Taking stab at 3520, -A for TFSA

[hapless]

I was depressed to read on this board and other places that it's too late to regret opening a TFSA, and for 2 tax years, at least, I have to deal with the 3520 forms. There's basically no help out there for exactly what everything means and how to fill it in, so after lots of study I'm proposing the following. Please check and comment.

My TFSA is with RBC Direct Investing. When I contacted them, they said they are a "Qualified Intermediary" with an IRS-issued EIN. This is equivalent to having a "US agent" and saves the trouble of filling in a bunch of lines and sending the trust agreement with the 3520. You should check with your TFSA purveyor for that info.

This is for the year of booting up a TFSA, 2009. Don't forget the forms go to Ogden, UT, ASAP. If, like me, you didn't think to report the income on your 1040, you'll want to file a 1040X.

3520
Check 1st 2 boxes "US transferor" and "US owner"
2) RBC Direct Investing (TFSA, Acct No); EIN; address
3) Yes
3a) #2 is a Qualified Intermediary (QI), fax no...
Part I
6a,b) CA
6c) date TFSA opened
7a) No
8) No
9a) Yes
10) Yes
Sched A
11a) No
Sched B
13) Yes
(a) date of contribution
(b) Cash
(c) USD equivalent of e.g. C$5000 (I used that day's exchange rate)
(d) same amount
(e) 0
(f) 0
Totals 0
14) all No
15-18) skip since trust is a QI
Sched C
19) No
Part II
20) N/A
21) CA, CA, date from 6c
22) No
23) amount from Form 3520-A, Part III, 11 "Total assets"
Part III
Will never be used since you're the owner.
All distribs (TFSA withdrawals) will either be trust "corpus" (return of your
contributions) or income (which you paid tax on every year).
Part III is the "wicked" part, so that's good!
Part IV
Won't apply to TFSA.

3520-A
This is not the "kosher" form that the trust is supposed to file. It's the best-ability
"substitute" that you piece together from the TFSA monthly statements.
Part I
1-3) Copy from 3520
4) Royal Trust Company, address "same as above"
5) No
6) 1
For signatures, I wrote (and did not sign)
This is a 'substitute 3520-A' per line 22 of Form 3520
since Trustee does not provide the report.
Part II
1-8) scrape out of monthly statements, probably just interest and dividends
Only fill in capital gains if you sold something in the account.
I used annual average exchange rate for all these.
9-15) if applicable (I had none)
16) add up
17a,b) a distribution is a withdrawal (probably 0)
17c) not applicable for owner
Part III
Beginning will all be $0 (next year, copy this year's end)
I used Dec/31 exchange rate for all these end of year amounts:
1) cash and GICs
5) maybe if you have govt. bonds?
6) everything else
11) add up
12-16) all 0
17) beginning of year + transfers from 3520 Part I
18) line 11 assets minus line 17 income
20) add up
21) line 11 (matches line 20)
Page 3
1-6) copy from 3520
7-8) ignore; this is for the trust co. sending the info to you
9) line 11 of Part III balance sheet
These get copied from Part II income statement, then applied to respective areas of 1040.
I didn't sign.
Page 4
This will never be used, since the owner is not a "beneficiary" in this sense.

[cfn2007]

Wow! Dude, where were you 3 months ago when I was filling in these forms? You have done a great job from what I can tell (although I'm no expert). There are a couple things that I think you may have handled better (more correct?) than I did.

I pulled out my forms and compared them to what you did. We have a few differences:

3520:
3) I said "no" the foreign trust did not appoint a US agent. It never occurred to me that QI meant that they were a US agent, but I guess that would make sense. All major Cdn bank-brokers are QI's so that would make my life easier too. Are you sure that QI = US agent?

Sched B, 13) I said "no" there were no "gratuitous transfers" and skipped this section. I don't see how your contribution would have been less than FMV???

Part III) Like you, I did not fill this in (because I did not have a distribution). However, I don't see how you can say this would never be used??? So what if you're the owner? When you take money out, that's a distribution, isn't it?

