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Alan McFarlane, a money manager in Victoria, sent me the following URL.
http://www.nationalpost.com/search/site/story.asp?id=3DA5F6348F-EDA6-493A=
-A822
Because some people do not like opening files, I have pasted and copied =
it at the end as well..
Jonathon Chevreau has done a yeoman's job in searching down and tracking =
a variety of opinions on the new reporting rules.
I did a quick search of our computer data base and came up with 14 =
people who had withdrawn money from an RRSP - I think but have not =
verified that 8 of them are US citizens and will require a 3520 by =
August 15th or a further extension date.
I have another 212 who have an amount on line 115 - and at least half of =
them are US citizens. My understanding is that any US citizen taking =
money out of a RRIF or a Canadian Company pension which he or she =
contributed to, must file a form 3520 as well. However, if they took =
money out of a Company pension plan that they did NOT contribute to, the =
US person does NOT need to file a 3520.
At any rate every US person conform to REV.PROC 2002-23, This means =
that (for each RRIF, RRSP, RPP) we must provide:
Section 4 Election Procedures
.01 In General
(i). A Statement that the taxpayer is claiming the benefit of Article =
XVIII(7) of the US / Canada Income Tax Convention
(ii) The name of the trustee of the plan and the account number
(iii) The balance of the plan at the beginning of the current year.
.02 Reporting
Beneficiaries shall attach a copy of the statement required in 4.01 =
until the tax year in which a final distribution is made.
.03 ROLLOVERS
If a rollover is made to a plan that does not attract Canadian Income =
Tax, and qualifies under Revenue Ruling 89-95, the previous election is =
deemed to carry over to the transferee plan.
.04 Transferee Plan Reporting
In the year of transfer, the beneficiary shall attach an additional =
statement
(i). A Statement that the taxpayer is claiming the benefit of Article =
XVIII(7) of the US / Canada Income Tax Convention
(ii) The name of the trustee of the transferee plan and the account =
number
(iii) The name of the trustee of the transferor plan and the account =
number
(iv) The total amount of income accrued in the transferer plan on =
which United States Income tax was deferred under Article XVIII(7) or =
former Article XXIX(5); and
(v) The initial balance in the transferee plan.
Beneficiaries of a transferr plan shall attach a copy of the statement =
required in paragraph 4.02 (transferor plan) and a copy of the =
statement required in this paragraph 4.04 (transferee plan) to their =
timely filed (including extensions) United States federal income tax =
return for each year subsequent to the transfer year until the tax year =
in which a final distribution is made from the transferee plan.
.05 MULTIPLE PLANS
An individual who is a beneficiary of more than one leigible plan must =
make a separate election and file a separate statement for each eligible =
plan.
.06 Extension of time for Making an Elections
An extension of time for making an election under paragraph 4.01 may be =
available under the procedures applicable under sections 301.9100-1 and =
301.9100-3 of the Procedure and Administration regulations.
.07 PROSPECTIVE CHANGE OF ELECTION
An election once made cannot be revoked except with the consent of the =
Commisioner.
SECTION 5. DISTRIBUTIONS FROM AN ELIGIBLE PLAN
Distributions received by a beneficiary from an eligible plan shall be =
included in gross income by the beneficiary in teh manner provided under =
section 72 of the Internal Revenue Code, subject to any other applicable =
provision of the Convention.
(The above is excerpted from Revenue Procedure 2002-23).
To our clients - START GETTING THE INFORMATION ASKED FOR ABOVE READY. =
WE NEED TO GET IT IN BY Aug 15, 2003.
david ingram
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Jonathon Chevreau's National Post Article follows with four varying =
interpretations of what is going on.
-------------------------------------------------------------------------=
----------------------------------------------------------------------
Uncle Sam discovers RRSPs
New IRS reporting rules part of broader crackdown
=20
Jonathan Chevreau =20
Financial Post=20
Saturday, May 03, 2003
=20
=20
=20
Just before the April 15 tax filing deadline for American =
citizens, the Internal Revenue Service dropped a bomb which scared or =
confused the 100,000 Americans believed to hold Canadian Registered =
Retirement Savings Plans.
These include expatriate Canadians living in the United States, =
and U.S. citizens and green-card holders living in Canada.
On April 11, when 90% of Americans would already have filed this =
year's taxes, the IRS issued Notice 2003-25, requiring U.S. citizens =
receiving withdrawals from Canadian RRSPs to fill out a complex six-page =
form called the 3520 [Annual Return to Report Transactions with Foreign =
Trusts and Receipts of Certain Foreign Gifts.]
The new rules are being applied retroactively to this year's =
returns, although the deadline was extended to August 15.
If the U.S. citizen or resident files certain simplified forms and =
elects deferral of taxation through the Canada/U.S. income tax treaty, =
they won't have to file form 3520 for contributions or form 3520-A for =
ownership of an RRSP.
Failure to file these simplified forms can result in penalties of =
35% of all contributions to RRSPs and 5% of the balance in the RRSP,
Form 3520 must also be filed for any withdrawals from RRSPs, which =
includes drawdowns for Home Buyers Plans, Lifelong Learning Plans and =
rollovers to Registered Retirement Income Funds, but not rollovers =
between RRSPs.
