Hedge Fund Subscription Procedure (Page 22 of 23) in pdf

context, please visit the CRA website:

U.S. PERSON –

Generally, an individual will be a U.S. person if s/he is a U.S. resident for U.S. tax purposes or a U.S. citizen.

Generally, an entity will be a U.S. person if it is:



a corporation or partnership organized in the U.S. or a U.S. state;



a trust subject to U.S. law that is controlled by one or more U.S. citizens or U.S. residents for U.S. tax purposes; or



a testamentary trust of a decedent that was a U.S. citizen or a U.S. resident for U.S. tax purposes at the time of death.

Generally, an entity incorporated or organized in Canada or any other place outside of the U.S., is not a U.S. person.

SPECIFIED U.S. PERSON –

Generally means a U.S. person, other than a:



a corporation the stock of which is regularly traded on one or more established securities markets;



a corporation that is related to a corporation the stock of which is publicly traded;



a U.S. government or agency;



a dealer in securities, commodities, or derivative financial instruments that is registered under the laws of the U.S or state; or



an entity that falls into any of the following categories, as defined in the relevant U.S. Internal Revenue Code:

As deﬁned in U.S. Internal Revenue Code:

Category:

an organization exempt from taxation

section 501(a)

a bank

section 581

a real estate investment trust

section 856

a regulated investment company

section 851

a common trust fund

section 584(a)

a trust that is exempt from tax

section 664(c)

a broker

section 6045(c)

FINANCIAL INSTITUTION –

A financial institution is, in general, a custodial institution, a depository institution, an investment entity, or an insurance company that oﬀ ers

insurance contracts with an investment component or annuity contracts. Not all entities in the financial sector are considered financial

institutions.

NON-FINANCIAL FOREIGN ENTITY (NFFE) – ACTIVE NFFE / PASSIVE NFFE

All entities are NFFEs except financial institutions and U.S. persons.

Therefore, Canadian and other non-U.S. entities that are not financial institutions are generally NFFEs.

An NFFE can be either a Passive NFFE or an Active NFFE. A Passive NFFE is any NFFE that is not an Active NFFE.

An “Active NFFE” is an entity that meets one of the following criteria (please note this is a not the complete list):

•

Less than 50% of the NFFE’s gross income for the preceding calendar year or other appropriate reporting period is passive income, and less

than 50% of the assets held by the NFFE during the preceding calendar year or other appropriate reporting period are assets that produce or

are held for the production of passive income.

Passive income is generally understood to include income from the mere holding of property, such as interest, dividends, rents

and royalties.

•

a public corporation with shares that regularly trade on an established securities exchange (e.g., the TSX or the NYSE);

•

an entity related to an above-described public corporation;

•

a registered charity;

•

a government (or an agency or instrumentality thereof) that performs functions of a governmental nature; or

•

a start-up entity investing in assets with the intent of operating a business (other than a business of making or managing investments), if the

entity was incorporated or otherwise organized less than 24 months before it relies on this criteria to certify its status.

Why is all this information being asked?

(“Canadian IGA”), Canadian financial institutions

Under the Intergovernmental Agreement between Canada and the United States of America

are required to collect and report information on their account holders who are U.S. citizens and/or U.S. residents for U.S. tax purposes to the

Canada Revenue Agency (CRA), and certain U.S. citizens and U.S. residents for U.S. tax purposes who are considered controlling persons of an

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Hedge Fund Subscription Procedure Page 22

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