Glossary – Canada – Commercial Banking

The account holder is generally the person listed or identified as the holder of the financial account by the financial institution that maintains the account. When a person other than a financial institution holds a financial account for the benefit of or for another person as an agent, custodian, nominee, signatory, investment advisor, or intermediary, they are not considered the account holder. In such cases, the account holder is the person for whom the account is held.

If a trust or an estate is listed as the holder of a financial account, the trust or the estate is the account holder, not the trustee or the liquidator. Similarly, if a partnership is listed as the holder of a financial account, the partnership is the account holder, not the partners in the partnership.

An account holder also includes any person who can access the cash value or designate a beneficiary under a cash value insurance contract or an annuity contract.

An active non-financial entity is an entity other than a financial institution that meets at least one of the following criteria:

1. Less than 50% of the entity’s gross income for the preceding fiscal year is passive income and less than 50% of the assets the entity held during the preceding fiscal year are assets that produce or are held to produce passive income.
2. The stock of the entity is regularly traded on an established securities market or the entity is related to an entity whose stock is regularly traded on an established securities market.
3. The entity is a governmental entity, an international organization, a central bank, or an entity wholly owned by one or more of the above.
4. Substantially all of the activities of the entity are made up of holding (in whole or in part) the outstanding stock of, or providing financing and services to, one or more subsidiaries that engage in trades or businesses other than the business of a financial institution. But, an entity does not qualify for this status if the entity functions (or presents itself) as an investment fund. Examples of an investment fund include a private equity fund, a venture capital fund, a leveraged buyout fund, and any investment vehicle whose purpose is to acquire or fund companies and then hold interests in those companies as capital assets for investment purposes.
5. The entity is a start-up and is not yet operating a business and has no operating history, but it is investing capital into assets with the intention of operating a business other than the business of a financial institution. This is as long as the entity does not qualify for this exception later than 24 months after the date it was first organized.
6. The entity is in liquidation and was not a financial institution in the past five years. And, it is in the process of liquidating its assets or is reorganizing with the intention of continuing or restarting operations in a business other than the business of a financial institution.
7. The entity mainly engages in financing and hedging transactions with, or for, related entities that are not financial institutions. It does not provide financing or hedging services to an entity that is not a related entity. This is as long as the group of any such related entities is mainly engaged in a business other than the business of a financial institution.
8. The entity is a non-profit entity that meets all of the following requirements:
1. It is established and operated in its jurisdiction of residence exclusively for religious, charitable, scientific, artistic, cultural, athletic, or educational purposes. Or, it is established and operated in its jurisdiction of residence and is a professional organization, business league, chamber of commerce, labour organization, agricultural or horticultural organization, civic league, or an organization operated exclusively to promote social welfare.
2. It does not have to pay income tax in its jurisdiction of residence.
3. It has no shareholders or members who have a proprietary or beneficial interest in its income or assets.
4. The laws of the entity’s jurisdiction of residence that apply or the entity’s formation documents do not allow any of the entity’s income or assets to be distributed to, or applied for the benefit of, a private person or non-charitable entity other than in line with the entity’s charitable activities, as payment of reasonable compensation for services rendered, or as payment representing the fair market value of property the entity bought.
5. The laws of the entity’s jurisdiction of residence that apply or the entity’s formation documents require that, as soon as the entity is liquidated or dissolved, all of its assets will be distributed to a governmental entity or other non-profit entity. Or, they will be handed over to the government of the entity’s jurisdiction of residence or one of its political subdivisions.
9. The entity is organized in a United States territory and all of the owners of the payee are tax residents of that United States territory.

Controlling persons of an entity are the natural persons who exercise direct or indirect control over the entity. Generally, whether a person exercises control over an entity is determined in a way similar to how beneficial owners are identified for Canada’s Proceeds of Crime (Money Laundering) and Terrorist Financing Act.

For example, a person is generally considered to control a corporation if they directly or indirectly own or control at least 25% of the corporation. If no individual is named as controlling the corporation, the director or senior official of the corporation is considered the corporation’s controlling person.

In the case of a trust, controlling persons include its settlors, trustees, protectors (if any), beneficiaries (or class of beneficiaries), and any other natural persons exercising ultimate effective control over the trust.

