Phil Hodgen has some good news for the Canadians in the audience:
Up to now the way to fix an unreported RRSP problem was by incurring brain damage, spending lots of money, or suffering through terminal uncertainty and fear. Or all of the above … Guess what. Things have changed for the better. I’m serious. We confirmed today in a phone call with Chief Counsel’s office that amended tax returns will be allowed with Form 8891 attached.
In other words, a seemingly pointless waste of paper the IRS issued to one taxpayer early this year may have unforeseen historical significance: it is quite possibly the last “late RRSP election” Private Letter Ruling that will ever be made.
While this is certainly good news for many people, I find myself rather underwhelmed. Treasury has enormous power under existing laws to issue regulations exempting pretty much any class of persons it wants from pointless international paperwork that is otherwise demanded by law. Canada introduced its Registered Retirement Savings Plans in 1957. It only took fifty-six years for the IRS to ensure there are reasonable procedures for dealing with late filings on this one type of financial product. (Got RDSP or RESP problems? Too bad for you!) And that was in the best case scenario: a country right next door with English as one of its official languages, the most common type of account in that country, and over a million migrants going in either direction who were hit by the whole mess.
You do the math: 190-odd other countries & territories, each with their own unique kinds of purpose savings accounts, most speaking languages other than English, and fewer than a million affected filers in each to lobby for change. How long will it be before U.S. Persons finally have the freedom to move to any country on Earth without incurring unreasonable paperwork requirements, and the folks in the District of Columbia can start figuring out what to do with all those non-filers who moved to Mars in the intervening centuries?
This form has existed for a number of years. My parents use it to declare their RiFF and I believe my tax guy used it to declare my RRSP. My understanding is that Canada is the only country with their own IRS tax form to exempt registered retirement savings from taxation in the United States. I’ve read somewhere that Canadian/US duals kicked up such a fuss over the taxation of RRSP’s, the IRS was forced to exempt the retirement savings. It would be nice to see similar forms for RESP’s, TFSA’s and RDSP’s.
Yes, you’re right, if I recall correctly Form 8891 was created a while back in the aftermath of a protocol to the Canada-US double taxation treaty. What’s new is that you can now file Form 8891 late, instead of having to pay $625 or whatever it is this year to get a PLR.
It always amazes me how long it takes for reason to prevail at the IRS, if you CALL still having to file a form 8891 reasonable! And the irony is, they are telling people to go ahead and file a 1040X, which seems to me is a QD, but never mind that you have been told essentially not to do this up until now! And the GAO report wants the IRS to watch out for those QDs to collect more interest and penalties, so risk has NOT been removed! 🙂 Although, Phil is probably right….
@Marie;
re …”… I’ve read somewhere that Canadian/US duals kicked up such a fuss over the taxation of RRSP’s, the IRS was forced to exempt the retirement savings. …”…
And, you would think that given that long history of US IRS and Treasury recalcitrance, the successive Canadian federal governments up until now would have foreseen the problems with the RESP, the RDSP, and now, the PRPP – Private Registered Pension Plan – newest child of the Harper government, and Minister Flaherty. They would have been fully aware of the scale of the problem – and all the while urging all of us to save using these registered vehicles.
If the problem with the IRS treatment of the RRSP has been going on for all these decades, and Canada was only able to get the exemption with an annual election, then sufficient federal civil servants and others in the federal government have been fully aware of the problem and the numbers who would be affected if and when the IRS and Treasury chose to fully apply the letter of the US tax laws.
The Canadian government could have protected its duals before now, and at least forewarned us, and instead let us be blindsided.
This time its not going to blow over the creation of the non-willful FBAR penalty, plus FATCA is the line in the sand. The US won’t be reasonable, and the enforcement crusade means that too much is at stake for all of us around the globe.
It had to get this bad before anything was done at all – and even then, the US refuses to just exempt the RRSP entirely. And, all those US expats who aren’t Canadian duals and residents are still suffering without even this accommodation.
There is no point in thinking that the US will see ever see sense. They are absurd and willful, and suffused with hubris.
Only continued loud opposition and political fallout will get us any further.
The more that renounce/relinquish, the better. The more who are free to speak out, the better. The more pressure on our local representatives, the better.
The example of the US treatment of the RDSP and Canadian disability benefits – the IRS taxing the Canadian disability savings and income of those who can least protect themselves remains so obviously shameful that there is no way for Canadians to excuse it, nor for the US to rationalize it.
