What is FBAR (Foreign Bank Account Reporting)?
The FBAR, also known as FinCEN Report 114, is a form that all “U.S. persons” are required to file if they possess financial assets of more than US$10,000. A “U.S. person” includes, but is not limited to, U.S. citizens (no matter where they reside), as well as U.S. residents for income tax purposes (based on number of days in the U.S., and permanent residents with a green card).
This form is similar in some ways to our T1135 form, with a few notable exceptions: our threshold is CAD$100,000, as opposed to US$10,000 for the FBAR. In addition, our T1135 includes different types of foreign property, such as foreign real estate, while the FBAR concerns only financial assets.
The US$10,000 threshold represents the maximum aggregate value of all financial accounts. If this value is exceeded at any time during the year, an FBAR must be filed. So, for example, if your parents give you US$11,000, which you then use the next day as a down payment to purchase property, the threshold has been exceeded and you must file an FBAR.
To take another example, if your RRSPs and bank account combined exceed the threshold, you must file an FBAR for all accounts. In short, when the threshold is exceeded, all accounts must be declared, including any TFSAs, RESPs and RRSPs, as well as investments, savings accounts, joint accounts, etc.
To return to the joint account, the amount you are required to report depends on whether your spouse is American, and whether your spouse is also filing an FBAR.
The penalties for not filing an FBAR are severe. The minimum amount is $US10,000, up to the value of the account. So, for example, if you have US$11,000 in an account and you have not declared this one account, the penalty could be $US11,000. A possible prison sentence may also apply. While in practice these penalties are not applied systematically, this could change because the IRS is becoming less and less understanding of failures to file an FBAR.
Please note that this article has covered only a few aspects of this issue and must not be considered tax advice. To receive tax advice adapted to your particular situation, we recommend that you consult a specialist who thoroughly understands both American taxation and Canadian taxation, as results in one system impact the other.
Nicolas Godbout, Tax master and Financial Planner