Navigating U.S. Tax Filing: Canadian TFSA and RRSP Reporting Requirements

As a U.S. taxpayer with financial interests across borders, the management of Tax-Free Savings Accounts (TFSA) and Registered Retirement Savings Plans (RRSP) in Canada requires careful attention to U.S. tax filing requirements. In this blog post, we’ll explore the key considerations and reporting obligations for individuals holding TFSA and RRSP accounts.

Form 8938 (Statement of Specified Foreign Financial Assets): U.S. citizens, resident aliens, and certain non-resident aliens must report their TFSA or RRSP on Form 8938 if the total value of their specified foreign financial assets exceeds the reporting threshold. This threshold varies depending on factors such as filing status and location. The reporting includes details about the account and its maximum value during the tax year.

FBAR (Report of Foreign Bank and Financial Accounts): In addition to Form 8938, individuals with a TFSA or RRSP may be required to file an FBAR if the aggregate value of their foreign financial accounts, including the TFSA, exceeds $10,000 at any time during the calendar year. FBAR is filed separately from the tax return and is due by April 15th.

Form 3520/ form 3520-A (Statement of Foreign Trusts): There have been controversial discussions about whether a form 3520 or a 3520-A is required to be filed for Canadian TFSA or RRSP. 

Opinions Supporting the Requirement to File Form 3520 or 3520-A:

Some individuals suggest erring on the side of caution and filing Form 3520 or 3520-A to ensure compliance with any potential reporting requirements, even if the IRS guidance seems ambiguous. They contend that the penalty of failure to file a form 3520/3520-A can be significant. To avoid the risks of penalties, they suggest taking a conservative approach and filing the forms.

Opinions Opposing the Requirement to File Form 3520 or 3520-A

One perspective argues that TFSA and RRSP accounts do not inherently involve ownership interest in a foreign trust. Since Forms 3520 and 3520-A are primarily designed for reporting foreign trust ownership, some individuals believe that filing these forms for TFSA or RRSP may not be necessary. Opponents of filing Forms 3520 and 3520-A for TFSA or RRSP point to the fact that the IRS specifically excludes certain accounts, including retirement accounts, from being considered “specified foreign financial assets.” This exclusion, they argue, implies that such accounts do not require reporting on these particular forms. 

We are happy to make sense of this for you, but for each person the answer may be different depending on your situation. 

Effectively managing U.S. tax obligations as a holder of TFSA and RRSP accounts in Canada requires a nuanced understanding of reporting requirements. Please feel free to reach out to Dimov Tax at the contact box below. We have served countless Canadian clients with their tax needs.