canadian rrsps, rrifs and other foreign funded retirement...

IMPORTANT INFORMATION FOR THE LIVE PROGRAM

This program is approved for 2 CPE credit hours. To earn credit you must:

• Participate in the program on your own computer connection (no sharing) – if you need to registeradditional people, please call customer service at 1-800-926-7926 x10 (or 404-881-1141 x10). Straffordaccepts American Express, Visa, MasterCard, Discover.

• Listen on-line via your computer speakers.

• Respond to five prompts during the program plus a single verification code. You will have to write downonly the final verification code on the attestation form, which will be emailed to registered attendees.

• To earn full credit, you must remain connected for the entire program.

Canadian RRSPs, RRIFs and Other Foreign Funded RetirementPlans: Tax Planning and Reporting for 402(b) Funded PlansTUESDAY, JUNE 7, 2016, 1:00-2:50 pm Eastern

FOR LIVE PROGRAM ONLY

WHO TO CONTACT DURING THE LIVE EVENT

For Additional Registrations:-Call Strafford Customer Service 1-800-926-7926 x10 (or 404-881-1141 x10)

For Assistance During the Live Program:-On the web, use the chat box at the bottom left of the screen

If you get disconnected during the program, you can simply log in using your original instructions and PIN.

IMPORTANT INFORMATION FOR THE LIVE PROGRAM

This program is approved for 2 CPE credit hours. To earn credit you must:

• Participate in the program on your own computer connection (no sharing) – if you need to registeradditional people, please call customer service at 1-800-926-7926 x10 (or 404-881-1141 x10). Straffordaccepts American Express, Visa, MasterCard, Discover.

• Listen on-line via your computer speakers.

• Respond to five prompts during the program plus a single verification code. You will have to write downonly the final verification code on the attestation form, which will be emailed to registered attendees.

• To earn full credit, you must remain connected for the entire program.

Tips for Optimal Quality

Sound QualityWhen listening via your computer speakers, please note that the qualityof your sound will vary depending on the speed and quality of your internetconnection.

If the sound quality is not satisfactory, please e-mail [email protected] so we can address the problem.

FOR LIVE PROGRAM ONLY

Sound QualityWhen listening via your computer speakers, please note that the qualityof your sound will vary depending on the speed and quality of your internetconnection.

If the sound quality is not satisfactory, please e-mail [email protected] so we can address the problem.

June 7, 2016

Canadian RRSPs, RRIFs and Other ForeignFunded Retirement Plans

C. Edward Kennedy, Jr., CPA, JD, Partner

GrossDukeNelson & Co., Atlanta

[email protected]

Max Reed, LLB, BCL, Tax Lawyer

SKL Tax, Vancouver, BC

[email protected]

Alison N. Dougherty, J.D., LL.M., Senior Manager

Aronson, Rockville, Md.

[email protected]

Notice

ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN BYTHE SPEAKERS’ FIRMS TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANYOTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THATMAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING ORRECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.

You (and your employees, representatives, or agents) may disclose to any and all persons,without limitation, the tax treatment or tax structure, or both, of any transactiondescribed in the associated materials we provide to you, including, but not limited to,any tax opinions, memoranda, or other tax analyses contained in those materials.

The information contained herein is of a general nature and based on authorities that aresubject to change. Applicability of the information to specific situations should bedetermined through consultation with your tax adviser.

ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN BYTHE SPEAKERS’ FIRMS TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANYOTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THATMAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING ORRECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.

You (and your employees, representatives, or agents) may disclose to any and all persons,without limitation, the tax treatment or tax structure, or both, of any transactiondescribed in the associated materials we provide to you, including, but not limited to,any tax opinions, memoranda, or other tax analyses contained in those materials.

The information contained herein is of a general nature and based on authorities that aresubject to change. Applicability of the information to specific situations should bedetermined through consultation with your tax adviser.

Canadian pension and savingsplans

[email protected]

+1 604 732 1515

Canadian pension and savingsplans

Max Reed LL.B, BCLSKL Tax

• Overview of the different Canadian registered plans• US income tax consequences of those plans• How to disclose these plans

– Plans may not be entities separate from their owners– Plans may not be trusts for US tax purposes– Plain paper disclosure preferable

Outline• Overview of the different Canadian registered plans• US income tax consequences of those plans• How to disclose these plans

– Plans may not be entities separate from their owners– Plans may not be trusts for US tax purposes– Plain paper disclosure preferable

6Canada Pension and Savings Plans| Max Reed | [email protected]

• Registered Pension Plan (RPP)• Registered Retirement Savings Plans (RRSP)• Tax Free Savings Account (TFSA)• Registered Education Savings Plan (RESP)• Registered Disability Savings Plan (RDSP)

Types of Registered Plans• Registered Pension Plan (RPP)• Registered Retirement Savings Plans (RRSP)• Tax Free Savings Account (TFSA)• Registered Education Savings Plan (RESP)• Registered Disability Savings Plan (RDSP)


• Employer sponsored pension plan (i.e. similar to a401K)

• Contributions to Canadian pension plan taxdeductible for US federal tax purposes if certaincriteria met

• No special form required to take treaty deferral• Not reportable on FBAR (Form FinCen 114)• Reportable on Form 8938

Registered Pension Plan• Employer sponsored pension plan (i.e. similar to a

401K)• Contributions to Canadian pension plan tax

deductible for US federal tax purposes if certaincriteria met

• No special form required to take treaty deferral• Not reportable on FBAR (Form FinCen 114)• Reportable on Form 8938


• Government sponsored pension plan (i.e. IRA)• Income is tax deferred under Article 18(7) of

