On January 9, 2014, the Government of Canada released for public comment draft legislative proposals that – if enacted – will require the reporting of international electronic funds transfers of $10,000 or more to the Canada Revenue Agency effective as of January 1, 2015.
Under the draft legislation released, the proposed reporting regime will be found in new Part XV.1 of the Income Tax Act (Canada) (the “Act”). Proposed subsection 244.2(1) – which is the charging provision of this new regime – will generally require every “reporting entity” to file an information return in prescribed form with the Minister of National Revenue in respect of the following two categories of electronic funds transfers:
- the sending out of Canada, at the request of a client, of an electronic funds transfer of $10,000 or more in the course of a “single transaction”; and
- the receipt from outside Canada of an electronic funds transfer, sent at the request of a client, of $10,000 or more in the course of a “single transaction”.
For the purposes of this reporting requirement, a “single transaction” is considered to include two or more electronic funds transfers of less than $10,000 each that are made within 24 consecutive hours and that, together, total $10,000 or more if the transfers are conducted by or are made on behalf of the same entity (subject to certain exceptions if the transfers are requested by certain specific entities listed in proposed paragraph 244.4(2)).
The definition of a “reporting entity” in proposed section 244.1 provides an exhaustive list of financial entities that will be subject to the new reporting regime. For example, a “reporting entity” includes banks to which the Act applies, authorized foreign banks within the meaning of the Bank Act(Canada), credit unions, trust companies and loan companies that are regulated by provincial legislation, casinos, and certain entities engaged in the business of foreign exchange dealing, of remitting funds or transmitting funds, or of issuing or redeeming negotiable instruments such as money orders and traveller’s cheques.
In order to clarify that the scope of the reporting obligation outlined in proposed subsection 244.2(1) applies to international – and not domestic – electronic funds transfers, the rules in proposed subsection 244.2(2) provide that a reporting entity is not subject to the new reporting regime if the reporting entity has sent or received an electronic funds transfer to or from an entity in Canada, even if the final recipient or initial sender, as the case may be, is located outside Canada (subject to the discussion in the following paragraph).
The draft legislation also contains rules that target reporting entities who seek to avoid the new reporting regime by acting as mere intermediaries or facilitators of electronic funds transfers. For example, proposed paragraph 244.2(3)(a) applies where a reporting entity orders another reporting entity to send an electronic funds transfer out of Canada at the request of a client. In these circumstances, proposed paragraph 244.2(3)(a) will generally require the first reporting entity to file an information return under subsection 244.2(1) – even though the entity did not send any electronic funds transfer out of Canada – unless the entity provided the other reporting entity with the name and address of the client. Similarly, if a reporting entity receives an electronic funds transfer for a beneficiary in Canada from another reporting entity in circumstances where the initial sender is outside Canada, then the “recipient” reporting entity will be subject to the reporting regime in proposed subsection 244.2(1) unless the transfer contains the name and address of the beneficiary.
If it has been determined that a reporting entity is required to file an information return pursuant to proposed subsection 244.2(1), the information return must be filed no later than five working days after the day of the transfer. The return is to be filed electronically if the reporting entity has the technical capabilities to do so.
The new reporting regime also imposes record-keeping requirements on reporting entities that are subject to the filing obligation in proposed subsection 244.2(1). The records that must be kept are those that will enable the Minister of National Revenue to determine whether the entity has complied with its duties and obligations under new Part XV.1. Records in respect of an electronic funds transfer must be retained for a period of at least five years from the day of the transfer.