RRSPs for those Canadian Residents who have US obligations

The IRS announced on October 7 2014 that they would make it easier for taxpayers who hold interests in either Canadian RRSPs or RRIFs.    They announced that the Form 8891, that form that you had to report RRSP/ RRIF transactions, will be eliminated.  So if you are one of the many people with US filing obligations who had an RRSP after the mid 90’s, and you forgot to attach that 8891 to your 1040, you are absolved.  The IRS noted in their announcement:

“…Many taxpayers also failed to comply with another requirement; namely that they file Form 8891 each year reporting details about each RRSP and RRIF, including contributions made, income earned and distributions made. This requirement applied regardless of whether they chose the special tax treatment. The IRS is eliminating Form 8891, and taxpayers are no longer required to file this form for any year, past or present…”

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It is really important to note that it does NOT mean you don’t have to file any FBAR or 8938 forms – or any pesky form under FATCA.  Read the announcement or the exact details as issued for further information

Foreign Income Easier to Monitor

Information will now be shared between the Canada Revenue Agency and the Internal Revenue Service.

Information will now be shared between the Canada Revenue Agency and the Internal Revenue Service.

In February of this year, an agreement was signed between the Canadian and American government which makes it easier for the respective entities to monitor income earned outside their borders.

Under the terms of this agreement, financial institutions in Canada will share information with the Canada Revenue Agency (CRA), who will pass this information onto the Internal Revenue Service (IRS).

This will allow the IRS to more easily determine whether income earned at a bank in Canada is being accurately reported on an individual’s tax return.

The same information will be shared in return, so that the CRA will now have greater access to financial information regarding Canadians who hold bank or investment accounts in the United States.

This information sharing regime does not apply to registered investments, such as Registered Retirement Savings Plans, Tax Free Savings Accounts, and Registered Retirement Income Funds.

The new reporting regime will come into effect in July 2014 with information exchanges beginning in 2015.

The CRA has indicated that they will not assist the IRS in collecting taxes and penalties that are owed to the IRS.

As well, the agreement will not impose any taxes on US citizens holding accounts in Canada. The agreement will work in conjunction with tax treaties that are already in place with the United States, which govern the withholdings and the taxability of income between the two countries.

If you have investments in the United States, you should advise your investment advisor that you are a Canadian resident, to ensure that the correct amount of tax is being withheld on your income.

For instance, if you are receiving dividends on US stocks, and more than 15% tax is withheld on these dividends, you are overpaying US tax on your investment. You will need to contact your advisor to adjust your account.

Are you a US citizen or green card holder living here in Canada?

The rules for those people who are required to report to the Internal Revenue Service (IRS) of the US are complex.  Moreover, even the experts can’t seem to agree on what is required.   There seems to be little clarity and the “little guys” are at the losing end of this requirement.  This article News Analysis: The Personal Impact of Offshore Enforcement  by Marie Sapirie talks about four different actual scenarios of people living outside the US who found out that they were required to report to the IRS &/or the Department of Treasury and the horror they went through.  It is really important that you not only understand the basics of what is required, but also understand that none of this is clear cut.  Even when IRS agents are asked direct questions about those FBARs, nobody seems to have a clear and consistent answer.

us1040It is a requirement that any tax preparer who prepares a US tax return for money is registered with the IRS. You are also able to file your own 1040 if you are so inclined.  Make sure you do your research as to what has to be filed and when.  Make sure you file any required extensions if you need extra time.

If you do decide to hire someone to do this for you, remember they must have a PTIN number.

US Citizens and TFSA

A tax-free savings account (TFSA) is a registered savings instrument which allows for the earning of tax-free investment income in Canada. However, it is important to note that for US tax purposes, the income earned in a TFSA is considered taxable. This will have an impact on US Citizens who are residents of Canada and therefore are required to file US returns.

Not only will the US Citizen be required to report the investment income on their US return, they will also have to deal with additional US compliance requirements. For every year in which the plan exists a Form 3520-A Annual Information Return of Foreign Trust with a US Owner must be filed. A Form 3520 Annual Return to Report Transactions with a Foreign Trust and Receipt of Certain Foreign Gifts must also be filed for any year in which there is a contribution or a withdrawal. In addition, if your TFSA results in the balance of your non-US financial accounts to exceed $10,000 at any time during the year, Form TD F90-22.1 Report of Foreign Banks and Financial Accounts must also be filed. Penalties for late filing the required forms can be substantial.

In these situations, the Canadian tax savings may be out-weighed by the cost of the additional reporting requirements. If you are a US Citizen living in Canada, contact your local KHGroup office for more information.



Autumn 2011 Kemp Harvey Group Newsletter

With the turning of the autumn leaves, there are many changes afoot.  Scroll through the pages of our Autumn 2011 newsletter and you will find details on new Canada Pension Plan deduction rules.  Also, you can learn about additional tax credits available to families and opportunities for seniors to reduce their nursing home fees.  You will be inspired when you read about Kemp Harvey Group’s own, Terry and Laura Craig, and their journey with kidney disease and organ donation.  Click on the link below to access the newsletter:

Autumn 2011 Kemp Harvey Group Newsletter