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Your Canadian Bank Accounts Are a US Tax Problem — And It’s Worse Than You Think
If you’re a US citizen or green card holder living in Canada, you probably assume that filing Canadian taxes is enough. It’s not. And the issue isn’t just that you need to file a US tax return — most people eventually figure that out. The real problem is what you’ve been doing (or not doing) about your Canadian financial accounts.
Your RRSP. Your TFSA. Your RESP for the kids. Your everyday chequing and savings accounts at TD, RBC, or Scotiabank. That GIC you rolled over last year. Every single one of these is a “foreign financial account” in the eyes of the IRS, and if you haven’t been reporting them, you’re potentially facing tens or hundreds of thousands of dollars in penalties — even if you don’t owe a single dollar in US tax.
This isn’t a theoretical risk. The IRS has been aggressively pursuing unreported foreign accounts for over a decade, and Canadian accounts are among the most commonly flagged because Canada and the US share financial account data automatically under FATCA intergovernmental agreements.
The Reporting Obligations You Probably Don’t Know About
Filing a US tax return (Form 1040) is just the starting point. If you have Canadian financial accounts, you likely have three separate reporting obligations that most Canadian accountants have never heard of:
1. FBAR (FinCEN Form 114)
If the combined value of all your foreign financial accounts exceeds $10,000 at any point during the year, you must file a Foreign Bank Account Report electronically with FinCEN. This is not an IRS form — it goes to the Financial Crimes Enforcement Network, a division of the US Treasury.
Every account counts toward the $10,000 threshold: chequing accounts, savings accounts, RRSPs, TFSAs, RESPs, GICs, investment accounts, even accounts where you only have signature authority. If you have a $6,000 chequing account and a $5,000 TFSA, you’re over the threshold and must report both.
The penalty for non-willful failure to file an FBAR is up to $10,000 per account, per year. For willful violations, the penalty jumps to the greater of $100,000 or 50% of the account balance — per account, per year. Six years of unreported accounts across three or four Canadian banks can produce penalty exposure in the hundreds of thousands.
2. Form 8938 (FATCA Reporting)
Separate from the FBAR, if your foreign financial assets exceed certain thresholds (for US persons living abroad: $200,000 on the last day of the year or $300,000 at any point during the year for single filers; $400,000/$600,000 for joint filers), you must file Form 8938 with your tax return. This form covers a broader range of assets than the FBAR, including foreign life insurance policies and interests in foreign entities.
The penalty for failing to file Form 8938 is $10,000 per year, with additional penalties of up to $50,000 for continued failure after IRS notification. And here’s the kicker: the statute of limitations on your entire tax return stays open indefinitely until you file Form 8938. That means the IRS can audit any year, going back as far as they want, until the form is filed.
3. Forms 8621, 3520, 3520-A, 5471, and More
Depending on what types of Canadian accounts and entities you hold, you may owe additional IRS information returns — each with its own penalties for non-filing. Canadian mutual funds and ETFs are treated as Passive Foreign Investment Companies (PFICs) requiring Form 8621. TFSAs and RESPs may be treated as foreign trusts requiring Forms 3520 and 3520-A. Ownership interests in Canadian corporations may trigger Form 5471. The penalties for missing these forms start at $10,000 per form, per year, and in many cases the statute of limitations on your entire tax return stays open indefinitely until the forms are filed.
Common Canadian Accounts and Their US Reporting Requirements
If you’re a US person living in Canada, here’s what the IRS expects you to report for each type of account you likely hold:
| Canadian Account Type | FBAR (FinCEN 114) | Form 8938 (FATCA) | Form 8621 (PFIC) | Forms 3520 / 3520-A | US Income Tax on Earnings | Notes |
| Chequing / Savings | Yes | Yes (if over threshold) | No | No | Yes — interest is taxable | Counts toward $10,000 FBAR threshold |
| GICs | Yes | Yes (if over threshold) | No | No | Yes — interest is taxable | Reportable even if held at a Canadian bank |
| RRSP / RRIF / LIRA | Yes | Yes (if over threshold) | No (excused under Treas. Reg. §1.1298-1(c)(4)) | No (excused under Rev. Proc. 2014-55) | No — income auto-deferred under treaty | Must still be on FBAR/8938; excluded from SDOP penalty base |
| TFSA | Yes | Yes (if over threshold) | Yes — for mutual funds/ETFs inside | Possibly — may be a foreign trust | Yes — all income fully taxable | US does not recognize TFSA tax-free status |
| RESP | Yes | Yes (if over threshold) | Yes — for mutual funds/ETFs inside | Possibly — likely a foreign trust | Yes — income may be taxable to contributor | CESG (govt grant) may also be taxable |
| Non-registered investment | Yes | Yes (if over threshold) | Yes — for Canadian mutual funds/ETFs | No | Yes — dividends, interest, capital gains | Each mutual fund = separate Form 8621 |
| Canadian corporation | Depends | Yes (if over threshold) | Possibly | No | Depends on entity classification | May trigger Form 5471 if >10% ownership |
| Canadian life insurance | Yes (if cash value) | Yes (if over threshold) | Possibly | No | Depends on policy type | May be treated as a PFIC |
A few things to notice from this chart. First, every account type requires FBAR reporting if you meet the $10,000 aggregate threshold — there are no exceptions for retirement accounts, tax-sheltered accounts, or education savings. Second, the RRSP is the only common Canadian account where the IRS has provided comprehensive relief: income deferral, PFIC reporting excused, trust reporting excused, and SDOP penalty base exclusion. Every other registered Canadian account — TFSA, RESP, RDSP — gets none of those benefits. Third, if you hold Canadian mutual funds or ETFs anywhere outside an RRSP, you have a PFIC problem, and each fund requires its own Form 8621 every year.
