Hi,
I am new to this site. I am a Canadian citizen who moved to the US in March 2019. I had a one year TFSA GIC that matured in April 2019. It made around $200 in interest overall. Do I need to file Form 3520 next year? Also, is there any pro or con to keeping a TFSA account open with nothing in it as a non-resident? Thanks for your help.
TFSA GIC Form 3520
Moderator: Mark T Serbinski CA CPA
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SonicTraveller
- Posts: 4
- Joined: Mon Nov 11, 2019 12:33 pm
Re: TFSA GIC Form 3520
Have you filed a 3520 form in the past? Have you already set up your TFSA as a foreign trust with a separate EID?
If you have not, my personal recommendation would be no do not file 3520 forms just make sure to report the interest and account balances in the appropriate place in your regular return (1040 etc.). Probably best to close the account as well and move on.
Rationale:
a. It isn't clear that the IRS would treat a TFSA as a trust, I've heard different things. The argument against it being a trust is, in my opinion, pretty compelling since in the vast majority of cases the 'trustee' is simply a custodian. Not that I'd like to be going to court with the IRS to debate about it but just saying it seems to be a grey area.
b. The 3520 forms are brutal and penalties are eye-watering and enforced. This comes from someone who received notice of a $10,000 penalty because one of the forms was purportedly filed late. I think the penalty risk and cost of filing far outweighs the risk that the IRS somehow digs up your TFSA account agreement and begins making an issue of 3520 forms.
If you have already set it up as a foreign trust then presumably you'll continue with the 3520's until you close the account and can wind up the 'trust'.
This is my 2 cents. I'm not a professional so take it for what it's worth.
If you have not, my personal recommendation would be no do not file 3520 forms just make sure to report the interest and account balances in the appropriate place in your regular return (1040 etc.). Probably best to close the account as well and move on.
Rationale:
a. It isn't clear that the IRS would treat a TFSA as a trust, I've heard different things. The argument against it being a trust is, in my opinion, pretty compelling since in the vast majority of cases the 'trustee' is simply a custodian. Not that I'd like to be going to court with the IRS to debate about it but just saying it seems to be a grey area.
b. The 3520 forms are brutal and penalties are eye-watering and enforced. This comes from someone who received notice of a $10,000 penalty because one of the forms was purportedly filed late. I think the penalty risk and cost of filing far outweighs the risk that the IRS somehow digs up your TFSA account agreement and begins making an issue of 3520 forms.
If you have already set it up as a foreign trust then presumably you'll continue with the 3520's until you close the account and can wind up the 'trust'.
This is my 2 cents. I'm not a professional so take it for what it's worth.
Re: TFSA GIC Form 3520
No, I have never filed a 3520 before. My TFSA was quite simple: a GIC with an interest rate and fixed term. It accrued interest for a year and automatically transferred to my chequing on maturity date, one month after I moved here. The paperwork that I signed for it does not mention a trust so I don't think it was set up as a trust. I contacted my Scotia advisor and she couldn't confirm if it was a trust. I don't know what an EID is.
Thank you for explaining the 3520 forms. I think my situation is more in line with what you described as the trustee being custodian. I was just freaked out the possibility of being penalized $10k for not filing the 3520s - if it's even needed in my case - over $200 of interest. I'm leaning toward not filing the 3520s but reporting it on the upcoming US tax return. Might as well close the TFSA then since there's nothing in it now.
Thank you for explaining the 3520 forms. I think my situation is more in line with what you described as the trustee being custodian. I was just freaked out the possibility of being penalized $10k for not filing the 3520s - if it's even needed in my case - over $200 of interest. I'm leaning toward not filing the 3520s but reporting it on the upcoming US tax return. Might as well close the TFSA then since there's nothing in it now.
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Ron.Henderson
- Posts: 81
- Joined: Sun Jan 06, 2019 2:24 pm
Re: TFSA GIC Form 3520
Avoid 3520 forms like the plague.