Canada-US Treaty• No special form required to take treaty deferral

– Form 8891 was eliminated by Rev. Ruling 2014-97

• Reportable on FBAR (Form FinCen 114)• Reportable on Form 8938

RRSP• Government sponsored pension plan (i.e. IRA)• Income is tax deferred under Article 18(7) of

Canada-US Treaty• No special form required to take treaty deferral

– Form 8891 was eliminated by Rev. Ruling 2014-97

• Reportable on FBAR (Form FinCen 114)• Reportable on Form 8938


• According to IRS, RRSP is an annuity• After tax contributions should increase basis in the

plan• Canadian who moves to the US and takes out

money from RRSP should have high basis and lowUS tax

• Sell and re-purchase assets with gains before moveto US to increase RRSP basis

RRSP (2)• According to IRS, RRSP is an annuity• After tax contributions should increase basis in the

plan• Canadian who moves to the US and takes out

money from RRSP should have high basis and lowUS tax

• Sell and re-purchase assets with gains before moveto US to increase RRSP basis


• Investment income inside the plan is tax free inCanada

• Investment income is taxable in the US to theholder

• Similar to a Roth IRA• Reportable on FBAR (Form FinCen 114)• Reportable on Form 8938

Tax Free Savings Account• Investment income inside the plan is tax free in

Canada• Investment income is taxable in the US to the

holder• Similar to a Roth IRA• Reportable on FBAR (Form FinCen 114)• Reportable on Form 8938


• College savings plan (like a 529)• Parent contributes money, sometimes matched by

government• Child withdraws money and pays tax on part of it• Investment income is tax deferred in Canada• Investment income is taxable in the US to the

holder• Reportable on Form 8938• Reportable on FBAR (Form FinCen 114)

Registered Education Savings Plan

• College savings plan (like a 529)• Parent contributes money, sometimes matched by

government• Child withdraws money and pays tax on part of it• Investment income is tax deferred in Canada• Investment income is taxable in the US to the



• Plan allows relatives to save for disabled dependent(an ABLE plan)

• Relatives contribute money, government matches it• Disabled dependent withdraws money• Investment income is tax deferred in Canada• Investment income is taxable in the US to the


Registered Disability Savings Plan

• Plan allows relatives to save for disabled dependent(an ABLE plan)

• Relatives contribute money, government matches it• Disabled dependent withdraws money• Investment income is tax deferred in Canada• Investment income is taxable in the US to the



• No IRS guidance on how to report Canadianregistered plans except for RRSP

• Plans may not be an entity separate from theirowner

• Plans are unlikely to be classified as trusts• This is because they are more akin to bank

accounts• Plain paper disclosure is recommended as an

insurance policy against penalties

Disclosing these plans• No IRS guidance on how to report Canadian

registered plans except for RRSP• Plans may not be an entity separate from their

owner• Plans are unlikely to be classified as trusts• This is because they are more akin to bank

accounts• Plain paper disclosure is recommended as an

insurance policy against penalties


• Entity classification regime only applies to those thatare separate from owners

• Rev. Rul. 2004-86 (re: Delaware Statutory Trust) setsout criteria for when an entity is separate from itsowners:– Recognized under local law as a separate entity– Creditors may not assert claims against property held by the

entity– The entity can be sued– Entity’s beneficial owners have limited liability– Entity can be merged with other entities

• Entity must have a “business purpose”

Not separate entities• Entity classification regime only applies to those that

are separate from owners• Rev. Rul. 2004-86 (re: Delaware Statutory Trust) sets

out criteria for when an entity is separate from itsowners:– Recognized under local law as a separate entity– Creditors may not assert claims against property held by the

entity– The entity can be sued– Entity’s beneficial owners have limited liability– Entity can be merged with other entities

• Entity must have a “business purpose”


• These plans more closely resemble bankaccounts than legal entities

• Unlikely to be trusts under Canadian law• Unlikely (but unclear) that they have legal

personality under Canadian law• They don’t have a business purpose• If not entities then no disclosure necessary

Not separate entities (2)

• These plans more closely resemble bankaccounts than legal entities

• Unlikely to be trusts under Canadian law• Unlikely (but unclear) that they have legal

personality under Canadian law• They don’t have a business purpose• If not entities then no disclosure necessary


• Definition of trust under § 301.7701-4(a):– Trustee “takes title to property”– Usually not created by beneficiary– Purpose of arrangement is “arrangement is to vest in

trustees responsibility for the protection andconservation of property “

• Financial institution would be trustee• Financial institution does not “take title”• Financial institution may not have responsibility

for property

Plans are unlikely to be trusts• Definition of trust under § 301.7701-4(a):

– Trustee “takes title to property”– Usually not created by beneficiary– Purpose of arrangement is “arrangement is to vest in

trustees responsibility for the protection andconservation of property “

• Financial institution would be trustee• Financial institution does not “take title”• Financial institution may not have responsibility

for property


• Mexican Land Trust Revenue Ruling Supportsthis view (Rev Rul 2013-14)

• Even if trustee takes title, not a trust ifbeneficiary has sole tax responsibility

• Applies best to TFSA but also to other plans• If not a trust, then no Forms 3520/3520-A

required and compliance cost of plansreduced significantly

Plans are unlikely to be trusts (2)

• Mexican Land Trust Revenue Ruling Supportsthis view (Rev Rul 2013-14)

• Even if trustee takes title, not a trust ifbeneficiary has sole tax responsibility

• Applies best to TFSA but also to other plans• If not a trust, then no Forms 3520/3520-A

required and compliance cost of plansreduced significantly


• No tax avoidance purpose – all income reported• Attach form letter to Form 1040 that describes plan and

asks for IRS guidance• Even if IRS takes position that Form 3520 required,

reasonable cause may excuse penalties• James v. United States [2012 U.S. Dist. LEXIS 114356