A settlor, trustee, protector, or beneficiary of a trust may be an entity. If so, to determine the trust’s controlling persons you have to look through the entity’s chain of control or ownership to identify the natural persons exercising ultimate effective control over the entity. You then have to report those you find as controlling persons of the trust. Financial institutions may apply this requirement in a way similar to how beneficial owners are identified for Canada’s Proceeds of Crime (Money Laundering) and Terrorist Financial Act.

In the case of a legal arrangement other than a trust, controlling persons are persons in equivalent or similar positions.

The Common Reporting Standard (CRS) is a worldwide information-gathering and reporting requirement for financial institutions, to help fight against tax evasion and protect the integrity of tax systems.

Under Canadian legislation related to the CRS, we are required to identify account holders who are “tax resident” outside of Canada or the U.S. For reportable accounts, the CRA may then share this information with the tax authority of the country (or countries) where you are tax resident.

This is defined under the CRS as a legal person or a legal arrangement, such as a corporation, organization, partnership, trust or foundation. An entity will therefore include any customer that holds a business account, product or service with HSBC Bank Canada except Sole Proprietors, who are treated as Individuals under the CRS.

Canada enacted legislation in 2014 to implement the Foreign Account Tax Compliance Act (FATCA), to help counter US tax evasion by encouraging better reporting of information relating to US Persons. For more information, please visit our FATCA page.

The Organization for Economic Co-operation and Development (OECD) is a group of 34 member countries plus the European Commission and Brazil, China, India, Indonesia and South Africa as permanent guests.

Under the CRS, a Passive NFE means any NFE that is not an Active NFE.

A NFE will be deemed a Passive NFE if more than 50% of the NFE’s gross income for the preceding calendar year or appropriate reporting period is passive income or the assets held by the NFE during the same period are assets that produce or are held for the production of passive income.

For the purpose of the CRS, passive income* would generally be considered to include the portion of gross income that consists of:

• dividends;
• interest;
• income equivalent to interest;
• rents and royalties, other than rents and royalties derived in the active conduct of a business conducted, at least in part, by employees of the NFE;
• annuities;
• the excess of gains over losses from the sale or exchange of Financial Assets that gives rise to passive income described above;
• the excess of gains over losses from transactions (including futures, forwards, options, and similar transactions) in any Financial Assets;
• the excess of foreign currency gains over foreign currency losses;
• net income from swaps;
• amounts received under Cash Value Insurance Contracts.

* Passive income will not include, in the case of an NFE that regularly acts as a dealer in Financial Assets, any income from any transaction entered into in the ordinary course of such dealer’s business as such a dealer.

An entity is considered to be related if one entity controls the other or if the two entities are under common control (the "related entity group"). Control means direct or indirect ownership of:

a) In the case of a corporation, 50% or more of the votes and value;

b) In the case of a trust, an interest as a beneficiary in the trust with a fair market value that is greater than 50% of the fair market value of all interests as a beneficiary in the trust.

c) In the case of a partnership, interest as a member in the partnership that entitles the member to more than 50% of the income or loss of the partnership, or of the assets (after deducting any liabilities) if the partnership were to stop existing.

There are two types of self-certification forms for the CRS.

1. Declaration of Tax Residence for Entities: If you are a business HSBC Bank Canada account holder, please use this form to confirm you business’s status under the CRS.
2. Individual Tax Residency Self Certification Form: If you are a Sole Proprietor, please use this form to confirm you business’s status under the CRS.  

In the absence of a natural person(s) that exercises control of the Entity through ownership interests, the Senior Managing Official can be identified as the Controlling Person(s) of the Entity.

The Senior Managing Official of a company is the person who exercises control over the management of the entity.

A sole proprietor – also known as a sole proprietorship or simply proprietorship – is a type of business entity which is owned and run by one individual and where there is no legal distinction between the owner and the business.

Generally, an entity will be a tax resident of a jurisdiction if, under the laws of that jurisdiction, it pays or should be paying tax there because of its domicile, residence, place of management or incorporation, or a similar criterion. Each country has its own rules for defining tax residence. For more information on tax residence, please consult a professional tax adviser or visit the Canada Revenue Agency to more information.

A taxpayer identification number, often referred to by its abbreviation TIN, is a unique combination of letters or numbers that a jurisdiction assigns to an individual or entity. The jurisdiction uses the TIN in administering its tax laws to identify the individual or entity. Enter the TIN in its official format. For more details about acceptable TINs, go to OECD portal.