Until 2014, U.S. taxpayers, who owned Canadian retirement plans, such as: Registered Retirement Savings Plan (RRSP) or a Registered Retirement Income Fund (RRIF) were required to file Form 8891, U.S. Information Return for Beneficiaries of Certain Canadian Registered Retirement Plans to report their interest in their qualified Canadian retirement accounts. In addition, this Form was used to elect tax-deferral status of these accounts for U.S. tax purposes. If no election is made, the income earned by these accounts would, otherwise, be subject to taxes every tax year irrespective of whether any distributions were made from the account or not.
U.S. citizens or residents had to file Form 8891 to report:
- Contributions made to the RRSP and RRIF,
- Undistributed earnings in RRSPs and RRIFs, and
- Any distributions received from the RRSP/RRIF.
This election could also be made retroactively since many taxpayers simply assumed that the RRSP & RRIF qualified as tax-deferred accounts in the U.S. just like in Canada.
Current IRS Reporting of RRSP
In October, 2014, the U.S. Internal Revenue Service (IRS) made the Form 8891 obsolete. Individuals with RRSPs and RRIFs will now automatically qualify for tax deferral for U.S. tax purpose, provided the U.S. Citizen or Resident fulfills the following requirements:
- Has filed a U.S. tax return for the previous tax years (streamlined filing is also acceptable);
- Has not reported undistributed earnings from the RRSP/RRIF on any of those previous tax returns; and
- Has reported any and all distributions received from the plan as if the individual had made an election under Article XVIII(7) of the Convention for all years during which the individual was a U.S. citizen or resident.
RRSP Reporting If Certain Conditions Are Not Fulfilled
Individuals who do not meet these requirements must obtain consent from the Commissioner to make an election. Taxpayers who may have already reported on their U.S. federal income tax returns undistributed income that has accrued in their RRSP/RRIF during a tax year will remain currently taxable on the undistributed income. These taxpayers, if they now want to make an Article XVIII(7) election with respect to a Canadian retirement plan, must seek the consent of the IRS Commissioner.
That being said, even though taxpayers no longer need to file Form 8891, they should be aware that the exemption from filing Form 8891 does not mean that there are no other filing requirements related to RRSPs and RRIFs.
These retirement accounts are still considered ‘foreign accounts/investments’ as per the IRS, and are therefore subject to foreign financial account reporting requirements. Now that Form 8891 is obsolete, taxpayers will need to report the RRSP/RRIF on Form 8938 Statement of Foreign Financial Assets in addition to the FinCen Form 114.
US Filing Requirements for RRSP
FinCEN Form 114
U.S. citizen and resident taxpayers are required to file Form 114 – Report of Foreign Bank and Financial Accounts, if the total value of their foreign accounts including the RRSP and/or RRIF exceeds a balance of $10,000 at any time during the year. The deadline for FBAR is April 15 each year. An extension is available. (To know more about FBAR for foreign U.S. taxpayers read: Part I: FBAR – Common Tax Issues Faced by U.S. People Living Abroad)
Form 8938, Statement of Foreign Financial Assets
In addition to filing the FBAR reports, the RRSP/RRIF owner is required to file Form 8938, Statement of Foreign Financial Assets by the 15th of April every tax year. However, this filing is required only if the total foreign accounts balance or value exceeds the threshold limits. That is, $50,000 (year-end account balance) or $100,000 (anytime during the year account balance) for U.S. resident or citizen taxpayers holding an RRSP/RRIF and filing as single, and $100,000 (year-end account balance) or $200,000 (anytime during the year account balance) if filing as ‘married filing joint’.
However, if the U.S. taxpayer is a non-resident U.S. person, such as a Canadian resident with U.S. citizenship, then the threshold limits vary. In this case, if the taxpayer files as ‘Single’, the limit is $200,000 (year-end account balance) or $300,000 (anytime during the year account balance) and if filing as ‘Married Filing Joint’ then the limit is $400,000 (year-end account balance) or $600,000 (anytime during the year account balance) (To know more about Form 8938 read: Part II, Form 8938: Common Tax Issues Faced by U.S. People Living Abroad)
Foreign Trust Reporting
The IRS considers RRSPs and RRIFs as foreign trusts subject to Form 3520 and Form 3520-A reporting. In 2004, when the IRS introduced the requirement to File Form 8891, the IRS provided an exception from filing the Forms 3520 and 3520-A. When announcing the new rules, the IRS confirmed that even though the Form 8891 is obsolete, holders of an RRSP and/or RRIF are still not required to file these forms . (To know more about Form 3520 and Form 3520-A filing for U.S. taxpayers read: Part V, Form 3520: Common Tax Issues Faced by U.S. People Living Abroad)
In summary, taxpayers are not required to report their interest in an RRSP or RIF on Form 8891, Form 3520, or Form 3520-A. However, taxpayers may need to report these interests on Form 8938 Statement of Foreign Financial Assets and file FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR). Taxpayers should keep in mind that due to currency rate difference, the account balance/value of the RRSP/RRIF will be different for U.S. tax purpose and Canadian taxes. Therefore, it is important to keep track of the account value in U.S. and Canadian amounts. Onerous penalties may apply for failure to file the Form FinCen 114 or Form 8938.
Non-resident U.S. taxpayers, including Canadians who are often not aware of their U.S. tax filing responsibility may find it difficult to understand the U.S. tax rules, and if the tax process is handled unprofessionally it could lead to double taxation of certain incomes. Therefore, when dealing with cross-border tax situations, it is always a good practice to consult a tax professional to avoid any tax errors, and compliance issues.
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 assures complete assistance 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.