(MD FL 2012)]:– citing Internal Revenue Manual reasonable cause =

“good faith effort was made to comply with the law”• Plain paper disclosure is textbook good faith

How to disclose• No tax avoidance purpose – all income reported• Attach form letter to Form 1040 that describes plan and

asks for IRS guidance• Even if IRS takes position that Form 3520 required,

reasonable cause may excuse penalties• James v. United States [2012 U.S. Dist. LEXIS 114356

(MD FL 2012)]:– citing Internal Revenue Manual reasonable cause =

“good faith effort was made to comply with the law”• Plain paper disclosure is textbook good faith


Ed KennedyPartnerGrossDukeNelson & Co. PC

Applies to funded employee’s trusts notqualifying for exemption under IRC §501(a)Employer contributions to such trusts areincludible in income under IRC §83

Occurs when property is not subject to asubstantial risk of forfeitureGenerally occurs when property vests

If employee vests in plan during a taxable year,the value of the employee’s interest in the planis taxable in full at such time Treas. Reg.§1.402(b)-1(b)(1)

Applies to funded employee’s trusts notqualifying for exemption under IRC §501(a)Employer contributions to such trusts areincludible in income under IRC §83

Occurs when property is not subject to asubstantial risk of forfeitureGenerally occurs when property vests

If employee vests in plan during a taxable year,the value of the employee’s interest in the planis taxable in full at such time Treas. Reg.§1.402(b)-1(b)(1)

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An employee’s trust is a trust created ororganized in the United States and forming partof a stock bonus, pension, or profit-sharing planof an employer for the exclusive benefit of hisemployees or their beneficiariesForeign employee’s trusts are for the most partare not established in the U.S. and thus do notconstitute qualified trusts, but are considerednonqualified employee’s trusts

An employee’s trust is a trust created ororganized in the United States and forming partof a stock bonus, pension, or profit-sharing planof an employer for the exclusive benefit of hisemployees or their beneficiariesForeign employee’s trusts are for the most partare not established in the U.S. and thus do notconstitute qualified trusts, but are considerednonqualified employee’s trusts

23

Distributions (and vestings) are taxable underSection 72Taxation depends on the “investment in thecontract”

Employer contributions are considered “investmentin the contract” only if:

The amounts were includible in the employee’s income,orIf such amounts had been paid directly to the employeeat the time they were contributed, they would not havebeen includible in the gross income of the employeeunder the law applicable at the time of such contribution

Distributions (and vestings) are taxable underSection 72Taxation depends on the “investment in thecontract”

Employer contributions are considered “investmentin the contract” only if:

The amounts were includible in the employee’s income,orIf such amounts had been paid directly to the employeeat the time they were contributed, they would not havebeen includible in the gross income of the employeeunder the law applicable at the time of such contribution

24

However, IRC §72(w) provides that employee oremployer contributions are not included in aplan participant’s basis if:

The employee was a nonresident alien at the timethe services were performed with respect to whichthe contribution was made;The contribution is with respect to compensationfor labor or personal services from non-U.S.sources; andThe contribution was not subject to income taxunder the laws of the United States or any foreigncountry.

However, IRC §72(w) provides that employee oremployer contributions are not included in aplan participant’s basis if:

The employee was a nonresident alien at the timethe services were performed with respect to whichthe contribution was made;The contribution is with respect to compensationfor labor or personal services from non-U.S.sources; andThe contribution was not subject to income taxunder the laws of the United States or any foreigncountry.

25

A beneficiary of an employee’s trust under IRC§402(b) will generally not be considered as anowner of the trust under the grantor trust rulesConversely, if the retirement plan does notqualify as an employee’s trust, then the planmust be reviewed to determine if it constitutesa grantor trust

A beneficiary of an employee’s trust under IRC§402(b) will generally not be considered as anowner of the trust under the grantor trust rulesConversely, if the retirement plan does notqualify as an employee’s trust, then the planmust be reviewed to determine if it constitutesa grantor trust

26

If the plan is “discriminatory” (also referred toas being not “broad-based”), any increase invalue in a highly compensated employee’svested portion (i.e., earnings and accretions)during the year will be taxable.

If the plan is “discriminatory” (also referred toas being not “broad-based”), any increase invalue in a highly compensated employee’svested portion (i.e., earnings and accretions)during the year will be taxable.

27

Retirement plans not constituting employee’strusts are taxed under general tax principlesdepending on their nature

Retirement plans not constituting employee’strusts are taxed under general tax principlesdepending on their nature

28

IRC §409A exempts many foreign plans from itsapplicability:

Foreign social security plans that are government-mandatedor covered by a U.S. Social Security Totalization Agreement.Foreign plans which are covered by section 402(b), in whichthe plan assets are in trust and not exposed to the creditorsof the funding employer, and therefore do not allow for adeferral under U.S. tax principles in any event.Participation in certain foreign broad-based plans by anonresident alien, a resident alien under the substantialpresence test, or a bona fide resident of a U.S. possession.Deferrals in respect of income that would be excludedunder a treaty.

Likely not to apply in the case of 402(b) or otherfunded plans, but worth checking

IRC §409A exempts many foreign plans from itsapplicability:

Foreign social security plans that are government-mandatedor covered by a U.S. Social Security Totalization Agreement.Foreign plans which are covered by section 402(b), in whichthe plan assets are in trust and not exposed to the creditorsof the funding employer, and therefore do not allow for adeferral under U.S. tax principles in any event.Participation in certain foreign broad-based plans by anonresident alien, a resident alien under the substantialpresence test, or a bona fide resident of a U.S. possession.Deferrals in respect of income that would be excludedunder a treaty.

