This will have a real effect if it applies to Canada. For the cash sitting in other funds, just spread them around and keep them below $50,000 each
http://www.thompson.com/public/newsbrief.jsp?cat=FINANCE&id=3907
This will have a real effect if it applies to Canada. For the cash sitting in other funds, just spread them around and keep them below $50,000 each
http://www.thompson.com/public/newsbrief.jsp?cat=FINANCE&id=3907
*This only applies if Canada signs an intergovernmental agreement of which there are signs Flaherty will not(If simply for the reasons I and many others would oppose it)
So, ‘Officials consider retirement plans, along with other types of entities, to present a low risk for the kind of evasion the law is intended to stop, only if the Canadian government signs an intergovernmental agreement.‘
Only, this revelation that it’s unnecessary to insist on reporting where reporting isn’t due doesn’t apply to those outside an intergovernmental agreement. Quid pro quo? On what grounds does one government’s (Canada’s) inaction effect whether this reporting is justified or not?
*The US badly wants Canada along with everyone else to sign an intergovernmental agreement. This is a carrot to do so. Now it does not necessarily mean than in the actual FATCA regulations TFSA’s and RRSP will not be exempted if Canada does not go along with an intergovernmental agreement. Also MP John Weston’s information about FATCA being delayed from July 1 2013 to January 1 2014 was very good. From talking with other people that was info the US was keeping pretty close to the vest.
What’s in it for Canada, don’t we already have reciprocity? The Gov of Can should be telling its citizens what the cost of an intergovernmental agreement would be to its taxpayers. It’s an issue that we all should be bringing up before the 2013 budget submission deadline Aug 3.
http://isaacbrocksociety.ca/2012/07/20/more-correspondence-from-the-office-of-john-weston-mp-irs-is-a-budget-issue-for-the-government-of-canada-get-your-voice-heard-before-the-deadline-for-2013s-budget-submissions/
“low risk” is bullshit (pardon my American). The only risk to a retirement plan, in this context, is the financial greed of the mafia in Washington.
@swisspinoy, Obviously, when they say low risk, they mean that such accounts are not part of the so-called tax gap: there is low risk that a person is evading taxes in foreign government registered retirement plan. The US government, however, is so f—d up; they will never acknowledge that Canadian RRSP are actually ZERO risk. But they are: no one can withdraw from such a plan without paying taxes in Canada–that makes them of zero risk to the United States government that taxes will be evaded in them.
@Petros, Swiss 3rd Column retirement savings will be taxed by Switzerland when withdrawn. The US government taxes it when deposited (when income is above the FEIE) and again when withdrawn. This may equate to a double or triple-tax on retirement savings. Thus, “low risk” is pure bullshit and Washington is officially mafia.
@Swissinpoy, That’s an interesting point. In the US, the funds going into the RRSP are not tax deductible (unless it is part of employer pension plan). Therefore, even by American rules, only the gains within the RRSP should be taxed upon withdrawal from the plan. The principle was taxed on the way in by the US, it is only thus fair to tax the gains within the RRSP upon withdrawal. Complicated math problem. I can only say that I am GLAD that I’m no longer a stinkin’ American. Now I can take money out of RRSP’s and only pay the exhorbitant tax rates in Canada and I don’t have to worry about Barack Obama.
@swisspinoy It is actually even worse than you describe with foreign retirement plans. Money put into a “3rd pillar” or a Freizuegigkeitskonto (private Swiss retirement/pension plans) is taxable in the US, thus the tax free nature of these in Switzerland is ignored. When you take the money out of these plans, it is taxed by the Swiss and the US (you can credit the Swiss taxes). If you have invested the money in the plan in funds, then you will also likely end up with some nasty US tax surprises each year you keep the plan in fonds as you have to declare it as a PFIC. At least the Swiss give you the option to keep the retirement plans in cash. Sadly, the retirement plans of many other countries do not give you that option.
