If you are a Canadian with financial interests in the U.S., get up to speed on your FBAR reporting requirements. Find out what they are, who needs to file them and more with this guide.
#1 What are the FBAR Rules?
The FBAR (Report of Foreign Bank and Financial Accounts) rules are set by the Financial Crimes Enforcement Network (FinCEN) – a division of the US Department of Treasury. Essentially, these rules mandate that any U.S. person who has a financial interest in, or signature authority over, a foreign account that is worth U.S. $10,000 or more at any point during the year must report it using the FinCEN Form 114. This requirement is applicable whether the $10,000 threshold is met with a single foreign account or through the combined value of multiple bank and financial accounts.
#2 What Canadian Accounts are Reported on an FBAR?
Various types of Canadian accounts are reportable on an FBAR if they meet the $10,000 threshold. These include, but are not limited to, bank accounts, brokerage accounts, and mutual funds. Specific types of pension plans, like Registered Retirement Savings Plans (RRSPs) and Tax-Free Savings Accounts (TFSAs), also fall under the reporting obligations. Furthermore, certain life insurance policies with a cash surrender value are reportable. It’s critical to note that these reporting requirements apply even if the account produces no taxable income. It’s always recommended to consult with a cross-border tax professional to understand fully all the reporting requirements for Canadian accounts on an FBAR.
#3 Does FBAR Reporting Apply to Accounts you may not have a Financial Interest in?
Yes, the FBAR reporting does apply to accounts you may not have a financial interest in. It’s essential to understand that the requirement to file an FBAR is not only restricted to accounts that you own or have a financial interest in. If you have signature authority over a foreign account, meaning you can control the disposition of the assets in the account by direct communication with the financial institution, you are obligated to report this account. This rule applies even if there’s no financial interest from your end in the account. This could be in cases where you can write a check or make a withdrawal on behalf of another individual or business. So, even non-owner account managers must report the account details on their FBAR.
#4 Do Canadian Citizens Have to File an FBAR?
Yes, Canadian citizens who are also considered U.S. persons have to file an FBAR if they meet the reporting threshold. A U.S. person includes U.S. citizens, U.S. residents, U.S. Green Card holders, and individuals who pass the substantial presence test. Therefore, if a Canadian citizen meets any of these criteria and has a financial interest in, or signature authority over any foreign financial accounts that, when combined, exceed U.S. $10,000 at any point during the calendar year, they are required to file an FBAR. It’s important to note that the rules apply irrespective of where the U.S. person lives, so a U.S. person living in Canada would still need to file an FBAR if they meet the requirements.
#5 Do I Need to File an FBAR for a Canadian RRSP?
Yes, a Canadian Registered Retirement Savings Plan (RRSP) is considered a foreign financial account under FBAR reporting rules. Therefore, if you are a U.S. person and the total value of your foreign financial accounts, including the RRSP, exceeds U.S. $10,000 at any point during the calendar year, you are required to file an FBAR. To ensure compliance with these regulations, it’s highly recommended to consult with a professional experienced in cross-border tax matters.
#6 Can you File FBAR on your own?
Yes, you can file an FBAR on your own. The process involves filling out and submitting the electronic Form 114 directly to the Department of the Treasury through the Financial Crimes Enforcement Network’s (FinCEN) BSA E-Filing System. The form is relatively straightforward, requesting details about each of your foreign accounts, such as maximum value during the reporting year and the financial institution’s name and address. However, since the regulations can be complex and the penalties for mistakes severe, it is often advised to consult with a professional, especially if you have multiple foreign accounts or other complicated circumstances.
#7 Can I File my FBAR Online?
Yes, FBAR filing is done online. The U.S. Department of the Treasury requires all FBARs to be filed electronically through the Financial Crimes Enforcement Network’s (FinCEN’s) BSA E-Filing System. This system is accessible online, ensuring a convenient submission process for individuals and entities required to file an FBAR. It’s important to note that no other method of FBAR filing is currently accepted by FinCEN. Therefore, paper submissions or filings through other digital platforms are not valid. For individuals uncomfortable with the online filing process or those with complex filing situations, consulting with a tax professional experienced in FBAR filings can provide valuable guidance.
#8 Is There a Penalty for Filing an FBAR late?
Yes, there can be severe penalties for filing an FBAR late. If your FBAR is not filed on time and the IRS determines that your violation was non-willful, the penalty can be up to $12,921 for each violation. However, if your violation is deemed to be willful, the penalty can be the greater of $129,210, or 50% of the balance in the account at the time of the violation, for each violation. Given the significant penalties, U.S. persons with foreign financial accounts must ensure timely and accurate FBAR filings. If you’re unsure about the filing process or your obligations, it’s recommended to consult with a cross-border tax professional.
#9 What Should I do if you Haven’t Filed an FBAR?
If you haven’t filed an FBAR and realize you should have, it’s essential to address the omission promptly. The IRS offers several programs to help individuals and entities rectify their situation, such as the Delinquent FBAR Submission Procedures and the Streamlined Filing Compliance Procedures. These programs are designed to encourage taxpayers to voluntarily disclose their foreign financial accounts and comply with U.S. tax laws. It’s recommended, however, to consult with a tax professional experienced in FBAR filings before taking any steps. They can provide guidance based on your specific circumstances, help minimize potential penalties, and ensure your compliance with all IRS requirements.
#10 When are FBARs Due?
FBARs are due annually on April 15th, the same date as the federal income tax filing deadline. However, if you miss the April 15th deadline, an automatic extension to October 15th is provided to file your FBAR. It’s important to remember that this extension applies to FBARs only and does not extend the due date for federal income tax returns. Balancing these different deadlines can be complex, so consulting a tax professional can be beneficial to ensure all obligations are met timely.
#11 Is an FBAR filing the same as a Form 8938 Filing?
An FBAR (Foreign Bank Account Report) and Form 8938 (Statement of Specified Foreign Financial Assets) are both mechanisms to report foreign financial accounts to the US government, but they differ in several key aspects.
FBAR, managed by the Department of Treasury, is required when a US person has an aggregate of $10,000 at any point in a calendar year across all foreign accounts. Form 8938, on the other hand, is managed by the IRS and is required if the total value of all specified foreign assets exceeds certain thresholds, which vary based on filing status and whether you live in the US or abroad.
In conclusion, fulfilling FBAR and Form 8938 requirements is a critical aspect of tax compliance for U.S. persons holding foreign financial assets. Understanding the distinctions between these obligations, their reporting thresholds, and the potential penalties for non-compliance is essential. Missing a deadline or neglecting to report can lead to substantial penalties and complications. If you find these requirements confusing or if your financial situation is complex, seeking professional tax advice can ensure you meet these obligations accurately and timely, thereby helping you avoid unnecessary penalties and stress.
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Karlene J. Mulraine, EA, CPA, CA, CPA (NH) is the President of Cross-Border Financial Professional Corporation. Follow us on Linkedin and Twitter, or hang out on Facebook.
The views expressed in this article are those of the author and should not be relied on to make decisions. Consider discussing your specific circumstances with an appropriate specialist.