Life Insurance Canada Segregated Fund

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stevek
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Joined: Mon Mar 30, 2020 4:36 pm

Life Insurance Canada Segregated Fund

Post by stevek » Mon Mar 30, 2020 4:44 pm

Hi. I am a dual US/CANADA citizen living in Canada and I am getting some conflicting information in regards to an investment I have in a segregated fund. The conflicting information is whether to report this as a trust (form 3520) or PFIC. Can anyone confirm if a canada segregated fund is considered a PFIC or a trust for US taxes?

Thanks
Steve

Ron.Henderson
Posts: 58
Joined: Sun Jan 06, 2019 2:24 pm

Re: Life Insurance Canada Segregated Fund

Post by Ron.Henderson » Mon Mar 30, 2020 8:20 pm

Doesn't matter what it is - don't call it a trust and don't report it on a 3520. The 3520 is the coronavirus of US tax forms.

If you're a dual citizen living in Canada, why are you filing US tax returns? If you don't have any US financial ties, best not to.

nelsona
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Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Re: Life Insurance Canada Segregated Fund

Post by nelsona » Tue Mar 31, 2020 8:40 am

While there may be sound reasoning to not file 3520 for some accounts, to encourage a US citizen to not file their US tax returns is NOT reasonable advise. Even one wishing to renounce their citizenship need to be compliant in their US returns.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

stevek
Posts: 3
Joined: Mon Mar 30, 2020 4:36 pm

Re: Life Insurance Canada Segregated Fund

Post by stevek » Tue Mar 31, 2020 10:06 am

Yes, US citizens are required to file tax returns. I am getting conflicting advice on a Canada segregated fund with a Life insurance company and want to make sure that I report this correctly to avoid huge penalties. I am being told this should be reported as a trust with form 3520. If so do I also need to file 3520A? Someone is telling only form 3520 and not 3520a

I am also being told that it should be filed as a PFIC and not a trust. I really need help to get this conflicting information resolved.

Ron.Henderson
Posts: 58
Joined: Sun Jan 06, 2019 2:24 pm

Re: Life Insurance Canada Segregated Fund

Post by Ron.Henderson » Tue Mar 31, 2020 11:13 am

"Even one wishing to renounce their citizenship need to be compliant in their US returns."

Actually no. That is a common misperception. Renunciation is possible without ever having filed, no tax questions will be asked during the appointment, and there appears to be no IRS effort to contact those who renounce without any subsequent filing, or who ignore the form 8854 process.

The compliance rate for dual citizens in Canada is probably between 5 and 10 percent, based on common estimates of the total number (approximately 1 million) and IRS data about returns filed (approximately 50,000 back in 2016). Presumably you are aware of Article 26 in the US-Canada tax treaty, which states that CRA will not assist the IRS with collection of US taxes and fines owing against Canadian citizens in Canada (US citizens only, resident in Canada, are at risk); FBAR fines are not collectible at all.

US tax compliance makes sense for people with cross-border lives, who have assets or income in both countries. But for dual citizens in Canada who have no US financial ties, it's neither necessary nor advisable. Thankfully it's also quite uncommon.

Ron.Henderson
Posts: 58
Joined: Sun Jan 06, 2019 2:24 pm

Re: Life Insurance Canada Segregated Fund

Post by Ron.Henderson » Tue Mar 31, 2020 11:14 am

@stevek

The best way to avoid huge penalties is to simply not report the fund, or to treat it as a savings account if you believe that it is subject to FATCA reporting.

stevek
Posts: 3
Joined: Mon Mar 30, 2020 4:36 pm

Re: Life Insurance Canada Segregated Fund

Post by stevek » Tue Mar 31, 2020 1:21 pm

I do have a cross border life and still work in the US so I can't really ignore the requirements.

Woke_1
Posts: 1
Joined: Sun Jun 28, 2020 10:29 pm

Re: Life Insurance Canada Segregated Fund

Post by Woke_1 » Sun Jun 28, 2020 10:31 pm

Hi SteveK,

Were you able to find an answer on how to treat segregated funds from a Canadian Life insurance company?

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