Likely not to apply in the case of 402(b) or otherfunded plans, but worth checking 29

Certain countries require employercontributions to funded benefit plans undertheir social security laws

Hong Kong Mandatory Provident FundSingapore Central Provident FundBrazilian FGTS

In addition, many countries allow employees toparticipate in funded tax-favored privateretirement plans

Australian Superannuation FundCanadian plans discussed earlier

Certain countries require employercontributions to funded benefit plans undertheir social security laws

Hong Kong Mandatory Provident FundSingapore Central Provident FundBrazilian FGTS

In addition, many countries allow employees toparticipate in funded tax-favored privateretirement plans

Australian Superannuation FundCanadian plans discussed earlier

31

Under IRC §402(b)(3), beneficiaries are generally notconsidered as owners of the plan under the grantor trustrulesIn situations where the foreign retirement plan is “self-funded” by the taxpayer, such as a self-funded AustraliaSuperannuation Fund, or more than 50% of the assets inthe plan are attributable to the taxpayer’s contributions,some or all of the plan will be considered a grantor trustIf so, the plan is reportable on Form 3520, Annual Return toReport Transactions with Foreign Trusts and Receipt ofCertain Foreign Gifts and Form 3520-A, Annual InformationReturn of Foreign Trust With a U.S. Owner

Under IRC §402(b)(3), beneficiaries are generally notconsidered as owners of the plan under the grantor trustrulesIn situations where the foreign retirement plan is “self-funded” by the taxpayer, such as a self-funded AustraliaSuperannuation Fund, or more than 50% of the assets inthe plan are attributable to the taxpayer’s contributions,some or all of the plan will be considered a grantor trustIf so, the plan is reportable on Form 3520, Annual Return toReport Transactions with Foreign Trusts and Receipt ofCertain Foreign Gifts and Form 3520-A, Annual InformationReturn of Foreign Trust With a U.S. Owner

32

TAM CC-TAM-PMTA-00173 (10/10/97) Involvedemployer contributions to the Singapore CentralProvident Fund (CPF)

Employer required to contribute percentage ofemployees to CPFContributions are non-electiveCPF holds funds in trust for employeeSeparate accounts are maintainedAmounts are nonforfeitable and can be withdrawnat age 55, or upon death or disability

TAM CC-TAM-PMTA-00173 (10/10/97) Involvedemployer contributions to the Singapore CentralProvident Fund (CPF)

Employer required to contribute percentage ofemployees to CPFContributions are non-electiveCPF holds funds in trust for employeeSeparate accounts are maintainedAmounts are nonforfeitable and can be withdrawnat age 55, or upon death or disability

33

IRS concluded that employer contributions wereincludible in the employee’s income under IRC §402(b)Because these amounts were included in income underIRC §402(b) and not IRC §61, employer contributionscould not be considered as foreign earned incomeeligible for the IRC §911 exclusionEmployee contributions were income under IRC §61and thus considered as foreign earned income eligiblefor the IRC §911 exclusion

IRS concluded that employer contributions wereincludible in the employee’s income under IRC §402(b)Because these amounts were included in income underIRC §402(b) and not IRC §61, employer contributionscould not be considered as foreign earned incomeeligible for the IRC §911 exclusionEmployee contributions were income under IRC §61and thus considered as foreign earned income eligiblefor the IRC §911 exclusion

34

Key takeaway is the employer contributions to fundedplans may be taxableThere is very little guidance in this areaThe Singapore ruling would appear to apply to mostsimilar provident-fund type plansCare should be exercised in reviewing these plans todetermine appropriate U.S. taxability

Key takeaway is the employer contributions to fundedplans may be taxableThere is very little guidance in this areaThe Singapore ruling would appear to apply to mostsimilar provident-fund type plansCare should be exercised in reviewing these plans todetermine appropriate U.S. taxability

35

Certain U.S. income tax treaties grant relief fromU.S. taxation for employer contributions andearnings and accretions of foreign pension plansExamples:

Relief for pension contributions but not earningsAustriaFranceItaly

Relief for bothBelgiumCanadaGermany

Certain U.S. income tax treaties grant relief fromU.S. taxation for employer contributions andearnings and accretions of foreign pension plansExamples:

Relief for pension contributions but not earningsAustriaFranceItaly

Relief for bothBelgiumCanadaGermany

36

Confirm that specific plan is covered by thetreatyWatch out for savings clause limitationsDetermine length of time treaty relief isavailable

Confirm that specific plan is covered by thetreatyWatch out for savings clause limitationsDetermine length of time treaty relief isavailable

37

Is the plan held in a foreign bank account?FinCEN 114 reporting a possibility

Are the assets considered “Specified Foreign FinancialAssets (SFFAs)”

An interest in a social security, social insurance, or othersimilar program of a foreign government is not a specifiedforeign financial assetHowever, retirement plan assets held by a nongovernmentalinstitution (Canadian RRSP, Australian Superannuation Fund)are not exempt from reportingSFFAs are reported on Form 8938, unless required to bereported elsewhere

Is the plan held in a foreign bank account?FinCEN 114 reporting a possibility

Are the assets considered “Specified Foreign FinancialAssets (SFFAs)”

An interest in a social security, social insurance, or othersimilar program of a foreign government is not a specifiedforeign financial assetHowever, retirement plan assets held by a nongovernmentalinstitution (Canadian RRSP, Australian Superannuation Fund)are not exempt from reportingSFFAs are reported on Form 8938, unless required to bereported elsewhere

38

Has the plan invested in a PFIC?Form 8621 must be filed for each PFICExempts U.S. persons treated as the owner of any portion ofa foreign grantor trust that is a foreign pension fundoperated principally to provide pension or retirementbenefits if, pursuant to an income tax treaty, income earnedby the pension fund is taxed as income of the U.S. persononly when and to the extent it is paid to or for the benefit ofthat person.Only relatively few income tax treaties to which the UnitedStates is a party provide this relief. These include thetreaties with Belgium, Canada, Germany, Malta, theNetherlands, South Africa, and the United Kingdom.

