Certain taxation practices are legal obligations both in Canada and the U.S. for:
Within this context, the Registered Retirement Savings Plan (RRSP) benefits from tax-deferred treatment under the U.S.-Canada tax treaty.
On the other side, the Tax-Free Savings Account (TFSA) does not receive the same recognition from the IRS.
Both TFSA U.S. tax treatment and RRSP IRS reporting results in penalty amounts in the case of failure of full compliance. In light of our years of active experience in these complex fields, we present a breakdown below of how the IRS treats such accounts and relevant reporting requirements as well as important actions for maximum compliance.
Yes, TFSA enables Canadians to grow investments tax-free. Yet, the IRS does not recognize it as a tax-exempt account. The income generated inside a TFSA—it can be interest, dividends, or capital gains—is subject to U.S. taxation.
Additionally—depending on the structure of the account—the IRS may classify a TFSA as a foreign trust. Such a situation may require Form 3520 and Form 8938 disclosures. Since TFSAs do not benefit from tax treaty protections, U.S. persons should also establish compliance with FATCA TFSA reporting requirements.
Unlike a TFSA, an RRSP qualifies for tax deferral under the U.S.-Canada Tax Treaty. TFSA U.S. tax treatment allows U.S. taxpayers to not have to report annual earnings inside an RRSP as taxable income. But RRSP IRS reporting implications are still required in order to maintain this tax treatment:
By establishing full compliance with these requirements, U.S. taxpayers can benefit from the RRSP IRS reporting tax deferral benefits.
As explained earlier above, the U.S. does not recognize a Tax-Free Savings Account (TFSA) as tax-exempt. Further, it is subject to strict IRS reporting obligations as detailed below:
| Foreign Account Reporting | Thresholds & Requirements |
|---|---|
| Foreign account reporting IRS (Form 8938 aka FATCA Reporting) | U.S. persons must file if foreign financial assets exceed the following thresholds: |
| Single filers (U.S. residents) | $50,000 at year-end or $75,000 at any point in the year |
| Married filing jointly (U.S. residents) | $100,000 at year-end or $150,000 at any point |
| U.S. persons living abroad | $200,000 at year-end or $300,000 at any point (single filers) |
| FBAR (FinCEN 114) | Required if total foreign account balances exceed $10,000 at any time during the year |
Registered Retirement Savings Plans (RRSPs) are tax-deferred under the U.S.-Canada Tax Treaty. Moreover, they still require reporting as detailed in the below table:
| RRSP Reporting Requirement | Details |
|---|---|
| Form 8891 RRSP (Historical Reporting) | Before 2015, U.S. persons used Form 8891 to defer taxation on RRSP earnings. It is no longer required. |
| FBAR (FinCEN 114) | Mandatory if total foreign account balances exceed $10,000 at any time during the year. |
| Form 8938 (FATCA Reporting) | Required if RRSP account values exceed the IRS FATCA thresholds (same as those listed under TFSA reporting). |
| Form | Filing Requirement | Deadline |
|---|---|---|
| FBAR (FinCEN 114) | Must be electronically filed with FinCEN. | April 15 (automatic extension to October 15). |
| Form 8938 (FATCA Reporting) | Filed with your annual U.S. tax return (Form 1040). | April 15 (or October 15 if a tax extension is granted). |
| Penalties for Non-Compliance | Failure to file may result in severe IRS penalties, including fines exceeding $10,000 per violation. Timely compliance is critical to avoid legal and financial consequences. | |
U.S. persons—covering citizens, resident aliens (green card holders) and certain non-resident individuals—have reporting foreign financial accounts and asset obligations in the case they pass the thresholds presented in the table:
| Requirement | Threshold | Who Must File? |
|---|---|---|
| FBAR (FinCEN 114) | $10,000 (aggregate value of foreign accounts at any time in the year) | U.S. persons with foreign bank accounts, brokerage accounts, or other financial accounts. |
| FATCA (Form 8938) | $50,000 (single) / $100,000 (married joint filers) (higher for U.S. persons living abroad: $200,000/$300,000) | U.S. persons with foreign financial assets like accounts, foreign stocks, bonds, and certain foreign pensions. |
Taxpayers sometimes unintentionally violate IRS regulations. They are usually due to misconceptions as outlined below:
IRS taxes all TFSA earnings. Always report income from the account.
In the case of combined foreign accounts passing $10,000, FBAR and FATCA filings are mandatory.
Form 8938, FBAR or RRSP documentation should be completed in order to avoid penalty payments.
While tax-deferred, withdrawals may still be subject to U.S. tax.
The U.S.-Canada Tax Treaty acts with a preventive role in terms of double taxation. This role is in relation to Registered Retirement Savings Plan (RRSP) holders.
Key takeaways can be listed as presented in the below table:
| Topic | Key Points |
|---|---|
| TFSA Taxation | Not tax-free in the U.S.; earnings are taxable. |
| RRSP Taxation | Tax-deferred under the U.S.-Canada Tax Treaty but must be reported. |
| FBAR Filing | Required if foreign accounts exceed $10,000. |
| FATCA Filing | Required if foreign assets exceed $50,000/$100,000 (higher for expats). |
| Key IRS Forms | FBAR (FinCEN 114), Form 8938 (FATCA), Form 8833 (for treaty claims). |
| Penalties | FBAR: $10,000+ per violation. FATCA: Up to $50,000. |
| Common Mistakes | Not reporting TFSA, missing forms, misreporting RRSP withdrawals. |
| Tax Treaty Benefits | Prevents double taxation, RRSP tax deferral and potential withholding tax relief. |
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The closest U.S. counterpart is the Roth IRA, which also allows tax-free withdrawals under specific conditions.
A TFSA allows Canadians to grow investments tax-free, but in the U.S., its earnings are taxable.
Since the IRS does not recognize the TFSA as tax-exempt, U.S. residents must report and pay taxes on any income generated within the account.
RRSP holders must file FBAR (FinCEN 114) and Form 8938 if their account balances exceed the reporting thresholds.
Yes, although RRSP earnings are tax-deferred under the U.S.-Canada Tax Treaty, the account must still be reported to the IRS.
While tax-deferred, RRSP withdrawals are taxable under U.S. rules unless offset by treaty provisions.