David Ingram, a Vancouver consultant with almost 2,000 clients =
affected by the new red tape, describes the changes as "a secondary U.S. =
Treasury backlash" to Canada's lack of military support for the Iraq =
invasion. The U.S. consulate and IRS deny this interpretation.
When the Post revealed the IRS changes in mid-April, Ingram was so =
flabbergasted at the onerous requirements he thought it was an April =
Fool's joke. His subsequent investigation revealed it was no joke, =
although he found few U.S. tax officials aware of the changes.
The 1980 tax treaty and a 1996 amendment clearly exempted Canadian =
RRSPs from U.S. taxation, he says. But after 9/11, the U.S. Treasury =
started looking more seriously at money laundering, he says.
The 2001 instructions for form 3520 removed the withdrawal =
exemption for RRSPs, but left the deposit exemption in place. "With =
Canada's failure to support the U.S. in Iraq, a natural next step would =
be to remove the last exemption of deposits. The people at Treasury =
suddenly felt Canada is not trustworthy."
Until April 11, Canada was considered the friendliest nation. "If =
you were an American in Australia, France or Germany, with a foreign =
pension plan, you always had to file 3530. Now Canada has to be treated =
like the rest of the world."
Ingram found the new rules also apply to Registered Pension Plans =
and RRIFs. He says the IRS author of 2003-25 advised clients to write =
RRSP, RPP or RRIF across the top of form 3520, which is required for =
each RRSP, RPP or RRIF held, regardless of value.
The law is unclear on reporting requirements on RPPs and pension =
plans, says Jim Yager, partner with KPMG's U.S./Canada tax practice. He =
believes an exemption for these distributions may yet be granted but "if =
not, the scope for reporting will be huge since it will not be directed =
at just Canadian plan distributions."
Yager says the reporting requirements for RRSPs are part of a =
broader crackdown by the IRS against offshore tax havens. As treasurer =
of the American Chamber of Commerce in Canada, Yager says he first =
noticed a change in the IRS's position with the filing instructions for =
form 3520 in the 2001 tax year. That conflicted with the 2000 =
instructions, which exempt transfers in or out of RRSPs.
One U.S. citizen who has lived in Canada 20 years and files U.S. =
returns says he's baffled by the IRS's position, which he describes as =
"nonsensical, counter-productive, wasteful and pointless."
"The requirement is a lose-lose proposition for the U.S. =
government." IRS costs will rise but little extra revenue will be raised =
by its efforts in Canada.
"Chronic non-filers get one more reason to stay underground. U.S. =
tax filers can't use RRSPs for tax evasion because Canadian government =
strictly controls the flow of money and its reporting."
The IRS has long had a problem getting Americans resident in =
Canada and green card holders to file tax returns. "This requirement =
simply creates another disincentive."
Thanks to the foreign exemption on earned income and the foreign =
tax credit, few Americans and green card holders in Canada owe U.S. tax, =
so the exercise is a wasteful paper chase.
The previous reporting procedure at least provided the IRS and tax =
filers with a paper trail; retirees making withdrawals faced no U.S. tax =
on capital coming out since the U.S. granted no deduction for =
contributions going in.
Cross-border tax specialist David Lesperance of Burlington, =
Ont.-based Global Relocate Consultants says the new rules reflect =
renewed "IRS avarice." The American consulate has a similar view: "It's =
just the IRS trying to get every nickel and dime out of everyone."
Lesperance says large financial institutions known as "qualified =
intermediaries" play a greater role alerting the IRS to American =
citizens in Canada with U.S. tax filing obligations. "With the Patriot =
Act, qualified intermediaries and increased co-operation between the =
U.S. and Canada, it's like shooting fish in a barrel to collect in =
Canada."
One qualified intermediary who didn't want to be named says =
financial institutions are still assessing their obligations and =
potential liabilities. "It's unclear at this point what [Canadian] =
financial institutions will have to do .... [We] may have to make an =
interpretation of tax law in some way."
Kevyn Nightingale, an accountant with Toronto-based International =
Tax Services Group, says those scared by the new rules need to "calm =
down."
In an article published by CCH Reports entitled "IRS says Boo, =
Scared Yet?", Nightingale says the problems can be avoided by giving the =
IRS some basic information and a declaration the taxpayer elects to =
defer U.S. taxation on income earned inside plans but not distributed in =
the year.
Why then the panic? "The IRS determined that many people who have =
RRSPs are not reporting," says Nightingale. "For people already =
reporting, there's nothing to fear and nothing extra to do. For those =
not reporting, it's not hard to hop on board."
They have till Aug. 15 to do so.
[email protected]
=A9 Copyright 2003 National Post=20
=20
david ingram - [email protected]
108-100 Park Royal South
West Vancouver, BC, CANADA, V7T 1A2
(604) 913-9133 - (604) 913-9123 www.centa.com
Cell is (604) 657-8451 (10 AM to 10 PM seven days a week)
US / CANADA / MEXICO=20
Working Visa and Income Tax Specialists
Be ALERT, the world needs more "lerts"
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