If U.S. citizens or residents own Canadian Registered Retirement Savings Plans (‘RRSPs’) or Registered Retirement Income Fund (‘RRIFs’), the accrued earnings in the accounts are taxable in the U.S. unless a Form 8891 is filed. This form allows for an election pursuant to the Canada-US Income Tax Treaty to defer U.S. income tax on income earned until an actual distribution is received. AG Tax understands that not all of the taxpayers who are U.S. citizens and reside in the U.S. are aware of their US tax filing obligations regarding RRSP or RRIF accounts. As a result, many taxpayers have missed the deadline for filing to elect deferral of US tax on their Canadian RRSP/RRIFs until they are informed by their tax advisors.
Late Filing Form 8891 for RRSP/RRIF
In late filing cases, the taxpayer may write a petition (a late filing reasonable cause letter) to the Internal Revenue Service (IRS) addressing the situation. The petition could be critical as proven by the recent Private Letter Rulings (PLR, a written memoranda released by the IRS in response to specific enquiries by taxpayers regarding their tax situations) granted to four married couples on extension of RRSP deferral elections. In three of these cases, the taxpayers were unaware of the need to make an election to defer recognition of undistributed earnings in their RRSPs; while in the fourth case, the taxpayer withdrew funds from his RRSP accounts to pay the his divorce proceedings costs and attorney’s fees. Each of the four married couples have been provided an extension of 60 days to file Form 8891 required under the Treaty to defer taxes on their Canadian RRSP without penalty or interest.
AG Tax has prepared a list that taxpayers should consider before they file a petition for a late filing extension:
• The tax form and reasonable cause statement should be filed as soon as the taxpayers are aware of the tax requirement regarding the need to file Form 8891,
• The taxpayer must be compliant with all the previous tax returns and filings in place,
• Action should be taken promptly before the IRS send letters or notices regarding the RRSP/RRIF income, and
• The taxpayer must act reasonably and in good faith, proving that the grant of relief would not prejudice the interests of the US government.
AG Tax LLP Can Help
If you have any tax-related queries, need assistance with tax planning or filing your tax returns please contact us. Our team comprises of highly experienced tax professionals with extensive knowledge of U.S. and Canadian tax laws as well as cross-border compliance.
Furthermore, as a full service accounting firm, AG Tax associates are dedicated to assist you with even your most complex tax needs.
We can assist with:
- Canadian Personal and corporate tax returns
- Cross Border Taxation and Business Planning
- U.S. Personal and Corporate Taxation
- Disclosure of Foreign Assets and other information filings
- Retirement planning
- Estate Planning, Inheritance tax advice
To obtain a quote or to arrange for a consultation to discuss your tax related queries, please contact us at:
- 416-238-5920 (Greater Toronto Area, ON)
- 604-538-8735 (Greater Vancouver Area, BC)
- 780-702-2732 (Greater Edmonton Area, AB)
Disclaimer: The information in this publication is accurate as of the time of its publication. AG Tax assumes no responsibility for changes to tax legislation subsequent to the publication of this document. The information provided is for general information purposes only and should not be acted upon without seeking professional advice. If you would like to engage our services, please contact our staff and obtain authorization to send our firm confidential information. A client relationship is not created by the transmission of information. A client relationship is only formed with our firm when a scope and engagement letter signed by the firm and the potential client detailing the terms of engagement is present.