Consistent with the AML/KYC Procedures in Canada, when an employer (referred to as a “sponsor”) contracts with a financial institution to provide a group payroll deduction savings plan (referred to as a “plan”) to its employees (referred to as “members”) and member contributions, together with any sponsor contributions, are invested directly through an employee payroll savings plan in one or more accounts, a financial institution that maintains such an account is not required to review or report a member’s account unless:

• there are U.S. indicia in the member’s information obtained or maintained by the financial institution associated with the member’s account;
• the member makes a contribution to the plan other than by payroll deduction (For this purpose, a member payment made to the plan for the period of a sponsor approved leave of absence (such as maternity, paternity, or disability) will not cause the member’s account to be reviewable or reportable as long as the payments by the member to the sponsor do not exceed the aggregate contribution amount that the member would have made by payroll deduction but for the leave of absence. Such payments to the sponsor by the member may be made through prepayment before the leave of absence or as otherwise agreed upon by the sponsor. The sponsor may include member contributions, including member payments received for the period of the sponsor approved leave, in its regular payroll contribution remittance.); or
• less than 25 employees are members of the plan (a determination that may be made based on the number of employees in the plan at the end of the calendar year preceding the calendar year for which reporting obligations are being determined).

11.5 Group payroll deduction savings plans can be structured in a number of different ways. In some situations, there may be more than one financial institution involved in the plans, not only as a financial institution maintaining one or more different types of financial accounts or assets, but also acting in one or more capacities such as administrator, custodian, trustee, etc. Industry participants that maintain accounts covered under the plan may agree on means to avoid unnecessary or duplicative reporting and to otherwise give practical effect to the above guidance. Where reporting is required, it is also unnecessary to report the aggregate balance of, or amounts paid or credited to, the plan as a whole. Instead, where applicable, plan members ought to be considered as individual account holders with financial accounts reflective of their interest in the plan.

Account transfers

Account transfers of a single account holder

11.6 Account transfers between related entities of financial accounts will not attract due diligence procedures if the transferring financial institution has completed the due diligence procedures and the information, including the self-certification and/or documentary evidence, is fully accessible during the required retention period to the receiving financial institution. Otherwise, the account transferred is a new account for the receiving financial institution and the due diligence procedures for new accounts apply.

11.7 Account transfers between unrelated financial institutions are to be treated as new accounts for the receiving financial institution except where the conditions for mergers or bulk acquisitions of accounts described below are met.

Mergers or bulk acquisition of accounts

11.8 When a financial institution acquires accounts by way of a merger or bulk acquisition of accounts, it can rely on the status of account holders as determined by the predecessor reporting Model 1 financial institution or a participating financial institution, provided that the predecessor financial institution has met its due diligence obligations.

11.9 A merger or bulk acquisition of accounts is considered to include the acquisition of member accounts acquired upon the transfer of a group savings plan.

11.10 The acquiring financial institution may continue to rely on the status of an account holder as long as it has no reason to know that the status is unreliable or incorrect. To give effect to this understanding, a Canadian financial institution may treat accounts acquired in a merger or bulk acquisition that takes place after June 30, 2014, as preexisting accounts for the purposes of applying the identification and documentation procedures by treating the accounts as if they had been acquired on June 30, 2014.

11.11 The CRA expects the acquiring financial institution will undertake a sample review of the acquired accounts to determine that the status assigned to them by the predecessor financial institution is reliable. An account holder’s status will need to be verified by the acquiring financial institution according to the due diligence procedures if the acquirer has reason to know that a status is incorrect or there is a change in circumstances.

Mergers of investment entities

11.12 Mergers of investment entities can be different from mergers of custodial institutions or depository institutions. The financial accounts of investment entities are its equity and debt interest holders, so the merger of two investment entities creates in the surviving investment entity a series of new accounts.

11.13 Mergers of investment entities will normally involve a surviving fund taking over the assets of the merging fund in exchange for issuing shares or units to the investors of the merging fund. The shares or units in the merging fund are then extinguished. The new shares in the surviving fund will be new accounts except when both funds are sponsored by the same sponsor.

