Taking stab at 3520, -A for TFSA

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hapless
Posts: 4
Joined: Sat Jul 24, 2010 8:04 pm
Location: Ontario

Taking stab at 3520, -A for TFSA

Post by hapless » Sat Jul 24, 2010 8:23 pm

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.

<b>3520</b>
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.

<b>3520-A</b>
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
Posts: 73
Joined: Sun Nov 25, 2007 9:14 pm

Post by cfn2007 » Sat Jul 24, 2010 11:39 pm

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
Posts: 4
Joined: Sat Jul 24, 2010 8:04 pm
Location: Ontario

Post by hapless » Sun Jul 25, 2010 8:38 am

<i>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.</i>

[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
Posts: 6
Joined: Tue Jul 20, 2010 12:55 am

reg: transfer Agent vs US agent

Post by gogo » Mon Jul 26, 2010 12:54 am

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
Posts: 4
Joined: Sat Jul 24, 2010 8:04 pm
Location: Ontario

"gratuitous transfer"

Post by hapless » Mon Jul 26, 2010 7:39 am

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:

<b>Exceptions to Filing:
- Most fair market value (FMV) transfers...</b>

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

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
Posts: 4
Joined: Sat Jul 24, 2010 8:04 pm
Location: Ontario

Post by hapless » Mon Jul 26, 2010 7:52 am

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
Posts: 73
Joined: Sun Nov 25, 2007 9:14 pm

Post by cfn2007 » Mon Jul 26, 2010 9:02 am

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!?!?

richarooca
Posts: 16
Joined: Mon Apr 14, 2008 12:30 am

Post by richarooca » Mon Oct 11, 2010 7:09 pm

On the instructions on 3520-A for Part1 Lines 3a-3g, it says : any US citizen...including the Grantor ... may act as the US agent.

So I'm going to put down myself.

cfn2007
Posts: 73
Joined: Sun Nov 25, 2007 9:14 pm

Post by cfn2007 » Mon Oct 11, 2010 10:49 pm

Hmmm... interesting idea but I'm not sure I agree. Do you have a "binding contract" with the foreign trust that allows you to "act as the trust’s authorized U.S. agent"? (See page 3 of the 3520a instructions for sample "binding contract".)

I think Hapless (up thread) might have this one right. Most Canadian financial institutions are "qualified intermediaries" which is probably the equivalent of being a "US agent". I think next year I will probably put down my Canadian broker's information for this and write "Qualified Intermediary" beside their name.

zad886
Posts: 7
Joined: Wed Nov 18, 2009 9:31 pm
Location: Vancouver, BC

Post by zad886 » Fri Feb 25, 2011 9:00 pm

Great job hapless!! I've been reading the instructions on form 3520/A and hoping I'd be able to figure things out on my own. I'm so happy you've done all these research and giving us the guidelines to easily fill out the form. Thank you so much!!!

I do have a few questions...hoping someone would have an answer for me.

Here's the scenario:
I open a TFSA savings account - park my funds while I figure out where to invest it [GIC, mutual funds, etc.] In the same year, I decide to invest the funds in a GIC including whatever interest the savings account earned.

Now here are my questions--
1) Do I fill out a separate 3520/3520a for each account [savings and GIC] even if it was just a transfer of the same funds in the same year?
2) Is this transfer considered a distribution? Do I fill out Part III of the form?
3) How do I treat the interest earned portion of the funds that was transferred to the GIC?

Thanks.

Diskdoctor
Posts: 73
Joined: Wed Apr 21, 2010 9:46 am
Location: Winnipeg

Post by Diskdoctor » Wed Mar 02, 2011 3:55 pm

[quote="zad886"]Now here are my questions--
1) Do I fill out a separate 3520/3520a for each account [savings and GIC] even if it was just a transfer of the same funds in the same year?
2) Is this transfer considered a distribution? Do I fill out Part III of the form?
3) How do I treat the interest earned portion of the funds that was transferred to the GIC?[/quote]

1) My interpretation is that you only need a new 3520/3520a for each separate TFSA contract. If it's all at the same institution it's probably all under the same contract number so no need for more 3520s no matter how many GICs or savings accounts that money is divided into.

