20 | LEXPERT • June 2014 | www.lexpert.ca
CANADA/
US TAX
A recent intergovernmental agreement
between Canada and the US on tax has
cast its net very wide, tax lawyers warn
JULIUS MELNITZER
PHOTO:
SHUTTERSTOCK
«
TAX
IN FEBRUARY 2014, Canada and the US announced they had signed an inter-
governmental agreement (IGA) that exponentially expands the sharing of tax-related informa-
tion between the countries.
"What the IGA means is that the Canada Revenue Agency [CRA] will now exchange
fi nancial information about Americans living in Canada with the Internal Revenue Service
[IRS]," says Veronika Chang, a foreign legal consultant with Toronto-based tax boutique Mor-
ris Kepes Winters LLP.
In the process, however, the IGA amends the reporting and withholding obligations of "for-
eign fi nancial institutions" (FFIs) and others who make payments to a "US person" as those
terms are defi ned under the US Foreign Account Tax Compliance Act (FATCA). But the FFI
designation can be misleading.
"Any entity, both fi nancial and non-fi nancial, must consider whether it is subject to FATCA,
because FATCA is not limited in scope to the fi nancial services industry," says Roanne Bratz of
Stikeman Elliott LLP's Montréal offi ce.
All FFIs must report the fi nancial activities of their American clients to the Internal Revenue
Service and withhold funds in appropriate circumstances. But the IGA allows Canadian insti-
tutions to report to the Canada Revenue Agency instead. " is aligns the reporting obligations
of fi nancial institutions under US and Canadian law.
" is aspect of the IGA is, however, a double-edged sword.
"On the one hand, the fact that the legislation requires Canadian institutions to fl ag their
