Bank Letters to Foreign Account Holders NOT a Scam

Advisors, inform your clients that they may receive letters from their financial institutions that they need to respond to, and it’s not a phishing scam.

Special to Knowledge Bureau Report

Clients with foreign bank accounts, or who are residents for tax purposes of any country other than Canada or the U.S., may have started receiving letters from their financial institutions requesting information, such as Social Insurance Numbers (SINs) or foreign Tax Identification Numbers (TINs). While this might seem like the makings of a phishing scheme, it’s completely legit — and legally clients must comply.

Under the Common Reporting Standard (CRS), which became effective in Canada July 1, 2017, financial institutions are required to report such information annually to the Canada Revenue Agency beginning in May 2018. The CRA will subsequently exchange this information with tax authorities of the countries with which Canada has an agreement.

The CRS, developed by the Organization for Economic Co-operation and Development with the support of Canada and the other G20 industrialized countries, is a global model for the automatic exchange of information on financial accounts (such as bank, mutual fund and brokerage accounts, and some annuities and life insurance policies). It is intended to combat tax evasion and improve tax compliance globally.

Customers who hold accounts with Canadian financial institutions may be required to confirm their tax residency status and provide TINs for all countries in which they are a resident for tax purposes. Canadian financial institutions and their customers will be required by law to comply with the CRS.

It is important for customers to respond to requests from financial institutions to provide required information about their tax residency and TINs. For Canada, a Social Insurance Number (SIN) is a Canadian individual resident’s TIN and in Germany, for example, it is the 11-digit Identifikationsnummer.

It is possible to be a tax resident in more than one country, and financial institutions cannot provide advice about tax residency rules to customers. Customers who are unsure about their tax residency should consult a tax advisor. The OECD has information about tax residency rules for CRS participating countries.

If a Canadian resident has a reportable financial account in another country that has agreed to exchange information with Canada, the financial institution in that country will be required to report information to their local tax authority, which will then exchange that information with the CRA.

If an account is reportable, the CRS requires financial institutions to provide the following information to the local tax authority (e.g., CRA):

• Account holder’s:
  • Name
  • Address
  • Date of birth (for individuals)
  • Tax identification number (if country issues TINs)
  • Country (countries) of tax residence
• Account number
   
• Account balance or value (or the closure of the account)
   
• Amount of interest, dividends, gross proceeds and other payments made or credited to the account (if applicable)

Other countries participating in the CRS may require additional information to be reported to their local tax authorities (such as the account holder’s place of birth).

It is important to understand that the “automatic exchange of information” reporting will not release account holders from their tax declaration obligations to their local tax authorities. Due to different reporting requirements, the data of accounts contained in the annual tax report may differ from the data reported within the framework of information exchange.

Form RC518 E (17) - Declaration of Tax Residence for Individuals – Part XVIII and Part XIX of the Income Tax Act, is available on the CRA website.

Please Note: T-1 Adjustments for the Foreign Tax Credit, which would typically take CRA about two months to process, is in some cases now taking more than 10 months. Be sure to allow much more time to get your results from CRA, as advisors have no influence on CRA to speed up the process for their clients.

Siegfried Merten, MFA, is president of Merten Financial Inc., a tax and accounting services firm in St. Catharines, Ont. He is also an expert on German pension recipients’ tax laws and requirements and consults or prepares German tax returns for accountants, tax professionals, and pension recipients from all over Canada.

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