FATCA Explained: What the Foreign Account Tax Compliance Act Means for You

FATCA, the Foreign Account Tax Compliance Act, is a US federal law enacted in 2010 as part of the HIRE Act (P.L. 111-147, Title V). It attacks offshore tax evasion from two directions at once. On one side, it requires foreign financial institutions (banks, brokerages, insurance companies, investment funds) worldwide to identify and report accounts held by US persons to the IRS, or face a 30% withholding tax on US-source payments. On the other side, it requires US persons to report their foreign financial assets to the IRS on Form 8938 when those assets exceed certain thresholds. If you are a US citizen or green card holder living in Canada, FATCA is the reason your Canadian bank asked you to self-certify your US status, and it is the statute behind the Form 8938 you file with your tax return.

What is FATCA and why does it exist?

FATCA is Title V of the Hiring Incentives to Restore Employment (HIRE) Act, signed into law on March 18, 2010, with the institutional reporting provisions phased in starting July 1, 2014. It added sections 1471 through 1474 to the Internal Revenue Code (IRC 1471-1474) and section 6038D (IRC 6038D), which is the individual reporting requirement behind Form 8938.

The law was a response to high-profile offshore tax evasion cases, most notably UBS AG, which in 2009 admitted to helping US taxpayers hide approximately $20 billion in assets from the IRS. Before FATCA, the IRS had no systematic way to discover whether a US person held accounts at foreign banks. FATCA solved that by making foreign banks part of the enforcement mechanism: identify your US-person account holders and report them, or lose access to the US financial system through withholding on your US-source income.

FATCA is not a tax. It does not impose a new tax on foreign accounts or foreign income. It is a reporting and information-sharing regime. The tax on the income in those accounts is the same tax that always applied under the Internal Revenue Code’s worldwide taxation of US persons. What FATCA changed is the IRS’s ability to find the accounts and verify that the income was reported.

Does FATCA apply to Canadians?

FATCA applies to US persons, not to Canadians as such. If you are a Canadian citizen and permanent resident who has no US tax status (not a US citizen, not a green card holder, not a US resident alien), FATCA does not create a personal reporting obligation for you. You do not file Form 8938.

But FATCA affects Canadians indirectly through the institutional arm. Canadian banks are required to identify accounts held by US persons and report them to the CRA under the Canada-US Intergovernmental Agreement (IGA), signed February 5, 2014. When your Canadian bank asks you to self-certify whether you are a US person (typically through a W-9 or W-8BEN, or a bank’s own FATCA self-certification form), that question comes from the IGA obligation. If you are not a US person, you certify that fact and the bank does not report your accounts.

The people FATCA directly applies to in Canada are US citizens living in Canada, US green card holders living in Canada, and anyone who is a US resident alien for tax purposes (which can include Canadians who spend substantial time in the US under the substantial presence test). For these people, FATCA creates two obligations: the Canadian bank reports their accounts to the CRA (which shares with the IRS), and the individual reports specified foreign financial assets on Form 8938 with their US tax return.

What do I have to report under FATCA?

The individual reporting obligation under FATCA is IRC 6038D, filed on Form 8938, Statement of Specified Foreign Financial Assets. You file it if you are a US person (citizen, green card holder, or resident alien) and the total value of your specified foreign financial assets exceeds the applicable threshold.

The thresholds depend on where you live and how you file:

Filing status	Living in the US	Living abroad
Single or married filing separately	$50,000 at year-end or $75,000 at any time	$200,000 at year-end or $300,000 at any time
Married filing jointly	$100,000 at year-end or $150,000 at any time	$400,000 at year-end or $600,000 at any time

“At any time” means any single day during the year. If your Canadian accounts crossed $75,000 in March and dropped below that by December, you still file Form 8938 for the year (assuming you are single and living in the US).

Specified foreign financial assets include foreign bank accounts, foreign brokerage accounts, shares in foreign corporations not held through a US financial institution, interests in foreign trusts and partnerships, foreign financial instruments, and foreign pension accounts (including RRSP, RRIF, and TFSA for US reporting purposes). They do not include foreign real property held directly (a Canadian cottage you own personally is not a specified foreign financial asset, though the bank account you use to pay its expenses may be).

