Banks must notify customers before sending information to CRA and the IRS

Just after the Canada US FATCA IGA was signed, CRA put out a list of frequently asked questions.
Among the list is item 14 which caught the attention of some: (emphasis mine)
14. Does my Canadian financial institution have to notify me if information on my accounts is being reported to the CRA?
Canadian financial institutions must be open about their policies and procedures for complying with the Agreement and must be prepared to make this information available to anyone who asks about them. Although there will be no obligation for financial institutions to automatically notify their account holders about reporting to the CRA under the Agreement, financial institutions must, upon request, allow account holders to have access to the personal information that has been reported. 
In his testimony before the Senate Finance Committee on April 30th, Kevin Shoom mentioned that there was a change to the implementing legislation to take away the voluntary nature of informing customers that their accounts have been flagged as reportable. He cited ITA subsection 265(5), which is written in the usual almost incomprehensible language of the Income tax Act.

(5) For the purposes of paragraphs (2)(a) and (b), subparagraph (2)(c)(ii), paragraph (3)(a) andb)(ii), subparagraph B(3) of section II of Annex I to the agreement is to be read as follows 3. if any of the U.S. indicia listed in subparagraph B(1) of this section are discovered in the electronic search,or if there is a change in circumstances that results in one or more U.S. indicia being associated with the account,then the Reporting Canadian Financial Institution must  seek to obtain or review the information described in the portion of subparagraph B(4) of this section that is relevant in the circumstances and must treat the account as a U.S. Reportable Account unless one of the exceptions in subparagraph B(4) applies with respect to that account.
 I have asked Kevin to ask CRA to change their frequently asked questions to revise item 14 and he agreed to do so.Until the Charter Challenge nullifies the IGA, there’s going to be mistakes made by FIs. At least now, with this change, they will be required to contact customers before passing private information through the CRA to the IRS.

7 thoughts on “Banks must notify customers before sending information to CRA and the IRS

  1. I think it would be even better if the rule stated that the FI must obtain permission from the account holder before reporting the account to the CRA, and if permission is denied by the account holder, the account must be closed.
    That gives the control to the account holder to stop the reporting of the account.

  2. Yes indeed, so the procedure should be:
    FI finds indicia, notifies account holder who has the options of: Approving the reporting of the account to the CRA, clearing indicia, or closing the account without it being reported.

  3. This is excellent news, at least for many folks, and thanks so much Lynne for pressing Shoom to have CRA change their advice on their website.
    As I am sure have some, if not many, others, I’ve been raising this point for some months now in emails to Parliament and government (including in a pre-legislation submission to Finance) that it would be outrageous for a person’s account to be reported to IRS on the basis of alleged US indicia without that person having had the opportunity to know this was contemplated and, if appropriate, to challenge the indicia and to provide contrary evidence (like a CLN or in some cases an oath of renunciation of previous citizenship sworn during a pre-1973 Canadian citizenship ceremony).
    That doesn’t get duals-at-birth nor duals-by-naturalization off the hook, but it is a move in the right direction for those who very clearly are NO LONGER so-called US persons by any definition that that phrase, yet who might have had their accounts incorrectly reported without knowing and with no recourse before the fact. At least that batch of potential litigations (and time and expense costs on both sides) will be avoided now.
    I still think it would have been preferable, as I suggested in my submission, that this verification be done by CRA rather than the financial institutions, because a) there would be more control and certainty of consistency of application of the review if it were done in one place instead of several hundred if not thousands of places around the country, and b) because of the real risks at the financial-institutional level of some employees being mis-informed, not understanding the rules correctly, or even downright maliciousness or personal vendetta in some hopefully rare cases. However, telling the institutions they MUST do this (which the original enabling legislation did NOT say), at least makes them legally liable for errors or omissions and is more likely to get them to act properly. Though I still think it would be less expensive to the economy and to the banks (if not to the government) for that review process to be centralized at CRA. As I mentioned in my submission, given that presumably the whole reporting processing is being computerized and given that (one hopes) most if not all bank accounts have an email address associated with them (I’m not certain about that though), a robo-notification process would be quite straightforward and not overly expensive if done at the CRA level. I guess the real issue is whether email addresses would have been sufficiently accessible by CRA or the banks (versus telephone calls from the bank if no email address is available). The alternative would be, all accounts have a postal address associated with them, and the cost of generating robo-letters in cases where an account is flagged as reportable, wouldn’t be overly expensive (or wouldn’t have been before Canada Post hiked the postal rates beyond reason a few weeks ago).
    Bottom line, at least Finance Canada has listened to at least one set of complaints made in some submissions.

  4. @Schubert:  I don’t get any of the credit for that.  It was Hazy and perhaps others who raised that issue with Kevin Shoom.  I’m glad they listened on at least one point.

  5. Now that the official transcript of the Senate finance hearing on April 30th has been published, here is exactly what Kevin Shoom said about notification of customers
    “If a financial institution does find one of these indicators through an electronic search, the agreement says that it should treat the account as reportable unless it elects to attempt to clear the indicia. That’s what the agreement says. In our implementing legislation, we have taken away the voluntary nature of that. This is contained in 265(5) of the implementing legislation, and it’s making it clear that financial institutions attempt to clear the indicia. Clearing the indicia would mean contacting the client and giving the client the opportunity to provide the documentary evidence necessary to demonstrate that they are not in fact a U.S. person.”

  6. At the end of this July, CRA posted an update to their FAQ on FATCA. The link is here
    This FAQ page is a lot more detailed than my recollection of the previous one I’d checked (but be aware of my short-term memory issues, sigh). I urge everyone visiting this thread to check this latest version.
    Pay particular attention to what it says about financial institutions that are no part of a multinational financial group and for which at least 98% of the account holders are Canadian residents. AFAIK that description applies to all Canadian credit unions, certainly those in BC and Ontario from what I’ve heard, and wouldn’t apply to any of the chartered banks, all of which I believe have branches in the US now. Financial institutions meeting the Canadian-only, 98% resident criteria do not have to report account information if the account is held by a Canadian resident. Regardless of citizenship status of that resident, as far as I can see.

  7. That more recent information may be more detailed, but it seems to be missing this important information from the February FATCA Information from CRA

    Will my financial institution be asking me if I was born in the U.S.?
    A financial institution complying with the agreement will not be required to ask its account holders about their place of birth.
    If a financial institution, applying the due diligence rules of the agreement to its accounts, discovers any records connected to the account that have an unambiguous indication of a U.S. place of birth, the financial institution may treat the account as a reportable account or follow up with the account holder to obtain documentation that shows the account holder is not a U.S. resident or U.S. citizen.


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