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As a US taxpayer, navigating the intricate world of international tax reporting is essential to ensure compliance with the IRS regulations. One question that often arises is whether Canadian Tax-Favored Accounts such as RRSP, RESP, and TFSA need to be reported on Forms 3520 and 3520A. In this article, we’ll dive into the details of the reporting requirements and provide clarity on this matter.
Understanding different types of Canadian Tax-Favored Accounts
Understanding Form 3520 and 3520A related to Canadian Tax-Favored Accounts
Form 3520 and Form 3520-A are IRS forms used to report foreign financial interests. They are related to foreign trusts and large gifts from foreign sources.
Form 3520:
Form 3520-A:
Understanding Rev. Proc. 2020-17 and How It Impacts the Reporting of Canadian Tax-Favored Accounts in the US.
The revised procedure carries greater significance as it offers notable changes. U.S. individuals and Canadians residing in the U.S. possessing tax-favored accounts from Canada will now find relief from the obligation to file Form 3520 and 3520-A with the IRS. This change has substantial implications, potentially resulting in significant savings of both money and time on an annual basis.
Eligibility for this relief is contingent on the purpose behind establishing these tax-favored accounts, and in most cases, individuals qualify for the exemption. Moreover, relief is attainable for non-retirement savings trusts, particularly if they are designated for medical disabilities or educational purposes.
It’s important to note that while funds accruing within a Tax-Free Savings Account (TFSA) remain tax-free upon withdrawal, funds from an RESP are subject to taxation upon withdrawal.
What are the conditions that must be met by Canadians to qualify for exemption?
There are several specific criteria that Canadian residents must be acquainted with and satisfy all of them before they can discontinue the submission of Form 3520 and Form 3520-A.
Other Reporting Requirments:
While tax-favored accounts may not be subject to Forms 3520 and 3520A reporting, U.S. taxpayers with these Canadian accounts may still have reporting obligations. They may need to be reported on your individual U.S. tax return, specifically on Form 8938 (Statement of Specified Foreign Financial Assets) or Form 114 (FBAR) if they meet the reporting threshold.
It’s important to understand that not reporting foreign financial assets when required can lead to penalties. Therefore, even though TFSAs don’t fall under Forms 3520 and 3520A reporting, accurate reporting on other applicable forms remains essential.
Contact Us Today
Ensure accurate reporting of your financial assets by working with us today. Our team is well-versed in the complexities of cross-border tax regulations and can provide you with the guidance needed to secure correct reporting and compliance. We offer a variety range of services including tax filing, tax planning, compliance assessment, guidance on Form 3520, 3520A, 8938, 114, etc. If you need help with any of these, please feel free to contact us below.
Call us today at (833) 829-1120, email us at info@dimovtax.com, or fill out the form and we’ll get in touch immediately.
Dimov Tax is rated 5 stars on all major review platforms including Google, Yelp, Facebook, Angie’s List, Better Business Bureau, TaxBuzz, Thumbtack, Upwork, Bark, and much more.
Call us today at (866) 681-2140, email us at info@dimovtax.com, or fill out the form and we’ll get in touch immediately.
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