Is it correct that a New Individual Account that is a Depository Account whose balance exceeds $50,000 at the end of a calendar year thereby loses its ability to be designated under s. 264(1)(b) for that year as well as for all subsequent years, even if the account balance subsequently decreases below the $50,000 threshold. In so confirming, CRA stated:
Once a New Individual Account that is a Depository Account is identified as a U.S. Reportable Account upon exceeding the $50,000 balance threshold at the end of any given year, it remains reportable regardless of its balance in subsequent years, and thus may no longer be designated pursuant to paragraph 264(1)(b) of the Act.
CRA also noted:
[T]his reporting obligation for New Individual Accounts is different than the reporting obligation that is applicable to Preexisting Individual Accounts that are Depository Accounts. Pursuant to paragraph A of section II of Annex I to the TIEA, Preexisting Individual Accounts that are Depository Accounts do not need to be reported, and thus may be designated pursuant to paragraph 264(1)(a), where the account has a balance of $50,000 or less. This is a yearly test to be applied. Consequently, where a Preexisting Individual Account that is a Depository Account exceeds $50,000 at the end of a particular calendar year, and the account balance later drops below $50,000 at the end of a subsequent year, a reporting Canadian financial institution may designate that account to not be a U.S. Reportable Account pursuant to paragraph 264(1)(a) of the Act for that subsequent year.
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|Tax Topics - Treaties - Canada-US Enhanced Tax Information Agreement Implementation Act [FATCA IGA] - Annex 1 - Section III - Paragraph A||a new individual depository account exceeding $50,000 cannot be designated for FATCA exclusion once it falls below $50,000||100|
9.10 An individual may have a preexisting or new account (hereinafter referred to as the “original account”). The individual may subsequently open a new account (hereinafter referred to in this paragraph as the “new account”), with the same financial institution (or another financial institution within the same jurisdiction if the financial institution and the first-mentioned institution are sponsored by the same sponsoring entity). In such a case, 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 original account;
- the opening of the new account does not require the provision of new, additional or amended client information;
- with respect to an account subject to AML/KYC Procedures, the financial institution is permitted to satisfy those procedures for the new account by relying on the procedures performed in connection with the original 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 original account held by the account holder and allow the account balances or values to be aggregated.
An individual holds a preexisting individual account with a balance that was US$35,000 on June 30, 2014. The individual opens a new account at the same financial institution and the new account does not require the provision of new, additional or amended customer information. The financial institution applies the US$50,000 threshold and is able to link the new account to the original account. The new account can be treated as a continuation of the original account and can continue to be treated as exempt until such time as the aggregate balance or value of the accounts exceeds US$1,000,000.
Candice M. Turner, "Answers to Practical FATCA Questions for Canadian Financial Institutions", Tax Management International Journal, Vol. 43, No. 8, August 8, 2014, p. 484.
Opening of 2nd account by holder of pre-existing account (p. 486)
The use of the Treasury Regulation definition of "preexisting obligation" is not specifically addressed, in the IGA, the implementing legislation, or the official explanatory notes to the implementing legislation (the "explanatory notes"). However, the CRA Guidance provides that where a holder of a pre-existing individual account opens a new account with the same financial institution, there is no need to re-document the account so long as the due diligence requirements have been or are in the process of being carried out and, where a threshold has been applied in connection with the pre-existing account, the financial institution's computerized systems are able to link the new account to the pre-existing account. [fn 10: Reg. §1.1471-1(b)(98)(ii).] In effect, this would incorporate the expanded definition in the Treasury Regulations without the requirement that the two, accounts be treated as "consolidated obligations."…
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|Tax Topics - Treaties - Canada-US Enhanced Tax Information Agreement Implementation Act [FATCA IGA] - Article 4 - Section 2||231|