OTTAWA - The federal government says it has signed a deal with the United States over a new American law aimed at rooting out tax cheats north of the border.
The Foreign Account Tax Compliance Act, which takes effect in July, would compel Canadian financial institutions to report information about anyone considered to be a U.S. resident or citizen â€” including dual citizens â€” directly to the American Internal Revenue Service.
Senior Canadian government officials say the deal signed today allows the Canada Revenue Agency to collect certain information from banks and share it with the U.S. under existing tax treaty rules.
They say it makes Canada responsible for collecting information from its own taxpayers, avoiding privacy and other concerns raised by financial institutions.
The deal narrows the scope of information that banks would be required to collect and avoids the U.S. imposing a withholding tax to enforce the law.
Officials say the deal exempts most federal registered accounts, such as registered retirement savings plans, pension plans and tax-free savings accounts.
Although financial institutions will have to start collecting the information in July, officials say the CRA isn't expected to start sharing the information with the IRS until 2015.
Canadian bankers had previously said that such an arrangement would be an improvement over what the U.S. initially wanted, but it's not ideal.
They say current Canadian law does not require banks to ask clients whether they are also U.S. citizens, and changing bank procedures could cost tens of millions of dollars in administrative fees.