Part IV) I filled this in with "no" to each question

3520A:
2) Since I answered "no" regarding US agent, I checked "yes" to 2a and just attached a copy of the TFSA client agreement. Not sure if this is what they wanted, but I couldn't think of how else to handle it.

Signatures - I like the way you handled this. I signed as the "preparer", since I was indeed the person that prepared the substitute 3520A. Not sure if this was right or not. I left all the trustee signature lines blank.

I am looking forward to your thoughts on the differences in our approaches. I am also hoping that our resident tax expert (nelsona) will comment on our respective efforts.

[hapless]

BTW, how do I turn on BBCode so the quotes work? I selected the radio button in my profile, but it doesn't seem to have any effect.

[quote="cfn2007"]Wow! Dude, where were you 3 months ago[/quote]

Wallowing in blissful ignorance!

[quote]Are you sure that QI = US agent?[/quote]
This is what RBC D.I. claimed when I asked them directly if they had a US agent. The key is probably to get their EIN (which they told me) and brandish it in the right box.

[quote]
Sched B, 13) I said "no" there were no "gratuitous transfers" and skipped this section. I don't see how your contribution would have been less than FMV???[/quote]

Hopefully someone will correct me if I misunderstood this. AFAIK, all your contributions to the trust have to be reported in either Sched A or B.

"B" includes the case where you got "no consideration at all". For example, you put $5000 in your TFSA and invest it poorly. A year later the value is $10. The "trust" has no obligation to distribute you back anything. That's what makes your contribution "gratuitous."

I put the same amt. in column (c) and (d) because the US cost basis = the FMV, so there's no "gain at time of transfer".

[quote]
Part III) I don't see how you can say this would never be used??? So what if you're the owner? When you take money out, that's a distribution, isn't it?
[/quote]

That's a distribution, but it has no tax consequences for the owners, since they have been paying-as-they-go on the annual trust income.

In that sense, wirthdrawals from the TFSA are treated exactly the same by Canada and US -- for Canada the income is tax free, for the US we've already paid the tax on it.

And the bulk of the distrib. is likely return of contributions, which were made with after-tax dollars.

Ergo, AFAIK, Part III only applies to beneficiaries who are not also owners, which a TFSA doesn't have.

[gogo]

if anyone know what's different between transfer agent and US agent.
I have a similar situation, but I do not know if I had used the correct info.
I check "Manulife", and it shows US transfer agent for us shareholder, and but I cannot find out the Scotibank us agent as well. if anyone know who is
us agent of either of company. thank you.

[hapless]

Based on cfn2007's question, I was starting to change my mind about reporting a cash contribution on 3520. My original reasoning was that Part I is titled "Transfers by US Persons to a Foreign Trust", so obviously every contribution has to be reported there, and if it clearly doesn't go in Sched A "Obligations" then it must go in Sched B "Gratuitous".

However, I just reread the instructions and noticed the following:

Exceptions to Filing:
- Most fair market value (FMV) transfers...

But there's an exception to the exception!
(...transfers involving a U.S. transferor that is related to the
foreign trust)

In checking out Notice 97-34, it's clear that the grantor of a foreign trust is "related", so as owners we still have to report even FMV transfers.

I'm still confused about whether when we make a contribution to our own TFSA we have received any "property", whether tangible or intangible? I've been leaving columns (g,h,i) of line 13 blank, but maybe something should be filled in? Frankly, the terminology is baffling.

[hapless]

I think maybe I've cracked this:

When we contribute to a TFSA, we receive "no consideration at all" (line 13). If we were not the owners of the trust, that would make the transfer purely a gift.

So I will write $0 in col (h) and the value of the cash in col (i) and its total box.

Sound right?

[cfn2007]

Unfortunately, I have no clue if this is correct or not. I agree that if you don't enter TFSA contributions on Schedule B, then where would this get entered?

With any luck, perhaps nelsona will return soon and offer some wisdom on these issues!?!?