On March 20, 2019, the Canada Revenue Agency (CRA) and the Internal Revenue Service (IRS) signed a competent authority arrangement (CAA) which will reduce the compliance burden for certain small Canadian financial institutions in respect of Part XVIII of the Income Tax Act.

This CAA addresses the rules in the intergovernmental agreement between Canada and the U.S. which made account review requirements unclear in those cases where a Canadian financial institution no longer meets the criteria for a local bank or a local client base institution. With respect to mergers and acquisitions involving small Canadian financial institutions, or for those institutions that become reporting institutions due to growth, the CAA relieves tax-related reporting costs. It allows smaller financial institutions the possibility to reduce their compliance costs in respect of accounts maintained prior to the status change while being in harmony with their obligations under Part XVIII of the Income Tax Act.

For detailed information on the arrangement, please consult the CAA.