The IRS Already Knows About Your Accounts
Under FATCA, Canadian financial institutions report account information for US persons directly to the Canada Revenue Agency, which then shares it with the IRS. This means the IRS has received data about your Canadian bank accounts, RRSPs, TFSAs, and investment accounts — likely going back years.
If you haven’t been filing FBARs, Forms 8938, and Forms 8621, there is already a mismatch between what the IRS knows and what you’ve reported. The question is not whether the IRS will find out. The question is whether you come forward voluntarily before they contact you, because once the IRS initiates an examination, your options narrow dramatically.
How to Fix This: Streamlined Filing Compliance Procedures
The IRS offers two programs specifically designed for taxpayers who failed to report foreign accounts and income due to non-willful conduct (meaning you didn’t know about the requirements, misunderstood them, or were negligent — not that you were deliberately hiding money).
Streamlined Foreign Offshore Procedures (SFOP)
If you live in Canada and meet the IRS non-residency requirement (physically outside the US for at least 330 full days in at least one of the last three tax years), you likely qualify for SFOP. This is the best outcome available:
• File 3 years of corrected or delinquent US tax returns
• File 6 years of delinquent FBARs
• Submit a certification of non-willfulness on Form 14653
• Pay any back taxes and interest owed
• No penalties whatsoever — no FBAR penalties, no Form 8938 penalties, no accuracy-related penalties
Streamlined Domestic Offshore Procedures (SDOP)
If you live in the US or don’t meet the non-residency requirement for SFOP (for example, you recently moved back to the US from Canada, or you split time between both countries), you may qualify for SDOP:
• File 3 years of amended US tax returns
• File 6 years of delinquent FBARs
• Submit a certification of non-willfulness on Form 14654
• Pay any back taxes and interest owed
• Pay a one-time 5% penalty on the highest aggregate balance of your unreported foreign assets
• All other penalties waived — no FBAR penalties, no information return penalties, no accuracy-related penalties
The 5% penalty under SDOP is a fraction of what the IRS could otherwise assess. Without the streamlined procedures, you could face FBAR penalties alone exceeding 50% of your account balances.
IRS Voluntary Disclosure Practice (VDP)
In cases where the failure to report may have been willful — for example, you knew about the requirements and chose not to comply, or you received advice to hide accounts — the streamlined procedures are not available. In those situations, the IRS Criminal Investigation Voluntary Disclosure Practice may be the appropriate path. VDP does not guarantee immunity from prosecution, but a timely and complete voluntary disclosure is a significant factor the IRS considers.
This is a narrow category, but if there’s any question about willfulness, you need an attorney — not an accountant — evaluating your situation before you make any filing.
Why Your Canadian Accountant Cannot Help You With This
Canadian accountants and tax preparers — even very good ones — are not trained in US international tax compliance. They don’t file FBARs. They don’t prepare Forms 8621. They don’t understand the PFIC excess distribution regime. They don’t know the nuances of how the IRS treats TFSAs, RESPs, or non-registered Canadian investment accounts. And they absolutely cannot represent you before the IRS if something goes wrong.
More importantly, the streamlined procedures require a carefully drafted non-willfulness certification. This is a legal document submitted under penalties of perjury. If the IRS later questions your submission, the certification is the document they’ll scrutinize. Having an attorney draft this document — protected by attorney-client privilege — is fundamentally different from having an accountant do it.
What You Should Do Right Now
If any of this applies to you, here’s what not to do: don’t panic-file a bunch of late FBARs and amended returns on your own. Filing outside of the streamlined procedures means you lose the penalty protection those programs provide. Don’t contact the IRS directly. And don’t assume your Canadian accountant can sort this out. Here’s what to do:
Call a US tax attorney who handles international compliance and IRS disclosure programs. At Tax Relief Counsel, we regularly handle SDOP and SFOP submissions for US-Canadian dual citizens with unreported RRSPs, TFSAs, RESPs, and other Canadian accounts. We prepare the amended returns, the FBARs, the Forms 8621, the PFIC calculations, the treaty elections, and the non-willfulness certifications. We’ve done this across dozens of client situations involving Canadian financial accounts.
The streamlined procedures are available today, but the IRS can modify or terminate them at any time. If you’re out of compliance, the best time to fix it is before the IRS contacts you. Call Tax Relief Counsel at (202) 630-4095 or schedule a free confidential consultation.