The Common Reporting Standard (CRS) is the single global standard for the collection, reporting, and exchange of financial account information on foreign tax residents.
Under the CRS, banks and other financial institutions collect and report financial account information on non-residents to the ATO. In return, the ATO receives financial account information on Australian residents from other countries’ tax authorities.
The ATO uses this information to ensure that Australian residents with financial accounts in other countries are complying with Australian tax law and are not evading their tax obligations.
This article explores the key considerations as set out by the ATO.
Legislative background
The Australian government announced the Organisation for Economic Co-operation and Development’s (OECD) CRS in the Mid-year Economic and Fiscal Outlook 2014–15.
The CRS legislation received royal assent on 18 March 2016 and came into effect on 1 July 2017. The first exchange of information occurred in 2018.
Who does the CRS apply to?
The CRS applies to:
- Financial institutions.
- Customers.
- Tax agents.
Financial institutions
CRS obligations are imposed on Australian financial institutions through the operation of Subdivision 396-C of Schedule 1 to the Taxation Administration Act 1953 (Cth).
Financial institutions are generally required to ask the person opening an account to certify their residence for tax purposes. If the person has tax residency in another jurisdiction, the details of the account need to be reported to the ATO, irrespective of whether that jurisdiction has adopted the CRS. The ATO will then exchange this information with other jurisdictions that have adopted the CRS. So far, more than 100 jurisdictions have committed to its implementation.
Whereas the CRS refers to information exchange between Australia and other countries that have implemented the Standard, the Foreign Account Tax Compliance Act (FATCA) is the regime governing information exchange between Australia and the United States. The CRS draws extensively on the intergovernmental agreement approach to implementing FATCA which manages legal impediments, simplifies practical implementation, and reduces compliance costs for relevant financial institutions.
Customers
The CRS (and FATCA) impacts customers, investors, and account holders of financial institutions.
If you have an existing account, your financial institution may contact you to confirm your country or countries of tax residence to establish whether you have any accounts that need to be reported under CRS or FATCA laws.
From 1 July 2017, your financial institution must ask you to certify your residence for tax purposes if you open a new account. They may ask you to provide forms and documentation. If you are a foreign tax resident, you will need to provide your taxpayer identification number (TIN) or equivalent.
Tax agents
It is important for tax agents to understand how the CRS may affect their clients. Tax agents need to ensure that clients accurately disclose their offshore assets and foreign source income.
If an individual controls or beneficially owns an entity or has a specific connection to the entity, then they may be identified and reported in connection with the entity’s financial accounts.
What are the consequences of non-compliance?
To be compliant with tax laws, Australians living overseas or who have overseas assets should ensure that they declare their foreign bank accounts, as well as any income earned and any assets held overseas, to the ATO. Non-compliance could result in serious financial and reputational risks, including being charged with tax evasion.
