Several people have received the same letter from Finance Minister Jim Flaherty. CanuckDoc has posted a reply.
Thank you for taking the time to read my letter and for your thoughtful response. It is reassuring to know that the Canadian Government is listening to our concerns, and attempting to act in our interests. You comment that the IRS document of Dec 7 states that there will be no tax or filing penalties if there is no tax due. That sounds very reasonable. However, given my general lack of trust in the IRS, I looked a bit further along in the document, where it states that:
“In addition to the failure to file and failure to pay penalties, in some situations, you could be subject to other civil penalties, including the accuracy-related penalty, fraud penalty, and certain information reporting penalties. For information regarding the accuracy-related penalty and the fraud penalty, see IRS Notice 746 (Information About Your Notice, Penalty and Interest). For information regarding information reporting penalties, see the instructions for the specific information reporting form. For example, see the Instructions for Form 3520-A for information on the penalty for failure to file Form 3520-A”.
A quick look at the instructions for 3529A which is the “Annual Information Return of Foreign. Trust With a U.S. Owner” states that there can be a fine of $10,000 or 5% of the assets for failure to file the 3520A in a timely fashion. With further penalties if the failure persists.
As you are probably aware, the US considers TFSA’s along with RESP’s to be “foreign trusts” thus requiring any Canadian who innocently opened a TFSA to be liable to penalties that are classified as neither “failure to file” or “failure to pay” if this extremely complex form is not filed
You also stated that the Canadian government would not participate in collecting FBAR fines imposed by the US on Canadian citizens. I am hoping for the same reason, the Canadian government and CRA will not participate in collection of these “Information reporting penalties” associated with RESP’s and TFSA. It is of some comfort to know that the Canadian government will not participate in the collection, but it would be better if the penalties would not be levied at all.
It is my hope that the IRS has no intention of levying those penalties, but I do not trust the IRS.
It is indeed a very tangled web we are all caught in. I hope i will be able to count on the continuing support of my government (and I consider myself truly only Canadian at heart) in whatever is to come.