11.14 So that fund mergers are not impeded or held up by the requirement to perform due diligence on a series of new accounts, special rules apply to the documentation of new accounts on a merger of investment entities. There are a number of potential scenarios depending on the status of the merging fund (the investors of which will create the new accounts in the surviving fund).

More than one fund sponsored by the same Canadian sponsor

11.15 When both funds are sponsored Canadian funds with the same Canadian sponsor, no new accounts are created. This is because for sponsored financial institutions, whether a financial account is a new account is determined by reference to whether it is new to the sponsor (for example the fund manager), and not whether it is new to the sponsored financial institution (that is, the fund).

Merging fund is a reporting financial institution

11.16 When the merging fund is a reporting financial institution (including a sponsored financial institution, but when the funds do not share the same sponsor), a partner jurisdiction financial institution, or a participating foreign financial institution, the surviving fund can rely on the account identification and documentation performed by the merging fund and will not need to undertake any further account due diligence to comply with its obligations. The surviving fund can continue to use the same account classification as the merging fund until there is a change in circumstances for the financial account.

Merging fund is not a reporting financial institution

11.17 When the merging fund is not a reporting financial institution, a partner jurisdiction financial institution, or a participating foreign financial institution (for example, a non-reporting Canadian financial institution or a nonparticipating financial institution), the surviving fund will need to undertake account identification procedures on the new accounts. However, in these circumstances the account identification procedures may be limited to those that are required for preexisting accounts and must be carried out at the latest by December 31 following the date of the merger or by December 31 of the year after the year of the merger if the merger takes place after September 30 of any calendar year.

(Exchanges of units

Periodically, units of one fund are exchanged for the units of another fund where both funds are managed by the same manager. An exchange of units of a fund that is a trust for units of another fund that is a trust does not create a new financial account where both funds are managed by the same manager. Similarly, sub-funds of a mutual fund corporation, as described in paragraph 12.3, are collectively one financial institution for Canadian purposes, and an exchange of units of one sub-fund for units of another sub-fund is not considered to create a new account. (The reference to units includes securities in investment funds, see paragraph 5.2))

Dormant accounts

11.18 A Canadian financial institution may apply its normal operating procedures to classify an account as dormant.

11.19 A Canadian financial institution may classify a dormant account based on documentation it already has in its possession for the account holder. Where this review indicates the account is a U.S. reportable account, the Canadian financial institution should report the account notwithstanding that there has been no contact with the account holder. In view of the likelihood that any attempt to cure indicia in connection with a dormant account that is a pre-existing individual account would be unsuccessful, there is no need to obtain or review the information described in subparagraph B(4) of section II of Annex I of the Agreement.

11.20 If the account is closed and the balance is transferred to a pooled account for unclaimed balances, maintained by the financial institution, there does not exist a reportable account.

11.21 An account is no longer dormant if the account holder contacts the financial institution, or initiates a transaction, with respect to the dormant account or other account held by the account holder with that financial institution. In this case, the financial institution would have to establish the account holder’s status as if the account is a new account.

Information technology transition to Part XVIII

11.22 In certain cases, it is most practical for information technology systems changes to be made at a designated time, such as on weekend hours. If this is an important consideration for a financial institution in connection with its initial transition to the Part XVIII regime, it can act accordingly so long as there is no delay of more than six calendar days, the transition procedure is documented, and the purposes of the Agreement are not frustrated by any such scheduling.

Chapter 12 – Part XVIII – Information reporting

Information elements for U.S. reportable accounts

12.1 Each Canadian reporting financial institution with U.S. reportable accounts in a year is required to electronically file a Part XVIII Information Return for that year with the CRA. The information in this chapter applies to financial institutions that must perform limited reporting to maintain their status as non-reporting Canadian financial institutions.

12.2 A Canadian reporting financial institution that does not maintain a U.S. reportable account nor make payments to an NPFI that give rise to reporting and therefore does not have reporting obligations for a particular year, is not required to file a "nil" Part XVIII Information Return for that year with the CRA.