This is the case with Mexican AFORE retirement plans, which are mandated by the Mexican government. AFOREs are essentially part of the Social Security system of Mexico, yet they are not recognized by the IRS as such. It is especially painful for those with an AFORE government mandated plan because the only option for an AFORE is in a controlled fund.
It is estimated there are over 1,000,000 US citizens living in Mexico, making Mexico even larger than Canada in the number of people that are affected by the punitive IRS rules on foreign retirement plans. It is highly likely that thousands of them have AFORE accounts and have no clue that these need to be declared and are considered as PFICs by the US. Also, many US citizens often work temporarily in Mexico and if they are paid by a Mexican company, an AFORE account is automatically set up for them. They probably do not even know their employer has done this and what the US tax implications are. Unfortunately, there is no way to get rid of an AFORE account until one is 60 years old and applies to the IMSS (Mexican Institute of Social Security) for a pension or an account closure.
The following paper describes the situation in detail. It also provides a quick overview of PFICs.
http://www.lacba.org/Files/Main%20Folder/Sections/Taxation/Files/01%20-%20Proposed%20Guidance%20Why%20Mexican%20Retirement%20Funds%20%28Corona,%20Hernandez%29.PDF
Many Mexican immigrants to the US are also impacted by these rules (and probably do not know it). If there was general knowledge of how the IRS is expecting AFOREs to be treated, it is likely that there would a great outcry and that there would be a lot of participation on this site from Mexican-Americans and US persons living and working in Mexico.
@Lisa, Excellent comment.
I’m sure that the benefit from the linguistic barrier between the US and Canada. One of the things that historians have understood since the Tower of Babel, is that having a single common tongue makes it possible to dominate. That’s one reason, for example, that the French set up nice little colonial schools in French Africa, to impose the French language so that the Africans could understand their orders better. Since most Mexicans speak Spanish and probably have limited access to English media, they are relatively insulated from US’s insulting attempt at shaking down its alleged American citizens south of the Rio Grande, whereas the Canadian media is able to republish press releases from the IRS and they don’t even have to translate it since most Canadians, even those in Quebec, have a working knowledge of English.
Also I should mention that the estimates of the number of people affected in Canada is also about a 1 million. Our population is much smaller than Mexico. So that would mean that we may have a higher per capita concentration of alleged US persons in Canada.
Deeming pension plans as compliant, is what Australia and New Zealand have been really concerned and lobbying about. However, this does require an IGA to get this “exemption”, it would appear, so wonder what announcements we can expect out of NZ and AU as a result of this? As Tim says, and I concur “The US badly wants Canada along with everyone else to sign an intergovernmental agreement. This is a carrot to do so”
*Just Me
I agree with you. A part of me wonders whether most of the world’s governments have played this the totally wrong way. Flaherty is the only government official who has come out and called for a full stop exemption from FATCA. While I believe the US is very reluctant to do that it might very well come down to Canada and only Canada being exempted while the rest of the world has to comply. That would seem to me to be a very suboptimal solution but one that would be not particularily surprising or unprecedented. There is something to be said for the fact that the squeaky wheel is the one the gets the grease and right now Canada is the only squeaky wheel in town. What happended to all of our UK contributors. Did they all go into hiding after the IGA was released.
@Lisa, thank you for the very interesting information about the situation re the Freizuegigkeitskonto, and Mexico’s AFORE retirement plans. It is too bad that due to this being a primarily English speaking site, we have no way currently to publicize this issue and connect with Spanish language sites serving Mexican Americans, where this would be of concern.
Retirement, and the lack of sufficient savings by individuals to supplement whatever government plans are available, are an important and pressing economic issue in many countries. Saving for disability and old age is a universal concern, and fundamental to all families. If the IRS and the US penalize most, or even some portion of the mandatory and voluntary retirement savings opportunities available to citizens and duals in every non-US country, this is another instance of punitive discrimination against those deemed ‘US taxable persons’ abroad. All other single citizenship persons are able to benefit from the mandatory plans if offered by the country where they live. All other single citizenship persons are able to supplement any government plan with additional contributions where their circumstances allow – through tax deferred or tax privileged plans like Canada’s RRSPs(individual contributions) and also through PRPPS (private workplace contributions). Not only can we not use PRPPs (not recognized as tax exempt under the Canada/US treaty) which will be punitively treated as ‘trusts’, but we are also blocked from using TFSAs and RDSPs as well, for the same reason.