Has the plan invested in a PFIC?Form 8621 must be filed for each PFICExempts U.S. persons treated as the owner of any portion ofa foreign grantor trust that is a foreign pension fundoperated principally to provide pension or retirementbenefits if, pursuant to an income tax treaty, income earnedby the pension fund is taxed as income of the U.S. persononly when and to the extent it is paid to or for the benefit ofthat person.Only relatively few income tax treaties to which the UnitedStates is a party provide this relief. These include thetreaties with Belgium, Canada, Germany, Malta, theNetherlands, South Africa, and the United Kingdom.

39

Does the beneficiary have a >50% interest in a trustthat holds the retirement / pension account

Forms 3520 and 3520-AIs the plan held by a CFC?

Form 5471PFICs, trusts and CFC assets do not need to beseparately reported on Form 8938, but values need tobe included in determining whether Form 8938reporting is required

Does the beneficiary have a >50% interest in a trustthat holds the retirement / pension account

Forms 3520 and 3520-AIs the plan held by a CFC?

Form 5471PFICs, trusts and CFC assets do not need to beseparately reported on Form 8938, but values need tobe included in determining whether Form 8938reporting is required

40

U.S. citizens / residents are taxed on worldwideincome so planning is limited, if not nonexistentPlanning should come into play at or beforetime individual arrives in the U.S. because oncetax resident in the U.S. limited opportunity toplan

U.S. citizens / residents are taxed on worldwideincome so planning is limited, if not nonexistentPlanning should come into play at or beforetime individual arrives in the U.S. because oncetax resident in the U.S. limited opportunity toplan

42

Vesting of foreign plans while U.S. tax residentmeans that all or a portion of the total balancewill be taxable in the U.S.

“Investment in the contract” does not includeemployer / employee contributions exempt fromtax in home country

Accelerate or defer vesting until no longer U.S.resident

Review IRC §409A implications if already U.S. taxresident

Vesting of foreign plans while U.S. tax residentmeans that all or a portion of the total balancewill be taxable in the U.S.

“Investment in the contract” does not includeemployer / employee contributions exempt fromtax in home country

Accelerate or defer vesting until no longer U.S.resident

Review IRC §409A implications if already U.S. taxresident

43

Canadian RRSPs – no longer need to file Form3520 but need to determine whether to defertaxation until distributionPlans which have invested in PFICs need todetermine which election is best given thetaxpayer’s circumstances

If taxpayer does not intend to remain in the U.S.permanently, electing to defer tax until distributionmay be preferable

Canadian RRSPs – no longer need to file Form3520 but need to determine whether to defertaxation until distributionPlans which have invested in PFICs need todetermine which election is best given thetaxpayer’s circumstances

If taxpayer does not intend to remain in the U.S.permanently, electing to defer tax until distributionmay be preferable

44

Determine if distribution can be deferred untilafter termination of U.S. tax residencyIf not, carefully review plan to determine“investment in the contract”

45

C. Edward Kennedy JrPartnerInternational TaxGrossDukeNelson & Co. PC

Ed has over 35 years of experience dealing with a variety ofinternational tax matters. He specializes in tax consulting services to awide variety of clients ranging from closely held companies to multi-national businesses. His expertise includes domestic and foreignincome and social security tax planning, tax compliance for individualsand corporations, tax treatment of incentive compensation plans,international assignment program administration, and internationalassignment policy design.

Prior to joining the firm, Ed was with KPMG LLP, where, in addition toproviding the above services, he served as the US firm’s lead forinternational social security matters.

Ed’s technical skills include all aspects of international tax and socialsecurity planning, including individual and corporate tax reporting offoreign assets, including controlled foreign corporations, foreign trusts,passive foreign investment companies, and foreign bank accounts,compliance with domestic and foreign income and social security taxplanning for individuals and corporations, domestic and internationalindividual and corporate income tax compliance, and tax treatment ofincentive compensation plans.

GrossDukeNelson & Co.2340 Perimeter Park DriveSuite 100Atlanta, GA 30341Tel 770-458-5000Fax [email protected]

Ed has over 35 years of experience dealing with a variety ofinternational tax matters. He specializes in tax consulting services to awide variety of clients ranging from closely held companies to multi-national businesses. His expertise includes domestic and foreignincome and social security tax planning, tax compliance for individualsand corporations, tax treatment of incentive compensation plans,international assignment program administration, and internationalassignment policy design.

Prior to joining the firm, Ed was with KPMG LLP, where, in addition toproviding the above services, he served as the US firm’s lead forinternational social security matters.

Ed’s technical skills include all aspects of international tax and socialsecurity planning, including individual and corporate tax reporting offoreign assets, including controlled foreign corporations, foreign trusts,passive foreign investment companies, and foreign bank accounts,compliance with domestic and foreign income and social security taxplanning for individuals and corporations, domestic and internationalindividual and corporate income tax compliance, and tax treatment ofincentive compensation plans.

