The Canadian Department of Finance announced on November 8th that negotiations are being held between Canada and the United States on an agreement to improve cross-border tax compliance through enhanced information exchange under the Canada-United States Tax Convention. The changes would support the provisions of the United States Foreign Account Tax Compliance Act (FATCA). The existence of the talks is also confirmed by an announcement released by the U.S. Treasury Department on the same date, which includes Canada among a list of jurisdictions with which Treasury is actively engaged in a dialogue towards concluding an intergovernmental agreement.
The announcement is welcome news to Canadian financial institutions and investment funds. They have been waiting to see whether they will be required to enter into individual agreements with the U.S. Internal Revenue Service to avoid becoming subject to the onerous new withholding taxes FATCA will impose on non-participating financial institutions. Such agreements should not be necessary if the two governments enter into a direct agreement.
The announcement does not include any details, such as whether any relief is being discussed for the hundreds of thousands of U.S. citizens resident in Canada who have not been complying with their U.S. tax obligations.
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