The Foreign Account Tax Compliance Act (FATCA) obligations apply from 1 July 2014 with the first reporting (of the 2014 calendar year information) due to the ATO 31 July 2015. The ATO will then pass on the information to the Internal Revenue Service (IRS).

When does FATCA apply from?
The Foreign Account Tax Compliance Act (FATCA) obligations apply from 1 July 2014 with the first reporting (of the 2014 calendar year information) due to the ATO 31 July 2015. The ATO will then pass on the information to the Internal Revenue Service (IRS). 

The onus is on Australian financial institutions to either prove that they are not a reporting Australian financial institution (or an exempt reporting Australian financial institution), or start implementing processes and procedures to identify any US reportable accounts and to capture the relevant information on those accounts for FATCA reporting purposes.   

Who does FATCA apply to?
The FATCA obligations apply to an Australian entity which is classified as a reporting Australian financial institution and maintains US reportable accounts held by specified US persons as defined in the Australia-US Intergovernmental Agreement (IGA).

Reporting Australian financial institution
Reporting Australian financial institution means the following financial institutions that are resident in Australia:

• custodial institution
• depository institution
• investment entity
• specified insurance company

They generally includes banks, some building societies, some credit unions, specified life insurance companies, private equity funds, managed funds, exchange traded funds and some brokers.

However, where an Australian financial institution qualifies as an exempt beneficial owner or deemed-compliant Foreign Financial Institution (FFI) under the IGA or relevant US Treasury Regulations, it is not a reporting Australian financial institution. 

These exempt institutions include certain Not for Profit international organisations, superannuation funds, some local banks and financial institutions and investment advisors and managers.

US reportable account
US reportable account means a financial account identified as being held by a specified US person or a non-US entity controlled by a specified US person (i.e. passive NFFE) after applying the due diligence procedures as prescribed in the IGA.

However, certain accounts are specifically excluded from being a US reportable account such as certain superannuation and life insurance accounts.

What are FATCA obligations?
Under the IGA, a reporting Australian financial institution has the obligation to do the following in order to comply with FATCA if it maintains a US reportable account:

1. Register to obtain a Global Intermediary Identification Number (GIIN).
2. Apply due diligence procedures to identify any US reportable account and report certain information on these accounts to the ATO by 31 July after the end of the relevant calendar year.
3. For each of the 2015 and 2016 calendar years, also report the name of each non-participating financial institution to which it has made payments, and the aggregate amount of the payments.

Due diligence procedures
The IGA sets out the due diligence procedures which a reporting Australian financial institution will need to follow in order to identify any US reportable account and account held by a non-participating financial institution which it maintains.

Alternatively, the reporting Australian financial institution may adopt the procedures in the relevant US Treasury Regulations in lieu of those in the IGA to identify such accounts.

Different due diligence procedures apply to individual accounts and entity accounts depending on whether they are pre-existing accounts as at 30 June 2014 or new accounts opened from 1 July 2014. In addition, de minimus thresholds apply to certain accounts such that they are not required to be identified or reported as a US reportable account, as discussed above.

We note that when assessing the relevant thresholds aggregation rules may apply to combine account values for account holders.

These due diligence procedures have been summarised below:

Pre-existing individual accounts
Lower value accounts
For individual accounts with a balance/value between US$50,001 (or US$250,001 for insurance/annuity contracts) and US$1,000,000 (Lower Value Account) as at 30 June 2014, the reporting Australian financial institution must review its data electronically by 30 June 2016 for a range of specified US indicia.  

Where any of the US indicia are present and the account is identified as being held by a specified US person, the account must be treated as a US reportable account unless specified documentation can be obtained from the account holder which indicates the contrary.

Higher value accounts
For individual accounts with a balance/value exceeding US$1,000,000 as at 30 June 2014, or increasing to more than US$1,000,000 as at 31 December 2015 or any subsequent year (High Value Account), a paper record search is also required if the reporting Australian financial institution’s electronic records do not contain all of the above US indicia relating to the account/account holder.

The paper record search may involve reviewing the customer master file, the most recent account opening contract and other documents collected in respect of the account in the last five years, to identify any US indicia. This process must be completed by 30 June 2015 for any High Value Accounts as at 30 June 2014.
In addition, if the relationship manager of a High Value Account has actual knowledge that the account holder is a specified US person, the account must be treated as a U.S reportable account.

New individual accounts
For any new individual accounts opened from 1 July 2014 (except those which meet the de minimus threshold and categories of accounts), the reporting Australian financial institution must obtain self-certification (that the account holder is neither a US citizen nor US tax resident) as part of the account opening process.

If the reporting Australian financial institution cannot obtain a valid self-certification, it must treat the account as a US reportable account.

Pre-existing entity accounts
For pre-existing entity accounts with a balance/value of more than US$250,000 as at 30 June 2014, and those with a balance/value of US$250,000 or less as at 30 June 2014 (but exceeding US$1,000,000 as at 31 December of 2015 or any subsequent years), the reporting Australian financial institution must apply specific due diligence procedures to identify any accounts being held by a specified US person, passive NFFE controlled by a U.S citizen/resident and non-participating financial institution.

Where such account has been identified as being held by a specified US person or a passive NFFE controlled by a U.S citizen/resident, the account will constitute a US reportable account. Where the account is held by a non-participating financial institution, the reporting Australian financial institution will need report the aggregate amount of payments made to and the name of the non-participating financial institution to the ATO for each of the 2015 and 2016 calendar years.

These due diligence procedures must be completed by 30 June 2016 for any pre-existing entity accounts with a balance/value that exceeds US$250,000 as at 30 June 2014.

New entity account

All new entity accounts are subject to specific due diligence procedures for the purposes of identifying any U.S reportable account, except for credit card or revolving credit facilities maintained by reporting Australian financial institutions which implement policies/ procedures to prevent excess payment by the account holder of more than US$50,000.  What information is required to be reported? 

Where an account has been identified as a US reportable account, the reporting Australian financial institution will need to report specified information to the ATO. Generally, this includes names, addresses and US tax identification numbers of account holders, account numbers, account balances or values, as well as interest, dividend and proceeds amounts.

There are transitionary periods which may impact the type of information required to be reported.