GrossDukeNelson & Co.2340 Perimeter Park DriveSuite 100Atlanta, GA 30341Tel 770-458-5000Fax [email protected]

46

U.S. International Tax Reporting for Canadian Retirement Plans

Alison N. DoughertyAronson LLCJune 7, 2016

Alison N. DoughertyAronson LLCJune 7, 2016

http://blogs.aronsonllc.com/tax/reporting-foreign-accounts-offshore-assets/

I.R.S. Revenue Procedure 2014-55

Rev. Proc. 2014-55 (10/7/2014) allows an automatic treaty election under ArticleXVIII(7) of the U.S. income tax treaty with Canada for the deferral of U.S. Federaltax on accrued but undistributed income and simplifies reporting of income fromCanadian retirement plans including RRSPs and RRIFs.

Eligible individuals – Report distributions from Canadian retirement plans on U.S.Federal tax return in the year of distribution. U.S. citizen or resident at any time while a beneficiary of the Canadian

retirement plan Filed a U.S. Federal Form 1040 individual tax return for each year as required Has not previously reported accrued but undistributed income from the plan on a

U.S. Federal tax return Has reported all distributions received from the plan in accordance with treaty

election for all taxable years

Ineligible individuals who have previously reported accrued but undistributedincome from Canadian retirement plan on a U.S. Federal tax return – Mustcontinue to report undistributed income unless they obtain consent from the IRS.

48© 2016 | www.aronsonllc.com | www.aronsonllc.com/blogs |

Rev. Proc. 2014-55 (10/7/2014) allows an automatic treaty election under ArticleXVIII(7) of the U.S. income tax treaty with Canada for the deferral of U.S. Federaltax on accrued but undistributed income and simplifies reporting of income fromCanadian retirement plans including RRSPs and RRIFs.

Eligible individuals – Report distributions from Canadian retirement plans on U.S.Federal tax return in the year of distribution. U.S. citizen or resident at any time while a beneficiary of the Canadian

retirement plan Filed a U.S. Federal Form 1040 individual tax return for each year as required Has not previously reported accrued but undistributed income from the plan on a

U.S. Federal tax return Has reported all distributions received from the plan in accordance with treaty

election for all taxable years

Ineligible individuals who have previously reported accrued but undistributedincome from Canadian retirement plan on a U.S. Federal tax return – Mustcontinue to report undistributed income unless they obtain consent from the IRS.

Form 8891 Now Obsolete

Before Rev. Proc. 2014-55, Form 8891 was required to be filed toelect deferral of U.S. Federal tax on accrued but undistributedincome from Canadian RRSPs and RRIFs.

According to Rev. Proc. 2014-55, Form 8891 is now obsolete as of12/31/2014.

Previously, if Form 8891 was filed, the Canadian retirement plan wasnot required to be reported on Form 8938 Statement of SpecifiedForeign Financial Assets. Without Form 8891, the Canadianretirement plan is now required to be reported on Form 8938.


Before Rev. Proc. 2014-55, Form 8891 was required to be filed toelect deferral of U.S. Federal tax on accrued but undistributedincome from Canadian RRSPs and RRIFs.

According to Rev. Proc. 2014-55, Form 8891 is now obsolete as of12/31/2014.

Previously, if Form 8891 was filed, the Canadian retirement plan wasnot required to be reported on Form 8938 Statement of SpecifiedForeign Financial Assets. Without Form 8891, the Canadianretirement plan is now required to be reported on Form 8938.

Forms 3520 and 3520-A Foreign Trust Reporting

Rev. Proc. 2014-55, Section 5 provides that beneficiaries and annuitants ofCanadian retirement plans are not required to report contributions to,distributions from and ownership of Canadian retirement plans under theI.R.C. Section 6048 Form 3520 reporting requirements. Custodians alsoare not required to file the Form 3520-A with respect to a Canadianretirement plan.

Rev. Proc. 2014-55 definition of Canadian retirement plan is any trust,company, organization or other arrangement that is within the scope ofArticle XVIII(7) of the U.S. income tax treaty with Canada.

Forms 3520 and 3520-A are potentially required for foreign trusts such asan Australian Superannuation Fund that are not within scope of the treatyor otherwise excepted specifically for transfers to foreign trusts describedunder I.R.C. Sections 402(b), 404(a)(4) and 404A.


Rev. Proc. 2014-55, Section 5 provides that beneficiaries and annuitants ofCanadian retirement plans are not required to report contributions to,distributions from and ownership of Canadian retirement plans under theI.R.C. Section 6048 Form 3520 reporting requirements. Custodians alsoare not required to file the Form 3520-A with respect to a Canadianretirement plan.

Rev. Proc. 2014-55 definition of Canadian retirement plan is any trust,company, organization or other arrangement that is within the scope ofArticle XVIII(7) of the U.S. income tax treaty with Canada.

Forms 3520 and 3520-A are potentially required for foreign trusts such asan Australian Superannuation Fund that are not within scope of the treatyor otherwise excepted specifically for transfers to foreign trusts describedunder I.R.C. Sections 402(b), 404(a)(4) and 404A.

FinCEN Form 114 Report of Foreign Bank and Financial Accounts

FBAR filing requirement – U.S. person with a financial interest in orsignature authority over foreign bank and financial accounts

FBAR reporting threshold = highest aggregate balance of allreportable foreign accounts is greater than $10,000 USD at any timeduring the calendar year

Accounts reportable on FBAR include Canadian RRSPs and RRIFs

Penalties for the failure to file FBAR include: $10,000 USD civil penalty Greater of $100,000 USD or 50% of account balance for willful failure

to file FBAR Criminal penalties for willful failure to file FBAR


FBAR filing requirement – U.S. person with a financial interest in orsignature authority over foreign bank and financial accounts

FBAR reporting threshold = highest aggregate balance of allreportable foreign accounts is greater than $10,000 USD at any timeduring the calendar year

