US person with a TFSA or RESP — the reporting: can I handle this myself?
Some of it, yes — and we will say so on the call if that is the honest answer. The parts that are worth paying for are the ones where a missed election, a missed deadline or an unverified threshold costs more than the fee: the growth inside these accounts is taxable to the US owner annually, the treaty does not shelter them the way it shelters registered retirement plans, and the reporting can extend to trust information returns.
What if I have already filed and got it wrong?
That is a common starting point. We re-derive the position, identify whether an amendment or a disclosure route is the right vehicle, and tell you which one preserves the relief that is still available. The order matters more than the speed.
How long will it take?
It depends on the documents rather than on us. Once the pack is complete most filings turn around inside a fortnight; anything that needs a certificate from a tax authority runs on that authority's timetable, which we tell you at the start rather than at the end.
Do I have to report my TFSA to the IRS?
Almost certainly, and in more than one way. The account is not recognised as tax-free by the United States, so the income and gains inside it are taxable to you as they arise, year by year, even though nothing has been withdrawn and nothing is taxable in Canada. Depending on how the account is constituted, it may also be reportable as a foreign trust, which is a separate return with rules of its own. The two obligations are often confused with each other. Both are worth settling before the next contribution goes in.
Is the growth inside a TFSA taxable in the United States?
Yes. The US looks through to the investments themselves, so interest, dividends and realised gains are reported in the year they arise and taxed under the rules that apply to each of them. The Canadian shelter has no US counterpart, which also means there is generally no Canadian tax on that income to credit against the US tax. That combination is what makes these accounts expensive rather than merely inconvenient. The calculation needs the account's transaction history, not simply the year-end statement.
Does the treaty cover a TFSA like a registered retirement plan?
No, and that misunderstanding causes most of the trouble we see. The treaty gives particular relief to registered retirement plans, and people reasonably assume it extends to anything a Canadian bank describes as tax-sheltered. It does not. A flexible savings account and an education savings plan sit outside that relief, which is why the growth inside them is taxable annually to a US owner while a retirement plan's growth is not. The distinction is in the type of account, not the institution that opened it.
Should I close my TFSA if I am a US citizen?
Sometimes, and it should be a decision rather than a reflex. Closing the account ends the annual tax and the annual reporting, but it also gives up a genuine Canadian shelter that may still be worth more than the US cost, particularly where the holdings throw off little income. The sensible order is to compute what the account costs you in US tax and in preparation work, compare that against what it saves you in Canada, and then choose. Contributions are usually paused while that is being worked out.
Is an RESP treated as a foreign trust by the IRS?
It may well be, and that is the reporting most families have never heard of. A plan with a subscriber, a beneficiary and a pool of contributed money has the shape the US trust rules were written for, and where they apply the obligation is an information return about the trust in addition to tax on its income. Government grants paid into the plan raise a further question, because what is a grant under Canadian rules may be income to a US owner. Better settled while the plan is small.
Can I keep contributing while I am a US citizen?
Nothing in Canadian law stops you, which is why the question is rarely raised at the bank. Each further contribution adds to an account whose income is taxable to you in the United States and whose reporting you will carry for as long as you hold it. Where the analysis has not been done, pausing contributions costs very little and stops the problem growing. Where it has been done and the account still makes sense on your figures, carry on, with the reporting set up properly from the start.
Do US citizens abroad have to report foreign bank accounts?
Yes, and under two separate regimes with different thresholds and different filing homes — one report to FinCEN covering foreign financial accounts, and one to the IRS with the return covering a broader class of foreign assets. Both are keyed to balances rather than income, so an account earning nothing can still require reporting, and each carries penalties of its own. See filing both.
What is a PFIC, and why do Canadian mutual funds cause trouble for US persons?
A passive foreign investment company is a non-US company that is mostly passive by income or by assets — which describes almost every Canadian mutual fund and ETF. For a US owner the default regime taxes distributions and gains punitively with an interest charge for the years the value built up. Two elections fix it, and both need annual information the fund may not produce for you. Holding the same exposure through US-domiciled funds usually avoids the problem entirely. See PFICs and Canadian mutual funds.
