This is the scary problem for RRSP holders. It is a pure paperwork problem (no tax is due), with heavy penalties for missing the filing deadline.

Paperwork requirement

U.S. residents and citizens are required to reveal the fact that they own or control foreign financial accounts. An RRSP is a foreign financial account. No tax is due, but life-altering penalties are possible if you do not file this form. These reporting rules are triggered if you have accounts outside the United States with an aggregate value over US$10,000 in the calendar year.

Reporting is done on Form TD F 90-22.1.

Penalties

There is no tax due with Form TD F 90-22.1, but there are massive and unpredictably-applied penalties attached to them for failure to file, or merely for being late with your filing:

• up to US$10,000 per account per year for “non-willful” failure to file the form, and
• up to 50% of the account balance per account per year for “willful” failure to file.

There is no distinction made in penalties between filing late or not filing at all.

There are only two things that eliminate your penalty risk for failure to file Form TD F 90-22.1:

• Time. The IRS has six years to find you and impose a penalty. After that the door is shut on them and you are no longer at risk for that particular tax year’s filing requirement.
• Paperwork. You can file late forms, cross your fingers, and hope that the IRS does not impose penalties.

An RRSP must be reported

An RRSP is a foreign financial account that must be reported on Form TD F 90-22.1, but you only have the filing requirement if all of your foreign accounts—including your RRSP—have a combined balance exceeding US$10,000.

Example

You have an ordinary savings account in Canada which contains C$9,000. You also have an RRSP which has a value of C$7,000.

Even though each account individually has a value less than US$10,000, together they have a value of C$16,000. No matter how the C$/US$ exchange rate moves (within reason), the combined balance for both accounts is more than the US$10,000 minimum threshold.

You are required to file Form TD F 90-22.1 and report your ownership of both accounts.

Example

You have an RRSP which has a value of C$7,000. It is a “foreign financial account” for purposes of Form TD F 90-22.1. You have no other “foreign financial accounts” (as that term is defined for TD F 90-22.1 purposes). Because the aggregate value of all of your foreign financial accounts is under US$10,000, you are not required to file Form TD F 90-22.1.