Foreign Income Easier to Monitor

Information will now be shared between the Canada Revenue Agency and the Internal Revenue Service.

Information will now be shared between the Canada Revenue Agency and the Internal Revenue Service.

In February of this year, an agreement was signed between the Canadian and American government which makes it easier for the respective entities to monitor income earned outside their borders.

Under the terms of this agreement, financial institutions in Canada will share information with the Canada Revenue Agency (CRA), who will pass this information onto the Internal Revenue Service (IRS).

This will allow the IRS to more easily determine whether income earned at a bank in Canada is being accurately reported on an individual’s tax return.

The same information will be shared in return, so that the CRA will now have greater access to financial information regarding Canadians who hold bank or investment accounts in the United States.

This information sharing regime does not apply to registered investments, such as Registered Retirement Savings Plans, Tax Free Savings Accounts, and Registered Retirement Income Funds.

The new reporting regime will come into effect in July 2014 with information exchanges beginning in 2015.

The CRA has indicated that they will not assist the IRS in collecting taxes and penalties that are owed to the IRS.

As well, the agreement will not impose any taxes on US citizens holding accounts in Canada. The agreement will work in conjunction with tax treaties that are already in place with the United States, which govern the withholdings and the taxability of income between the two countries.

If you have investments in the United States, you should advise your investment advisor that you are a Canadian resident, to ensure that the correct amount of tax is being withheld on your income.

For instance, if you are receiving dividends on US stocks, and more than 15% tax is withheld on these dividends, you are overpaying US tax on your investment. You will need to contact your advisor to adjust your account.