2) I would say no. Unless you are transferring it to a new TFSA contract in which case I would probably treat it as a withdrawal from one and then a contribution to the other.

3) All interest from any account included in the TFSA contract is summed together. It doesn't appear in the 3520, only the 3520-A, where it appears in Part II, line 1, as part of part III, line 18, and page 3 line 1a near the bottom (taxable interest).

Diskdoctor
Posts: 73
Joined: Wed Apr 21, 2010 9:46 am
Location: Winnipeg

Post by Diskdoctor » Wed Mar 02, 2011 4:50 pm

It's great to see some discussion about the nitty gritty of filling out these forms. Thanks hapless for the blow by blow! Last year I was totally overwhelmed facing these forms for our RESPs and ended up getting a tax accountant to fill the initial ones out for me so I could work off that. She was obviously not really familiar with these forms even though she does plenty of U.S. taxes for people living in Canada so I don't trust her 100% (she also told me we don't need to fill out these forms for TFSAs) but she should at least have a better understanding of some of the language right?

My 3520/3520As look pretty similar to hapless' with a few exceptions:
- Like cfn2007 I checked that the foreign trust did not appoint a U.S. agent (though I do like hapless' approach I'll have to see if I can get that info for 2010 forms)
- Where it asks for name of trustee, etc. I have my wife and my names down (its an RESP).
- I have also reported contributions under Schedule B-Gratuitous transfers. Columns g and h I have N/A and column i is the same as column c which I think is the conclusion hapless came to as well.
- I share cfn2007's questions about part III (distributions). I agree with hapless that there shouldn't be any tax implications because the tax is already paid but I think it needs to be reported as a distribution somewhere on these forms. I need to figure this out soon because we transferred money out of one of our RRSPs to get away from having to fill out these forms in the future.

As you fill out the forms for additional years you may find that fluctuating exchange rates complicate what you report in part III - Foreign Trust Balance Sheet. I have come up with the following approach which is probably not completely correct but there's no explanation anywhere and I explain it in a cover letter:
Line 17 – A cumulative sum of contributions made by us to the trust corpus converted to USD based on the average exchange rate for the year the contribution was made.
Line 18 – A cumulative sum of income earned by the trust (including the government grants[this was for an RESP]) converted to USD based on the average exchange rate for the year the income occurred. Capital gains from buying and selling funds included here are calculated differently, based on the value in USD on the purchasing date(s) and the value in USD on the selling date(s).
Line 19 – Here we include a number which accounts for the change in value of contributions and income due to fluctuations in the average yearly exchange rate. This is necessary to balance the balance sheet.

Diskdoctor
Posts: 73
Joined: Wed Apr 21, 2010 9:46 am
Location: Winnipeg

Post by Diskdoctor » Wed Mar 02, 2011 4:54 pm

RESP specific info:
If any of you have to fill out these forms for RESPs there is a further complication with the CESG. The approach I have taken is to claim it as income in the year in which it is received [putting it in "other income"] but not to claim ownership of it or of any income earned by the RESP [since unlike the trust corpus I personally couldn't actually withdraw that money]. So for 3520 Part II Line 23 & 3520-A Page 3 Line 9 “Gross value of the portion of the trust treated as owned by the U.S. ownerâ€￾ we have included on these lines only the value of our personal contributions to the trust. The total contributions in CAD were converted to USD using the average exchange rate during the tax year of the form.

zad886
Posts: 7
Joined: Wed Nov 18, 2009 9:31 pm
Location: Vancouver, BC

Post by zad886 » Sun Mar 06, 2011 1:00 am

thank you so much for your response Diskdoctor! And to everyone who's contributed to this wonderful site...THANK YOU!!!

nelsona
Posts: 16507
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona » Sun Mar 06, 2011 11:17 am

Once you live in US TFSA is absolutely pointless -- as it is fully taxable. Pull out the funds and put them back when you return.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

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