Part 17: What God Hath Wrought – The #FATCA Inquisition (Review, Identify and Report on “U.S. Persons”) – Retirement accounts are exempt from FATCA reporting in all cases

First, Canadian Retirement Accounts are “deemed to be compliant under S. 1471 and S. 1472 of the Internal Revenue Code

The Canada U.S. FATCA IGA …

FATCA-eng

IGA Article IV describes the “Specific Treatment of Canadian Retirement Plans” as follows:

3. Specific Treatment of Canadian Retirement Plans. The United States shall treat as deemed-compliant FFIs or exempt beneficial owners, as appropriate, for purposes of sections 1471 and 1472 of the U.S. Internal Revenue Code, Canadian retirement plans identified in Annex II. For this purpose, a Canadian retirement plan includes an Entity established or located in, and regulated by, Canada, or a predetermined contractual or legal arrangement, operated to provide pension or retirement benefits or earn income for providing such benefits under the laws of Canada and regulated with respect to contributions, distributions, reporting, sponsorship, and taxation.

Second, because Canadian Retirement Accounts are NOT “financial accounts” as per Annex II of the IGA, they are NOT “reportable accounts” under the definitions section of Article I of the IGA

IGA Article I (definitions) includes …

s) The term “Financial Account” means an account maintained by a Financial Institution, and includes:

Notwithstanding the foregoing, the term “Financial Account” does not include any account, product, or arrangement identified as excluded from the definition of Financial Account in Annex II.

Annex II of the IGA (page 39) includes:

Annex II

Non-Reporting Canadian Financial Institutions and Products

I. General

A. This Annex may be modified by a mutual written decision entered into between the Competent Authorities of Canada and the United States:

1. To include additional Entities, accounts, and products that present a low risk of being used by U.S. Persons to evade U.S. tax and that have similar characteristics to the Entities, accounts, and products identified in this Annex as of the date of signature of the Agreement; or

2. To remove Entities, accounts, and products that, due to changes in circumstances, no longer present a low risk of being used by U.S. Persons to evade U.S. tax. Any such addition or removal shall be effective on the date of signature of the
mutual decision unless otherwise provided therein.

B. Procedures for reaching a mutual decision described in paragraph A of this section may be included in the mutual agreement or arrangement described in paragraph 6 of Article 3 of the Agreement.

II. Exempt Beneficial Owners

The following Entities shall be treated as Non-Reporting Canadian Financial Institutions and as exempt beneficial owners for the purposes of sections 1471 and 1472 of the U.S. Internal Revenue Code:

C. Retirement Funds

1. Any plan or arrangement established in Canada and described in paragraph 3 of Article XVIII (Pensions and Annuities) of the Convention, including any plan or arrangement that the Competent Authorities may agree under subparagraph 3(b) of Article XVIII is similar to a plan or arrangement under this subparagraph.

IV. Accounts Excluded from Financial Accounts

The following accounts and products established in Canada and maintained by a Canadian Financial Institution shall be treated as excluded from the definition of Financial Accounts, and therefore are not U.S. Reportable Accounts under
the Agreement:

A. Registered Retirement Savings Plans (RRSPs) – as defined in subsection 146(1) of the Income Tax Act.

B. Registered Retirement Income Funds (RRIFs) – as defined in subsection 146.3(1) of the
Income Tax Act.

C. Pooled Registered Pension Plans (PRPPs) – as defined in subsection 147.5(1) of the Income Tax Act.

D. Registered Pension Plans (RPPs) – as defined in subsection 248(1) of the Income Tax Act.

E. Tax-Free Savings Accounts (TFSAs) – as defined in subsection 146.2(1) of the Income Tax Act.

F. Registered Disability Savings Plans (RDSPs) – as defined in subsection 146.4(1) of the Income Tax Act.

G. Registered Education Savings Plans (RESPs) – as defined in subsection 146.1(1) of the Income Tax Act.

H. Deferred Profit Sharing Plans (DPSPs) – as defined in subsection 147(1) of the Income Tax Act.

Do the banks have a residual discretion under the “Due Diligence” provisions of Annex I to report Canadian Retirement Accounts?

The banks have a residual discretion to report accounts with balances of under $50,000. The banks do NOT appear to have a residual discretion to report Canadian Retirement Accounts. This is because, Canadian Retirement Accounts are NOT “Financial Accounts” and are therefore NOT “U.S. Reportable Accounts”. The “Due Diligence” provisions in Annex I of the IGA apply with respect to “U.S. Reportable Accounts”.

Yet, when it comes to the RRIF and FATCA Reporting …

Although the RRIF is clearly specified as being exempt from FATCA reporting, some Canadian banks ARE treating the establishment of a RRIF as a “new account” for FATCA purposes. See the following post which referenced in the above tweet..