Many Canadians migrate south each year and become U.S. residents or citizens. Along with the cold weather, they may also leave behind local retirement account, such as a Canadian registered retirement savings plan (“RRSP”) or a Canadian registered retirement income fund (“RRIF”). Preserving this Canadian nest egg is generally a good thing. Indeed, it is hard to find fault with financial planning for the golden years. This egg could turn a little rotten, though, if the person fails to appreciate the relevant U.S. tax obligations. Unfortunately, due to the disparate treatment of these Canadian retirement plans by the IRS and the Canadian Revenue Agency, coupled with the obscurity of various international tax requirements, many of our neighbors from the north lack the necessary appreciation. In other words, they are under the common, yet mistaken, belief that bygones are bygones, at least when it comes to their retirement plans back home. The potential consequences of this unawareness or misunderstanding include back taxes, penalties, and interest of such magnitude that many new arrivals may curse their decision to relocate to the land of the free and the home of the brave.
The good news is that it is not too late to avert the problem. The bad news is that trying to resolve the situation in an improper manner could trigger even greater troubles. The attached article, called “When Bygones Aren’t Bygones: Exploring Tax Solutions for U.S. Persons with Undeclared Canadian Retirement Plans and Accounts,” follows the evolving tax treatment of Canadian RRSPs and RRIFs, identifies the relevant U.S. tax requirements and the penalties for non-compliance, illustrates the problem by describing a typical scenario, and explores two major solutions, focusing on the pros and cons of each. The article was published in the International Tax Journal.