Information on the reporting Canadian financial institution

12.3 Each reporting Canadian financial institution must identify itself to the CRA by providing its name, address, business number (BN), and GIIN.

(A mutual fund corporation with classes of shares where each such class is considered a separate fund pursuant to securities legislation (each such fund is referred to as a “sub-fund”) is one financial institution. Since sub-funds are part of the same entity, they can use the corporation’s GIIN.)

12.4 The GIIN is a 19-character identification number issued by the IRS to a financial institution.

12.5 The ability of a reporting Canadian financial institution to provide U.S. withholding agents with a GIIN is expected to facilitate its participation in U.S. markets. Reporting Canadian financial institutions seeking to secure a GIIN can do so by going to the IRS FATCA registration site.

Information identifying each account holder

12.6 In relation to each U.S. reportable account held by a specified U.S. person, the following identifying information must be reported:

• name
• address
• U.S. TIN (certain limited-time exceptions apply)
• Canadian TIN
• date of birth (only in limited circumstances)

12.7 When an account held by a passive NFFE is a U.S. reportable account, the same identifying information must be provided in respect of the entity and each of its controlling persons that are specified U.S. persons.

Account information

12.8 Financial institutions must report account information in connection with the U.S. reportable account. In all cases, the account number and the account balance or value must be reported. The other information to be reported depends on the nature of the account.

Custodial accounts

12.9 If the account is a custodial account, the information in the first three bullets of the list below must be provided in respect of reporting for 2015. For the 2016 and subsequent reporting years, all the following listed elements must be provided:

• the total gross amount of interest paid or credited to the account
• the total gross amount of dividends paid or credited to the account
• the total gross amount of other income generated with respect to the assets held in the account, paid or credited to the account
• the total gross proceeds from the sale or redemption of property paid or credited to the account

Depository accounts

12.10 If the account is a depository account, the total gross amount of interest paid or credited to the account in the year is required in respect of reporting for 2015 and subsequent years.

Other accounts

12.11 For accounts other than custodial or depository accounts (such as equity and debt interests, cash value insurance contracts, annuity contracts, and client-name accounts), the following information is required in respect of reporting for 2015 and subsequent years:

• the total gross amount paid or credited to the account holder with respect to the account during the calendar year or other appropriate reporting period with respect to which the reporting Canadian financial institution is the obligor or debtor, including the aggregate amount of any redemption payments made to the account holder during the year or period.

For greater clarity, an amount paid or credited to the account is considered paid or credited to the account holder. Also for clarity, there is no need to distinguish the return of capital from other amounts paid or credited.

Explanatory information

Account holder address

12.12 The address to be reported is the permanent address of the specified U.S. person. If no permanent address is associated with an account holder, report the address associated with the specified U.S. person that is on file for mailing or other purposes.

Canadian taxpayer identification number (Canadian TIN)

12.13 A financial institution must provide the Canadian TIN (if any) of a specified U.S. person that it reports. A Canadian TIN may be in the form of a social insurance number (SIN), a business number (BN), or an individual tax number (ITN).

U.S. federal taxpayer identification number (U.S. TIN)

12.14 The U.S. TIN of a specified U.S. person that is an account holder (or a person identified as a controlling person) must be reported. However, there is a phase-in period in connection with preexisting accounts. A U.S. TIN includes:

• a social security number (SSN);
• an individual taxpayer identification number (ITIN); and
• an employer identification number (EIN).

12.15 It must be reported for the 2014 to 2016 reportable years in connection with a preexisting account only if the U.S. TIN exists in the records of the reporting Canadian financial institution. If it does not exist, the financial institution must report the specified U.S. person’s date of birth if that information is in its records.

12.16 A financial institution must make reasonable efforts to secure an account holder’s U.S. TIN. A financial institution is authorized to ask its account holders to provide a U.S. TIN at any time regardless of the phase-in provided for in the Agreement (see paragraph 4 of Article 3 and paragraph 4 of Article 6). If an account holder does not have a U.S. TIN, the account holder is required to apply for one and provide the number to the Canadian financial institution. If the account holder does not provide a U.S. TIN, the account remains reportable.