Accounts reportable on FBAR include Canadian RRSPs and RRIFs

Penalties for the failure to file FBAR include: $10,000 USD civil penalty Greater of $100,000 USD or 50% of account balance for willful failure

to file FBAR Criminal penalties for willful failure to file FBAR

Form 8938 Statement of Specified Foreign Financial Assets

Form 8938 filing requirement - Specified individual (U.S. persons and certainnonresident individuals) with an interest in a specified foreign financial asset

Form 8938 reporting threshold Single filing status living in United States – total value of all reportable foreign

assets combined is more than $50,000 USD at 12/31 or $75,000 at any timeduring calendar year

Married filing jointly status living in United States – total value of all reportableforeign assets combined is more than $100,000 USD at 12/31 or $150,000 at anytime during calendar year

Reportable assets include Canadian RRSPs, RRIFs and foreign pension plans If maximum value of share of assets in foreign pension plan cannot be determined

then report the actual payment amounts from foreign pension plan

Form 8938 failure to file penalty $10,000 USD plus additional $10,000 USDpenalty up to a maximum of $50,000 USD for each 30 day period that failure to filecontinues after 90 days following IRS notice


Form 8938 filing requirement - Specified individual (U.S. persons and certainnonresident individuals) with an interest in a specified foreign financial asset

Form 8938 reporting threshold Single filing status living in United States – total value of all reportable foreign

assets combined is more than $50,000 USD at 12/31 or $75,000 at any timeduring calendar year

Married filing jointly status living in United States – total value of all reportableforeign assets combined is more than $100,000 USD at 12/31 or $150,000 at anytime during calendar year

Reportable assets include Canadian RRSPs, RRIFs and foreign pension plans If maximum value of share of assets in foreign pension plan cannot be determined

then report the actual payment amounts from foreign pension plan

Form 8938 failure to file penalty $10,000 USD plus additional $10,000 USDpenalty up to a maximum of $50,000 USD for each 30 day period that failure to filecontinues after 90 days following IRS notice

Form 8833 Treaty-Based Return Position Disclosure

Rev. Proc. 2014-55 appears to imply that the treaty election isautomatic for the deferral of U.S. Federal tax on accrued butundistributed income from Canadian retirement plans.

File Form 8833 Treaty-Based Return Position Disclosure as aprotective filing to support deferral of U.S. Federal tax on accruedbut undistributed income from Canadian retirement plan for eligibleindividuals. Include reference to Article XVIII(7) of the U.S. incometax treaty with Canada in description of treaty position on Form8833.

Otherwise according to Rev. Proc. 2014-55, eligible individuals mustreport on their U.S. Federal income tax return any income that hasaccrued in the plan when it is distributed.


Rev. Proc. 2014-55 appears to imply that the treaty election isautomatic for the deferral of U.S. Federal tax on accrued butundistributed income from Canadian retirement plans.

File Form 8833 Treaty-Based Return Position Disclosure as aprotective filing to support deferral of U.S. Federal tax on accruedbut undistributed income from Canadian retirement plan for eligibleindividuals. Include reference to Article XVIII(7) of the U.S. incometax treaty with Canada in description of treaty position on Form8833.

Otherwise according to Rev. Proc. 2014-55, eligible individuals mustreport on their U.S. Federal income tax return any income that hasaccrued in the plan when it is distributed.

Form 5471 Information Return for U.S. Shareholders of a Foreign Corporation

Form 5471 is filed by a U.S. person to report ownership of a foreigncorporation.

Category 2 filer – U.S. officer or director in a year when any U.S.person acquires 10% of the vote or value of a foreign corporation

Category 3 filer – U.S. person who acquires or disposes of a 10%ownership interest in a foreign corporation or who becomes a U.S.person while owning 10%

Category 4 filer – U.S. person who controls (i.e., owns more than50%) of a foreign corporation during the tax year

Category 5 filer – U.S. person who owns at least 10% of the votingstock of a foreign corporation when more than 50% of the vote orvalue is owned by U.S. persons

Form 5471 penalty is $10,000 USD for the late, inaccurate orincomplete filing or failure to file per foreign corporation per year


Form 5471 is filed by a U.S. person to report ownership of a foreigncorporation.

Category 2 filer – U.S. officer or director in a year when any U.S.person acquires 10% of the vote or value of a foreign corporation

Category 3 filer – U.S. person who acquires or disposes of a 10%ownership interest in a foreign corporation or who becomes a U.S.person while owning 10%

Category 4 filer – U.S. person who controls (i.e., owns more than50%) of a foreign corporation during the tax year

Category 5 filer – U.S. person who owns at least 10% of the votingstock of a foreign corporation when more than 50% of the vote orvalue is owned by U.S. persons

Form 5471 penalty is $10,000 USD for the late, inaccurate orincomplete filing or failure to file per foreign corporation per year

Form 8621 Information Return by U.S. Shareholder of PFIC or QEF

Canadian RRSP and RRIF plan accounts typically hold ownership interestsin passive foreign investment companies (PFICs).

Form 8621 reporting is required for an ineligible individual’s ownership ofPFICs held through the U.S. individual’s Canadian RRSP or RRIF. Eligibleindividuals may qualify for relief from annual Form 8621 reportingrequirements under Temp. Treas. Reg. Section 1.1298-1T(b)(3)(ii).

As a protective filing, the U.S. individual should file the Qualified ElectingFund election on the Form 8621 in the year when the Canadian RRSP orRRIF acquires the PFIC interest.

An issue is whether Rev. Proc. 2014-55 allows automatic deferral of U.S.Federal tax on undistributed QEF/PFIC income for eligible individuals thatown PFIC interests in their Canadian RRSP and RRIF accounts. Oneposition is that deferral is allowed based on the treaty.