Form 8938 attaches to your income tax return and is due on the return’s due date, including extensions. If you are a US citizen living in Canada filing by the June 15 automatic extension with a further extension to October 15, Form 8938 follows that same timeline.

What is the difference between FATCA and FBAR?

FATCA (Form 8938) and the FBAR (FinCEN Form 114) are separate regimes with separate origins, separate agencies, separate thresholds, and separate penalties. Filing one does not satisfy the other, and most cross-border filers owe both. The FBAR vs Form 8938 guide walks through both in detail. The key differences in summary:

The FBAR predates FATCA by decades. It originates from the Bank Secrecy Act of 1970 and is administered by FinCEN (Financial Crimes Enforcement Network), a bureau of the US Treasury. FATCA was enacted in 2010 and is administered by the IRS. The FBAR fires at $10,000 in aggregate foreign account value at any point during the year, a much lower threshold than FATCA’s $50,000 to $400,000 range. The FBAR covers only foreign financial accounts (bank accounts, brokerage accounts, mutual funds, pension accounts with an account structure). FATCA covers a wider category of specified foreign financial assets, including assets that are not accounts (shares held directly, foreign partnership interests, foreign financial instruments).

The FBAR is filed electronically through the BSA E-Filing system. Form 8938 is filed with your income tax return. The FBAR deadline is April 15 with an automatic extension to October 15. Form 8938 follows your tax return’s due date.

The penalties also differ. The FBAR carries civil penalties of up to $16,987 per violation for non-willful failures and the greater of $100,000 or 50% of the account balance for willful failures (31 USC 5321(a)(5)). Form 8938 carries a $10,000 penalty for failure to file, with an additional $10,000 for each 30-day period of non-compliance after IRS notice, up to $50,000 (IRC 6038D(d)).

How does FATCA work in Canada specifically?

Canada and the US signed an Intergovernmental Agreement (IGA) on February 5, 2014, implementing FATCA through a government-to-government exchange rather than direct reporting from Canadian banks to the IRS. Canada enacted the IGA into domestic law through Part XVIII of the Income Tax Act (ITA 263-269).

Under the IGA, Canadian financial institutions (banks, credit unions, brokerages, insurance companies, investment funds) identify accounts held by US persons using due diligence procedures. They report those accounts to the CRA, not directly to the IRS. The CRA then shares the information with the IRS under Article XXVII of the Canada-US tax treaty (the exchange of information article). The reported information includes the account holder’s name, address, US TIN, account number, account balance, and interest/dividend/other income earned.

This structure matters for two reasons. First, it means Canadian banks are complying with Canadian law (Part XVIII of the ITA), not directly with US law, which resolved the constitutional concerns about a foreign government compelling Canadian financial institutions to report to it. Second, the CRA is in the data chain, so the CRA also sees which of its residents are US persons with reporting obligations in both countries.

If your Canadian bank or credit union asks you to self-certify your US status (are you a US citizen, were you born in the US, do you hold a green card), that is the IGA due diligence process. If you certify that you are not a US person, the bank does not report your account. If you are a US person and fail to self-certify, the bank may be required to treat your account as a US-reportable account based on US indicia (a US birthplace, a US address, a US phone number).

What should I do next?

If you are a US person living in Canada, FATCA means your Canadian bank is already reporting your accounts to the CRA (which shares with the IRS), and you are responsible for reporting your specified foreign financial assets on Form 8938 if they exceed the applicable threshold. You also likely owe an FBAR if your aggregate foreign account balances exceed $10,000. The two forms cover overlapping but not identical sets of assets, and filing one does not replace the other.

• Form 8938 vs FBAR: do I file both?, the side-by-side comparison of both reporting obligations
• Late FBAR: delinquent filing or streamlined?, what to do if you are behind on FBAR filings
• Is a TFSA a foreign trust? Form 3520 explained, the TFSA as a specified foreign financial asset under FATCA and a foreign trust under the trust reporting rules
• Form T1135: who files, what counts, Canada’s parallel foreign asset reporting for Canadian residents
• I’m American and moving to Canada, where FATCA and FBAR obligations begin for Americans arriving in Canada

This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.