12.17 There is no requirement for a financial institution to verify that any U.S. TIN provided is correct. A financial institution will not be held accountable when information supplied by an individual proves to be inaccurate and the financial institution has no reason to know that.

Account number

12.18 The account number to be reported with respect to an account is the identifying number assigned to the financial account or another number that is used to identify the financial account within the financial institution.

Account balance or value

12.19 The account balance or value as of the end of the relevant calendar year or other appropriate reporting period must be reported together with the currency in which the balance or value is denominated. For depository accounts, the relevant date is December 31 (unless the account is closed earlier in the year). Subject to the information below, December 31 is also anticipated to be the most relevant date for most other financial accounts.

12.20 When it is not possible to value an account at the end of a particular year, the normal valuation point for the account that falls within the particular year that is nearest to December 31 is to be used.

12.21 In respect of a cash value insurance contract or an annuity contract, the account balance or value is the cash value or surrender value of the account.

12.22 The balance or value of a financial account is the balance or value calculated by the financial institution for purposes of reporting to the account holder. For immediate annuities (that is, annuities under which annuity payments have begun), it is appreciated that there is often no on-going "account balance or value" reported to the account holder because the account holder has used the value that had been accumulated to purchase the right to a series of future payments. A financial institution may report the balance or value of such an account as nil if it is not performing surrender value calculations and is not reporting a value to the account holder.

12.23 The balance or value of an equity interest is the value calculated by the financial institution for the purpose that requires the most frequent determination of value, and the balance or value of a debt interest is its principal amount.

12.24 The balance or value of the account is not to be reduced by a liability or obligation incurred by an account holder with respect to the account, nor is it to be reduced by any potential future fees, penalties, or other charges for which the account holder may be liable upon terminating, transferring, surrendering, liquidating, or withdrawing cash from the account.

Joint accounts

12.25 For joint accounts, the balance or value to be attributed is the entire balance or value of the account. This will be attributable to each account holder of the account.

Account closures

12.26 In respect of an account closure, the account balance reporting requirement intends to capture the amount or value withdrawn from the account in connection with the closure (as opposed to the account balance at the exact point of closure). In practice, account closing procedures differ between institutions and between different products and accounts. A financial institution can use any reasonable and consistently applied approach to determining when a particular account is considered to be closed.

12.27 It is acceptable for a financial institution to record the balance or value within five business days of when it receives instructions from the account holder to close the account. If the financial institution is unable to record the balance or value when it receives instructions to close the account, it may record the most recent available balance or the value that is obtainable after it receives instructions to close the account. (This may include a balance or value that predates the instructions to close the account if this is the balance or value that is most readily available.)

Accounts may cease to be reportable

12.28 Other than in the context of an account closure, the requirement to report an account under Part XVIII of the ITA for a particular year is based on the status of the account holder at the end of that year. As such, if an account holder ceases to be a specified U.S. person prior to the end of the year, the accounts held by that account holder are not reportable accounts for that year. In the case of an account closure, the requirement to report the account under Part XVIII for the year in which the account was closed is based on the status of the account holder at the time of closure.

Timetable for reporting

12.29 The obligation to obtain and report information with respect to U.S. reportable accounts is phased in over a three-year period as shown in the tables below. The phase-in is provided for in Articles 2 and 3 of the Agreement.

2014

In respect of	Information to be reported to the CRA before May 2, 2015
Each specified U.S. person, either: holding a U.S. reportable account; or who is a controlling person of a passive NFFE that holds a U.S. reportable account.	Name Address U.S. TIN (but only required for a holder of a preexisting account for the 2014 to 2016 reporting years if the TIN is held in the FI’s records; if not, date of birth is required if that date is held in the FI’s records) Canadian TIN Account number or functional equivalent Account balance or value

2015
All of the information listed in 2014, plus the following:

In respect of	Information to be reported to the CRA before May 2, 2016
Custodial accounts	Total gross amount of: interest; dividends; or other income paid or credited to the account during the year.
Depository accounts	Total gross amount of interest paid or credited to the account during the year.
Other accounts	Total gross amount paid or credited to the account holder with respect to the account, including the aggregate amount of redemption payments made to the account holder, during the year.