Canadian RRSP and RRIF plan accounts typically hold ownership interestsin passive foreign investment companies (PFICs).

Form 8621 reporting is required for an ineligible individual’s ownership ofPFICs held through the U.S. individual’s Canadian RRSP or RRIF. Eligibleindividuals may qualify for relief from annual Form 8621 reportingrequirements under Temp. Treas. Reg. Section 1.1298-1T(b)(3)(ii).

As a protective filing, the U.S. individual should file the Qualified ElectingFund election on the Form 8621 in the year when the Canadian RRSP orRRIF acquires the PFIC interest.

An issue is whether Rev. Proc. 2014-55 allows automatic deferral of U.S.Federal tax on undistributed QEF/PFIC income for eligible individuals thatown PFIC interests in their Canadian RRSP and RRIF accounts. Oneposition is that deferral is allowed based on the treaty.

Form 1116 Foreign Tax Credit for U.S. Individuals A U.S. individual may be required to pay foreign individual income tax on

distributions of income from a foreign retirement plan.

A U.S. individual may clam a foreign tax credit as a dollar for dollar offsetagainst U.S. Federal individual income tax liability on the same foreignsource income from the foreign retirement plan.

The foreign tax credit is subject to limitation on the U.S. Federal tax return.The limitation is based on the proportionate amount of the U.S. taxpayer’sforeign source income divided by total worldwide taxable income.

Any excess foreign taxes paid that are not creditable due to the limitationmay be carried forward for 10 years or carried back one year.

Compensation from performing services is included in the general limitationcategory. Note that special rules may apply for lump-sum distributions fromforeign pension plans and resourcing under treaties.


A U.S. individual may be required to pay foreign individual income tax ondistributions of income from a foreign retirement plan.

A U.S. individual may clam a foreign tax credit as a dollar for dollar offsetagainst U.S. Federal individual income tax liability on the same foreignsource income from the foreign retirement plan.

The foreign tax credit is subject to limitation on the U.S. Federal tax return.The limitation is based on the proportionate amount of the U.S. taxpayer’sforeign source income divided by total worldwide taxable income.

Any excess foreign taxes paid that are not creditable due to the limitationmay be carried forward for 10 years or carried back one year.

Compensation from performing services is included in the general limitationcategory. Note that special rules may apply for lump-sum distributions fromforeign pension plans and resourcing under treaties.

ALISON N. DOUGHERTY

Alison N. Dougherty provides tax services as a Senior Manager at Aronson LLC.Alison specializes in international tax compliance, consulting, planning andstructuring as a subject matter leader of Aronson’s international tax practice. Shehas extensive experience assisting clients with U.S. tax reporting and compliancefor offshore assets and foreign accounts. She provides outbound U.S.international tax guidance to U.S. individuals and businesses with activities inother countries. She also provides inbound U.S. international tax guidance tononresident individuals and businesses with activities in the United States. Shehas worked extensively in the area of U.S. international tax reporting andcompliance with the preparation of the U.S. Federal Forms 5471, 926, 8865,8858, 5472, 1042, 1042-S, 8621, 8891, 8804, 8805, 8813, 8288, 8288-A, 8288-B,1116, 1118, 3520, 3520-A, 2555, 5713, 8938 and FBAR. She has counseled U.S.taxpayers regarding the outbound formation, capitalization, acquisition, operation,reorganization and liquidation of foreign companies. She has significantexperience with U.S. Federal nonresident tax withholding, foreign partner taxwithholding and FIRPTA withholding. She works closely with nonresidentindividuals and businesses regarding inbound U.S. real property investment. Sheoften assists U.S. taxpayers with IRS amnesty program disclosures of offshoreassets and foreign accounts.

Alison completed the LL.M. (Master of Laws) with academic distinction atGeorgetown University Law Center. She completed the LL.M. (Master of Laws) inTaxation and the Juris Doctor at the University of Denver College of Law. Sheholds a Bachelor of Arts degree in Foreign Language from VirginiaCommonwealth University.

SENIOR MANAGER, TAX SERVICESARONSON LLC


Alison N. Dougherty provides tax services as a Senior Manager at Aronson LLC.Alison specializes in international tax compliance, consulting, planning andstructuring as a subject matter leader of Aronson’s international tax practice. Shehas extensive experience assisting clients with U.S. tax reporting and compliancefor offshore assets and foreign accounts. She provides outbound U.S.international tax guidance to U.S. individuals and businesses with activities inother countries. She also provides inbound U.S. international tax guidance tononresident individuals and businesses with activities in the United States. Shehas worked extensively in the area of U.S. international tax reporting andcompliance with the preparation of the U.S. Federal Forms 5471, 926, 8865,8858, 5472, 1042, 1042-S, 8621, 8891, 8804, 8805, 8813, 8288, 8288-A, 8288-B,1116, 1118, 3520, 3520-A, 2555, 5713, 8938 and FBAR. She has counseled U.S.taxpayers regarding the outbound formation, capitalization, acquisition, operation,reorganization and liquidation of foreign companies. She has significantexperience with U.S. Federal nonresident tax withholding, foreign partner taxwithholding and FIRPTA withholding. She works closely with nonresidentindividuals and businesses regarding inbound U.S. real property investment. Sheoften assists U.S. taxpayers with IRS amnesty program disclosures of offshoreassets and foreign accounts.

Alison completed the LL.M. (Master of Laws) with academic distinction atGeorgetown University Law Center. She completed the LL.M. (Master of Laws) inTaxation and the Juris Doctor at the University of Denver College of Law. Sheholds a Bachelor of Arts degree in Foreign Language from VirginiaCommonwealth University.

[email protected]

Aronson LLC805 King Farm BlvdThird FloorRockville, Maryland USA 20850

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