International efforts to address tax evasion and encourage greater tax compliance are ramping up. As of June 2015, 61 jurisdictions around the globe — including Canada — joined the Multilateral Competent Authority Agreement (MCAA), an international tax information sharing agreement. Coordinated by the Organisation for Economic Co-operation and Development (OECD), this agreement involves additional data collection processes (similar to Foreign Account Tax Compliance Act or FATCA) starting in 2017, with information sharing to begin in 2018.
A SINGLE GLOBAL STANDARD
The MCAA brings data collection and sharing to an international level through a new, single global standard: the Standard for Automatic Exchange of Financial Account Information in Tax Matters or Common Reporting Standard (CRS). Developed by the OECD and G20 countries, the CRS:
- sets standards for the secure exchange of financial account information between governments and tax authorities of participating jurisdictions, including balances, interest, dividends and sales proceeds from financial assets.
- can apply to accounts held by individuals and entities, including trusts and foundations.
- is intended to maximize efficiency, reduce costs of information exchange and maintain taxpayer confidentiality.
Our country’s commitment to the MCAA and the CRS is expected to improve the Canada Revenue Agency’s (CRA) ability to detect and address cases of tax evasion and protect the integrity of our tax system.
- Foreign tax authorities will provide information to the CRA related to financial accounts held by Canadian residents and entities in their jurisdictions.
- The CRA will reciprocate, providing information to the foreign tax authorities on accounts in Canada held by their residents and entities.
A Government of Canada news release provides more detail.
POTENTIAL CLIENT REQUESTS
To meet its obligations under the CRS, information the CRA shares with foreign tax authorities will require financial institutions across Canada — banks, brokerages, savings and loan associations, credit unions, insurance companies — to:
- identify accounts held by non-residents, and
- report certain information about these accounts to the CRA.
In some cases, these financial institutions will reach out directly to account holders — which could include your clients — to request residency or other account-related information. This information will help determine whether they’re required to report an account to the CRA. If clients don’t respond to these requests promptly or at all, financial institutions will be obligated to report the account.
Your awareness of the CRS and potential information requests from financial institutions to your clients is important. Canada expects to formally adopt the CRS on July 1, 2017, with the first exchanges of account information beginning in 2018. Explore the links in this article, including this summary from the OECD, share them with clients, and encourage those who receive requests for account-related information to reply promptly.