The information exchange is one of the key provisions of Foreign Account Tax Compliance Act (FATCA) which lead to information sharing agreement between Canada and the U.S.
The act, adopted in a bid to curb offshore tax evasion, obliges foreign financial institutions to report information about accounts held by people who could be subject to U.S. taxes.
Canadian government believes that negotiating the information-sharing agreement would be better than forcing Canadian banks to deal directly with the United States, IRS. Under the agreement, Canadian financial institutions send information on accounts held by clients with U.S. indicia to the Canadian Revenue Authorities; once a year, the CRA then forwards the information to the IRS.
