Should RRSP be Reported on FBAR for Tax Compliance

The question of whether RRSPs should be reported on FBAR is a common concern for Canadian citizens with foreign assets. RRSPs are not required to be reported on FBAR, according to the IRS.

If you have an RRSP with a foreign institution, you may still need to report it on the FBAR if it meets certain thresholds. These thresholds are $10,000 or more in aggregate, across all foreign financial accounts.

Reporting an RRSP on FBAR is not a straightforward process, and it's essential to understand the implications before taking any action.

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If you're a U.S. taxpayer with a Canadian RRSP, you're likely wondering about the tax implications. Without a tax treaty, the U.S. would classify RRSPs and RRIFs as foreign grantor trusts.

This classification means that any income earned within RRSPs and RRIFs, such as interest, dividends, and capital gains, could be taxable in the U.S. each year, even if the income is not withdrawn.

The U.S. taxes its citizens and residents on worldwide income, and the grantor trust rules attribute the trust's income directly to the grantor. This can be burdensome, leading to potentially higher taxes.

As foreign grantor trusts, RRSPs and RRIFs used to require the account holder to file additional forms, such as Form 3520 and Form 3520-A, to report the trust's activities. Failure to file these forms can result in substantial penalties.

Here are the key implications of RRSP taxability in the U.S.:

These tax implications can be complex and time-consuming to navigate, so it's essential to understand the rules and regulations surrounding RRSPs and RRIFs for U.S. taxpayers.

The FBAR, or Foreign Bank and Financial Accounts Report, is a key form for U.S. taxpayers with foreign financial assets, including RRSPs. According to Revenue Procedure 2014-55, Canadian Registered Retirement Savings Plans and RRIFs are reportable on the FBAR.

In fact, failure to report these assets on the FBAR can result in significant penalties. The Government Accountability Office (GAO) report from 2018 noted that IRS officials expressed concern that U.S. individuals may try to avoid proper reporting on their tax returns when distributions are made from foreign retirement accounts.

Here are the key reporting requirements for RRSPs on the FBAR:

Failure to report your RRSPs on the FBAR can lead to significant financial penalties. The Government Accountability Office (GAO) released a report in January 2018 that discussed foreign retirement plans and noted that failing to properly report such plans "may bring significant financial penalties".

You might be thinking that foreign retirement plans are not used to evade taxes, but the IRS still takes a close look at them. IRS officials expressed concern that unless U.S. individuals are required to report foreign retirement accounts via Form 8938, they will seek to avoid proper reporting on their tax returns when distributions are made.

In fact, the IRS views information return reporting with respect to foreign retirement plans as a vital tool in its tax compliance arsenal. You should consult your tax professional to properly report your RRSPs and avoid any potential consequences.

If you're required to file an FBAR, your RRSPs are required to be disclosed on it as well. Generally speaking, you should go back six years and file amended U.S. tax returns (Form 1040x) for each year and include completed Form 8891 for each RRSP account for each year.

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Revenue Procedure 2014-55 is a crucial piece of information for Canadian citizens with RRSPs. It specifically refers to Canadian Registered Retirement Savings Plans and RRIF.

These types of retirement plans are reportable on the FBAR and Form 8938. However, they are not reportable for Form 3520/3520-A as foreign retirement plans.

Automatic tax deferral is a big deal for RRSPs. Under the U.S.-Canada Income Tax Treaty and Revenue Procedure 2014-55, you don't need to file a special election to defer U.S. taxation on income accruing in your RRSP.

You will need to report your RRSP on the FBAR, and potentially on Form 8938, depending on the total value of your foreign financial assets.

Distributions from your RRSP are taxable in the U.S., but you can often offset this with foreign tax credits for Canadian taxes paid.

Withdrawals from RRSPs may be subject to withholding tax, ranging from 5% to 30%, if taken before the age of 71.