Colour me deeply unimpressed. Treaty rights should be automatic,, not available only after filing a form signed in triplicate, sent in, sent back, queried, lost, found, subjected to public inquiry, lost again, and finally buried in soft peat for three months and recycled as firelighters.
Regarding the possibility of a ‘diplomatic shitstorm’ over the IRS asserting penalties on Canadian (or any other country’s) retirement accounts… hooey. The OVDI is the current apex of IRS unfairness to foreigners. It assessed penalties on non-taxable items such as the value of rental properties. Where was the shitstorm about that? Not a peep.
Oh yeah, and this sort-of ‘solves’ the problem for just one country out of 194. Just over 0.5% of the problem area covered. Pffft.
Proceed with caution!
The procedure Mr. Hodgson sets forth in his blog is based on a telephone conversation with IRS office of Chief Counsel. The IRS hasn’t (yet) given written confirmation of the procedure. Until written guidance is issued caution is warranted.
I certainly hope IRS issues this written guidance soon.
@Roy Berg
Maybe you could do as Phil suggests. Call them on behalf of your clients or for those Canadians here wondering what to believe..
As he says…
@badger, I completely agree with you. FATCA is the line in the sand and they are not going to be reasonable about penalties. They CAN’T! How else are they going to “rebuild infrastructure” The fall out at home from being reasonable with us would be too great for them.
Renouncing is the new burn your draft card protest. If they ever come to their senses maybe they will see what they’ve done to people and fix it. They move so slowing doing the right thing though I might be long in my grave before that happens. I’m not willing to take ANYTHING less than RBT from here on out and I know I’m not going to get that. So these little bones they are throwing mean nothing to me.
And I don’t care who their next Potus is or isn’t. They’ve made it very clear we are not one of them if we can’t go along with FATCA so what’s the use of caring about their issues and politics. We’re being thrown under the bus. It’s plain and simple. Yes, this is going to come back and bite them where it hurts sooner than they think but, who can waste so much time in life waiting and thinking they will see sense?? They aren’t going to. The most we can hope for is that they understand why these renunciation figures are shooting through the roof. It’s not “tax evasion”
One could draw a number of parallels between dinosaurs and the USG.
Treasury tore up our PLR request and gave us a refund. The message was that our RRSP’s would be dealt with in OVDI. Moving in on 21 months in OVDI and still no word…
I have been reading this forum since last fall and I am grateful to all who have so eloquently put their words to paper. I am a long time dual Citizen residing in Canada since 1985, Canadian since 1995. I was extremely glad to see that there has been a change regarding back filing of 8891. .I have had spousal RRSPs for many years, but have only filed 8891s for the last 2 years. They have been on the last 7 years of FBAR. The question is, how many years do I back file?. I would be correcting 1040s also,the stupid thing was the ONLY reason I filed the 1040s was because of the form 8891 requirement. Any suggestions?
Just file going forward. No worries.
I can agree to going forward, but I would like to start the process of renouncing sooner rather than later.
I need to figure out if I should back file the 8891s to make sure that 5 years of tax filing (or in my case, filing just to tell them I have RRSP’s that haven”t been withdrawn) requirements have been met so to enable me to renounc if I back file for 2008 to 2010 will that not red flag my file in some way? I don’t want to perjure myself when signing anything at the consulate!
@Marge,
You won’t sign anything at the consulate stating that you’re tax compliant.
The only reference to tax that you sign at the consulate is when you sign the DS-4081, Statement of Understanding of Consequences, item 10 is that renouncing “… may not exempt me from US tax income taxation [etc] …”
To log out of IRS, you have to file your exit tax form 8854 by 15 June of the year following renunciation. On that form you have to certify that you’ve been in tax compliance for the previous five years. So, if you renounce in 2013, you have until 15 June 2014 to file 2008-12, 2013 (partial year) and 8854.
So, there’s no problem with renouncing first, as long as you can do the back filing between then and wrapping things up with your 8854 next year. Some people here have done that.
I appreciate all the advice on IBS. I need to clear up something which has left me confused .
Most of my money is in RRSPs…My late husband left to me. Will the Canadian Banks have to report them? THey are all in one bank but I do have some small ones in Cdn Savings Bonds as RRSPs. I was told CSB is not doing RRSPs anymore but if you have an account you could transfer the RRSPs to your account with CSB.
Should I start moving my RRSPs to different banks to break up the money because of the limit.
Is the limit $50,000 for all accounts in all banks or each bank?
Will The Canadian government be reporting on Canadian Savings Bonds that the APs have? I have some savings that are not RRSPs so I thought I could move some of this savings cash to CSBs.