2016 (end of phase-in)
All of the information listed in 2015, plus the following:

In respect of	Information to be reported to the CRA before May 2, 2017
Custodial accounts	Total gross proceeds from the sale or redemption of property paid or credited to the account during the year.

2017 and onwards
All of the information listed in 2016 is to be reported to the CRA before May 2 of the following calendar year.

Reporting on NPFIs

12.30 When a reporting Canadian financial institution makes certain payments to an account held by a nonparticipating financial institution (NPFI), it must report the name and the aggregate amount of payments made to each NPFI for the years 2015 and 2016, before May 2 of the following year under subsection 266(2) of the ITA.

12.31 The payments to be reported are:

• non-U.S. source interest paid on a financial account held by an NPFI;
• non-U.S. source dividends paid on shares held in a financial account held by an NPFI; and
• other non-U.S. source payments paid to a financial account held by an NPFI.

12.32 The reporting Canadian financial institution has to report only payments in respect of which it is the payer. It may be less onerous for a financial institution not to distinguish between U.S. source and non-U.S. source payments. For the purpose of this reporting, a financial institution may treat all payments as having a non-U.S. source to avoid having to distinguish payments based on source.

12.33 The following payments do not need to be reported:

• payments for the following:
  • services (including wages and other forms of employee compensation (such as stock options));
  • the use of property, office and equipment leases;
  • software licences;
  • transportation;
  • freight;
  • gambling winnings;
  • awards;
  • prizes;
  • scholarships;
  • interest on outstanding accounts payable arising from the acquisition of goods or services; and
• payments for which the reporting Canadian financial institution has only a passive role in the payment process, such as when it has no knowledge of the facts that give rise to the payment, no control over the payment, or no custody of the property that relates to the payment (for example, processing a cheque, arranging the electronic transfer of funds on behalf of one of its customers, and crediting a payment to a customer’s account).

12.34 Where shares in a financial institution are considered to be financial accounts to the financial institution, dividends paid by the financial institution directly to an investor that is an NPFI, are reportable.

Third-party service providers

12.35 A Canadian financial institution may rely on one or more third-party service providers to meet its obligations under the Agreement. However, all obligations remain the responsibility of the financial institution.

Compliance

12.36 The CRA is responsible for the administration of the Agreement in Canada and its implementing legislation. The CRA will take appropriate steps to promote compliance. The CRA will also engage in discussions with appropriate IRS officials if the IRS raises concerns in connection with the reporting of a Canadian financial institution.

Minor and administrative errors

12.37 If the IRS has questions or concerns in respect of minor or administrative errors that may have led to an incorrect or incomplete information reporting or resulted in other infringements of the Agreement, it may contact the CRA to discuss the matter. If contacted, the CRA will attempt to resolve the matter and, if necessary, will contact the Canadian financial institution and apply Canadian law where appropriate.

Significant non-compliance

12.38 The IRS is also entitled to notify the CRA if it has determined significant non-compliance with the obligations under the Agreement by a particular reporting Canadian financial institution. If contacted, the CRA will attempt to resolve the matter.

12.39 The CRA will contact the financial institution and apply Canadian law where appropriate. If voluntary compliance and/or administrative action by the CRA do not resolve the issue within 18 months of the IRS’s notification of the issue, the IRS is entitled to treat the financial institution as an NPFI and trigger the adverse consequences associated with that status in the U.S.

12.40 Significant non-compliance includes:

• repeated failure to file the Part XVIII Information Return;
• on-going or repeated failure to supply accurate information or establish appropriate governance or due diligence processes;
• the intentional provision of substantially incorrect information;
• the deliberate or negligent omission of required information; or
• otherwise active assistance to specified U.S. persons in avoiding the reporting obligations under Part XVIII.

Date modified:

2015-09-23