What is a Declaration of Tax Residence for Entities

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What is a Declaration of Tax Residence for Entities

November 7, 2017

Tax Question:

What is a Declaration of Tax Residence for Entities and why do Canadian financial institutes require it?

Facts:

In December 2016, an additional section was added to the Income Tax Act (ITA) that requires Canadian financial institutions to collect certain information about your company. The information is not automatically sent to the Canada Revenue Agency (CRA); however, if the financial institution determines the information needs to be reported to the CRA they will. CRA will then determine if the information needs to be sent to the foreign government related to the company’s residence or the company’s controlling person’s residence. Exchanging information is a new international standard of tax cooperation.

Discussion:

If your company will be opening a financial account or if your company already has an account with a Canadian financial institution, the financial institution may require you to fill out a Declaration of Tax Residence for Entities. The form has several sections to complete, including:

Section 1: Information about the company, such as where it was incorporated, permanent residence address, mailing address and a policy/account number assigned by the financial institution.
Section 2: Declaration of tax residence. If your company is a tax resident of Canada, you need to provide the company’s business number. Companies’ with a tax residence other than Canada need to note the company’s tax residence jurisdiction and the corresponding tax identification number. If the company is a tax resident in more than one jurisdiction, it needs to look at tie-breaker rules in tax treaties.
Section 3: Company classification. There are several descriptions listed such as financial institution, a public company, an active business and a passive business. If the company is a passive entity, then it will need to complete the appendix which is a detailed list of the controlling persons of the company (i.e. name, date of birth, permanent residence address, tax residence, etc.).

Exchange of information among foreign governments is used to determine if there are potential assets/income that should be taxed that have not been disclosed. You are given 90 days to complete this form. If you miss this deadline, the financial institution may have to report your account to the CRA.

If you would like more information on this topic, please contact a member of the Empire CPA team by filling out the contact form below.

Canadian and foreign tax laws are complex and have a tendency to change on a frequent basis. As such, the content published above is believed to be accurate as of the date of this post. Before implementing any tax planning, please seek professional advice from a qualified tax professional. Empire, Chartered Professional Accountants will not accept any liability for any tax ramifications that may result from acting based on the information contained above.