Critical

FATCA Reporting Requirements

The Foreign Account Tax Compliance Act (FATCA) requires US persons to report specified foreign financial assets on Form 8938 if they exceed certain thresholds. FATCA is separate from (and in addition to) FBAR reporting. The thresholds vary depending on filing status and whether you live in the US or abroad.

Key Points

  • Form 8938 is filed with your tax return, unlike the FBAR which goes to FinCEN.
  • US-based single filers must report if assets exceed $50,000 at year-end or $75,000 at any point.
  • Foreign-resident thresholds are higher: $200,000 at year-end or $300,000 at any point for single filers.
  • Reportable assets include bank accounts, investment accounts, foreign pensions, and interests in foreign entities.
  • Penalties are $10,000 for failure to file, plus $10,000 for each 30-day period of non-compliance after IRS notice.

Action Items

  1. 1.Determine whether your foreign financial assets exceed the applicable Form 8938 threshold.
  2. 2.File Form 8938 with your annual tax return if thresholds are met.
  3. 3.Remember that FATCA and FBAR are separate requirements; meeting one does not satisfy the other.
  4. 4.Include RRSPs, TFSAs, and other registered plans in your Form 8938 calculations.

Frequently Asked Questions

What is the difference between FBAR and FATCA?

FBAR (FinCEN 114) is filed with FinCEN and has a $10,000 aggregate threshold. FATCA (Form 8938) is filed with the IRS on your tax return and has higher thresholds. Both may be required simultaneously.

Do I report the same accounts on both forms?

There is significant overlap, but Form 8938 covers a broader range of assets (including interests in foreign entities) while FBAR is limited to financial accounts. Most Canadian accounts appear on both.

Related Scenarios

Critical

TFSA US Tax Trap

The Tax-Free Savings Account is tax-exempt in Canada but receives no treaty protection in the US. The IRS classifies a TFSA as a foreign grantor trust, requiring Forms 3520 and 3520-A annually. Failure to file can result in penalties starting at $10,000 per form per year.

Critical

FBAR Filing Requirements

The Report of Foreign Bank and Financial Accounts (FBAR) must be filed by any US person with foreign financial accounts exceeding $10,000 in aggregate at any point during the year. The FBAR is filed electronically with FinCEN, not the IRS, and has its own deadline and penalty regime.

Core

Substantial Presence Test

The Substantial Presence Test (SPT) uses a weighted formula across three years to determine if a foreign national is a US tax resident. If you meet the test, you are taxed on worldwide income. Understanding the SPT is essential for snowbirds and anyone splitting time between Canada and the US.

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