Canadian Registered Retirement Savings and Income Plans
There are specific IRS tax reporting requirements that apply to taxpayers who hold Canadian registered retirement savings and income plans. Some of these rules differ from those that pertain to Americans who hold accounts in other foreign countries, so it is important to read the following information carefully.
With respect to information reporting rules for a U.S. beneficiary of foreign trusts, simplified reporting rules apply to taxpayers who hold interests in Canadian registered retirement savings plans (RRSPs) and registered retirement income funds (RRIFs) in lieu of the filing obligations under Code Sec. 6048 that otherwise apply to U.S. citizens and resident aliens who hold interests in Canadian RRSPs and RRIFs. Rev Proc 2002-23 provided a simplified procedure that allowed individuals with these Canadian plans to elect to defer reporting the undistributed income from these plans by filing Form 8891. Rev Proc 2002-23 and Notice 2003-85 were superseded by Rev Proc 2014-55, published in October 2014.
Deemed Deferral Election
Rev Proc 2014-55, Section 4.02 provides that an "eligible individual" who did not previously make an election under Article XVIII(7) of the U.S.-Canada Income Tax Treaty to defer current U.S. income taxation on the undistributed income of Canadian registered retirement savings plans (RRSPs) or Canadian registered retirement income funds (RRIFs), will be treated as having made the election in the first year in which the individual would have been entitled to make such an election with respect to the plan.
As a result, the eligible individual will not be required to make the election for that first year or for any later years either on Form 8891 or under the procedures in Rev Proc 2002-23. If an eligible individual has an interest in more than one Canadian retirement plan, this provision applies separately to each plan. The relief in Rev Proc 2014-55 applies only to income accrued in a Canadian retirement plan and not to any contributions to the plan. Once an election is made under Rev Proc 2014-55, Sec. 4.02, that election is in effect for all later tax years through the year in which a final distribution is made from the plan, unless the election is revoked with IRS's consent.
Eligible Individual
Is a beneficiary of a Canadian retirement plan who:
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Is or at any time was a U.S. citizen or resident while a beneficiary of the plan
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Has satisfied any requirement for filing a U.S. Federal income tax return for each tax year during which the individual was a U.S. citizen or resident
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Hasn't reported as gross income on a U.S. Federal income tax return the earnings that accrued in, but were not distributed by, the plan during any tax year in which the individual was a U.S. citizen or resident; and
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Has reported any and all distributions received from the plan as if the individual had made an election under Article XVIII (7) for all years during which the individual was a U.S. citizen or resident.
Eligible individuals must report on their U.S. Federal income tax return any income that has accrued in the plan when it is distributed. Distributions received by any beneficiary or annuitant from a Canadian retirement plan, including the part that constitutes income that has accrued in the plan and hasn't previously been taxed in the U.S., must be included in gross income by the beneficiary or annuitant under the usual Code Sec. 72 rules, subject to any applicable treaty provision.
Rules for Non-Eligible Individuals
Beneficiaries who have reported on their U.S. Federal income tax return undistributed income that has accrued in a Canadian retirement plan during a tax year are not eligible individuals able to apply the Rev Proc 2014-55, Sec. 402 relief, and will remain currently taxable on the undistributed income. If such beneficiaries want to make an Article XVIII(7) election with respect to a Canadian retirement plan, they must get IRS's consent.
Form 8891 Obsoleted
A taxpayer who previously made an Article XVIII (7) election with respect to a Canadian plan on Form 8891 or under Rev Proc 2002-23, or an eligible individual who is treated as having made the election under Rev Proc 2014-55, Sec. 4.02, isn't required to file Form 8891 or a similar statement for tax years ending after Dec. 31, 2012. Filing of FinCEN 114 (FBAR) is still required if the filing threshold is met.