Access to Information Request Reveals Majority of Canadian Accounts Reported under FATCA Fall Below the Balance Threshold Required by US Law – This information does not need to be sent to the IRS!

Over the past several years, a “Concerned Citizen” has submitted several Access to Information requests to CRA, demanding detailed information about what is being reported. After a series of complaints and appeals, CRA has been more forthcoming.  I have seen the document received in response and asked Concerned Citizen to provide a brief summary of the results:

“A recent Access to Information Act Request revealed that for 2019, Canadian financial institutions reported approximately 615,000 accounts with a balance under US$50,000 to CRA for eventual transmission to the IRS under the terms of the FATCA agreement. The US-Canada IGA sets out a reporting threshold of US$50,000 – accounts below this balance are not required to be reported. Canadian banks have nevertheless chosen to report accounts of lower value. With approximately 1 million accounts reported in total for 2019, over 60 percent of these records did not need to be sent. Since reporting began in 2014, roughly one-half to three-quarters of all accounts reported fell below the balance threshold and need not have been included in the annual transmission of data to the IRS.

Total accounts and account-holders reported

These numbers have been publicly available, though the request has given us more accurate totals than the estimates published in media accounts.

2014    158228

2015    318345

2016    632042

2017    727280

2018    900000 approx

2019    1000000 approx [to be confirmed]

Because individuals and business entities generally have multiple accounts, the total number of individual account-holders subject to FATCA reporting will be much lower than the total number of accounts reported. CRA was asked to estimate the number of account-holders based on common elements in the data, such as matching addresses, SIN or SSN values, etc. CRA was unwilling or unable to provide this information.

Country of account owner

FATCA requires that Canadian financial institutions identify accounts held by US persons, regardless of where they live. CRA was asked to provide the total numbers of accounts associated with Canadian addresses and with US addresses. This allows us to estimate the proportion of Canadian residents affected (who could be dual citizens, or US expats without Canadian citizenship) to US residents affected (who could be Canadian expats in the US, or former US expats with Canadian assets).

CRA initially refused this request, but after an appeal and complaint it eventually provided a set of estimates for individuals and entities associated with addresses in each country. Of interest, the Canadian addresses make up 62 to 75 percent of the total accounts – so roughly one-quarter to one-third of accounts reported likely belong to US residents, who would be US taxpayers and presumably filing FBAR reports as well. The following table shows the percentage of Canadian addresses each year:

(Astute readers may notice that the total number of records for each row does roughly match or fall slightly below the total number of accounts reported each year in the table previously shown.)

Accounts below reporting threshold

The US-Canada IGA only requires financial institutions to report US-person accounts with a balance over US$50,000. However, they are not prevented from reporting lower-value accounts. There has long been concern that banks were reporting more accounts than necessary, but no proof of this on a systematic basis.

CRA was asked to provide the number of accounts reported each year with a balance below the threshold. They initially refused, but after an appeal and complaint they did provide some estimated values. The following table lists these numbers along with a percentage of the total accounts reported for each year.

[the percentage for 2019 is based on the estimate of 1 million total – to be confirmed]

This information tells us that in any given year, anywhere from one-half to three-quarters of the account records sent to the IRS (via CRA) by Canadian banks were lower-value accounts that did not need to be reported.

Non-reportable account types

CRA was asked if they had any data to indicate that accounts belonging to types excluded from reporting under the IGA – RRSP, RESP, RDSP, TFSA and other similar accounts – were being reported to the IRS. CRA replied that the data they receive from financial institutions does not include any information to indicate account type. This is both good news and bad news. While we cannot rule out the possibility that some Canadian banks report these accounts when they are not required to, CRA’s response does indicate that the IRS would receive no information indicating the account type, which would be a possible concern for anyone holding TFSAs, for example.”