I closed my TSF accounts already so there is this accumulation of regular savings. .
If anyone can advise me I appreciate it.
I am waiting for a CLN which I am hoping will be backdated to 1993 when I became a Canadian citizen.
It’s apparently possible to get an extension for filing 8854 to Oct 15 or Dec 15.
See:
http://hodgen.com/when-to-file-form-8854/
@northernstar
What you said intrigues me…
This is not invesment advice…but long ago, I had a client who made use of the LIMITS rule on CDIC..(Canadian Depository Insurance Rule, of $50,000 per account in the 1980’s…so what he did was; he maintained accounts at each of the 5 major banks just below the CDIC protection limit of $50,000…(this is back in the 1980’s..) ..one account for the wife, one account for himself…so he protected approximately $500000 from default)….shrewd…
You may have to be creative until you receive your CLN …. 🙂
@Benedict Arnold be me
Thank you for answering.
I still am wondering about the Canadian Savings Bonds..that would be like a separate bank account, eh?
I am not sure…if the institution holding it is the Bank of Canada…then presumably so…
Just as an aside…a client (excess of $100 Million) in 2008 banking crisis used the same technique…wife, himself and corporation each purchased guaranteed $100,000 GIC’s at every issuer available…we covered a lot of institutions..fortunately we never had to TEST the system…
Mark Nestmann warns against getting creative and taking evasive action with bank accounts under FATCA. Don’t know how vulnerable a Canadian is to blackmail in Canada though.
http://patriotaction.net/m/blogpost?id=2600775%3ABlogPost%3A6372697
There’s also e the real possibility that banks will just end up searching all bank accounts of any value for US indicia.
I am hoping RRSPs are going to be exempt. If not , I guess I can cash them in and pay a high Cdn income tax on my return. What about RRIFs….Or LRIFS?
I found this , it may have been on IBS already.
http://www.cucentral.ca/Connections/FATCA%20Final.pdf
It is dated March 2013…It does explain RRIFs
I am not understanding the aggregate referance. “Members’ accounts less than $50,000 in aggregate are exempt from any review and reporting.
Also, all registered accounts such as RRSPs and RRIFs will be exempt”
Does than mean one can have more than $50,000 in RRIFs in a bank? .
http://www.mccarthy.ca/article_detail.aspx?id=5798
And,
@411, thanks for pointing this out.
The bulk of my RRSPs were passed on to me from my deceased husband, they were his pension earned while working . His employer matched what he made.and gave him a buyout. My husband chose to get the pension money in a lump sum because he knew he was dying. We thought it would be better for me. So is this a locked in RRSPs?
I was withdrawing out some each year and that amount would be added as my income to be reported. I also worked at two jobs where when I left or (one went bankrupt) and the pension I earned was put in locked in pension.GIC
I am over 65 now and can now get at them. Are they still locked in? They are in GICs. Some of my husbands RRSP is in a RRSP money savings not GIC..none are making any big interest. And some of his pension money is in GICs. My bank keeps after me to put the RRSP money savings into a GIC or Mutual funds. I keep saying no.
I find this frustrating. I wanted to have a happier retirement. Instead I am sick to my stomach and can’t sleep with this sword hanging over my head. I am concerned for my only family , a son, who is not concerning himself about this. All my friends think this is a crazy thing and that I am going a little insane over this. . I am thankful to have ISB members to help me keep sane and informed.
Calgary 411 The McCarthy article you cited is out of date. It is clear that RRSPs and RRIFs are exempt whether or not Canada signs an IGA. If we sign an IGA, TFSAs and RDSPs will probably be exempt.
northernstar. You do not need to cash in or break up your RRSPs. As you have already found in the credit union central post…
You can have any amount you like in a RRIF in a bank or any other financial institution. What normally happens is that a RRSP (let’s say it’s worth $250,000) gets converted to a RRIF of the same value in the year that the holder turns 71. The holder (annuitant) is then obliged to withdraw and pay tax on a certain amount each year. The principle left in the RRIF continues to grow tax free. That is the beauty of the RRSP/RRIF concept. Canada leads in retirement planning.
To review: Accounts less than $50,000—No review , no report. RRSPs and RRIFs….No review,no report. Accounts less than $1 million….. Review limited to an electronic search of the banks records. If they don’t have you down as a US citizen, then there would again be no report.
@KalC
THank you, THank you, THank you. I feel better now.
I will feel even better with my CLN.
But I shall stay with ISB…You all are very important to me. like family.