Your posts about the Swiss and Mexican situation illustrates that the US rewards citizens inside the US with tax incentives and rewards for contributing to retirement plans and savings vehicles, but punishes those deemed ‘UScitizen/dual/persons’ living outside the US.
There have been comments here that demonstrate that those in the UK, Brazil, NZ and Australia face similar unethical barriers to retirement savings, as well as in some cases, the US requires Social Security contributions, but either prevents expats from collecting their benefits, or taxes them punitively.
US citizenship-based taxation, and the obdurate refusal of the IRS and the US to treat us fairly, discriminates against all the elderly and those with disabilities who are deemed ‘US taxpayers’ born or living outside the US.
Let say Canada signs some form of an IGA which excludes RRSPs and hopefully RESPs and RDSPs, would the money in those accounts be exempted from the threshold search determinations ( $50,000 and $1,000,000)? In other words, if someone has $ 200,000 in a Canadian financial institution ( and I won’t use the acronym FFI because it is not foreign to a person who permanently lives in Canada), and $170,000 was in an RRSP and the rest in savings and chequing accounts, would the account not be subject to scrutiny because it is below the $ 50.000 threshold?
*I believer that is correct. I would go further and say that Canadian banks can take that position even in the absence of an IGA.
It is also important to note that if your bank or financial inst. doesn’t have any “indicia” on file, accounts between 50,000 and 1,000,000 are unlikely to surface as the search is an ‘electronic’ search of existing information. The bank has no need to know where any of us was born.
http://www.fin.gc.ca/n12/12-095-eng.asp
“
Toronto, Ontario, August 23, 2012
2012-095
“Pooled Registered Pension Plans: The Right Solution at the Right Time to Help Canadians Better Save for Their Retirement”
“The Honourable Ted Menzies, Minister of State (Finance), today spoke to the Economic Club of Canada in Toronto about the role of private sector pension innovation in supporting a strong retirement income system for Canadians.”
“The Harper Government is acting in accord with the Organisation for
Economic Co-operation and Development’s conclusion that a growing role
for private pensions will be essential to closing the pension gap,” said
Minister Menzies. “This gap is real. It is estimated that more than 60
per cent of Canadians do not have access to a workplace pension plan.””
….”said Minister Menzies. “PRPPs are the right solution at the right time
to help many Canadians better save for their retirement. It would be a
shame should provinces choose not to expand coverage for those without
workplace pensions as soon as possible.””
Funny that the Federal government doesn’t acknowledge that >1/33 Canadian residents and Canadian citizens with the shackles of oppressive and involuntary US taxable status can’t use this to save for retirement, (or use TFSAs, RESPs, or RDSPs or even RRSPs and RRIFs without IRS approval). The accounting reporting costs, and penalties would eat up the principal. The interest isn’t exempt from taxation by the US even though we live in Canada.
The Finance Minister and his staff and spokespersons know all about this. But they’re not warning those vulnerable, and in fact, by encouraging our participation, they lead those unwary into further IRS penalty traps. Minister Flaherty knows that even RRSPs aren’t exempt from IRS restrictions without annual onerous paperwork, and that NONE of the other registered savings offered and encouraged by our federal government can be used with benefit, and without penalty by those of us who can’t get rid of the burden imposed by the US on those inside Canada.
They further know that the Finance Minister’s otherwise very welcome announcement that the CRA would not help to collect US tax and FBAR penalties imposed by the US on Canadian citizens (at the time the US tax was assessed) within Canadian borders, does not specifically address registered accounts and the IRS penalties for ‘foreign trusts’ as the IRS likes to define all of our registered Canadian accounts.