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Most of us have heard of the term and have seen it mentioned in countless expat tax articles online.
So, what is the FBAR?
FBAR stands for “Foreign Bank Account Reporting”. Originally numbered as TDF 90-22.1, the FBARs current form number as revised a few years ago is currently form 114.
Form 114 is required to be filed by all US citizen, Green Card Holders and tax residents of the USA that meet the FBAR filing threshold requirement. This compliance form reports all foreign financial accounts (defined below) held by US taxpayers. The filing threshold is calculated by taking the total aggregate highest balance in all “foreign financial accounts”. If the total calculated exceeds $10,000, the taxpayer is required to file FBAR forms.
A foreign financial account is defined as a “financial account” held outside of the USA. A financial account is defined in the instructions for form 114 as:
Financial Account: A financial account includes, but is not limited to, a securities, brokerage, savings, demand, checking, deposit, time deposit, or other account maintained with a financial institution (or other person performing the services of a financial institution). A financial account also includes a commodity futures or options account, an insurance policy with a cash value (such as a whole life insurance policy), an annuity policy with a cash value, and shares in a mutual fund or similar pooled fund (i.e., a fund that is available to the general public with a regular net asset value determination and regular redemptions).
When reviewing what accounts need to be included on the FBAR (for US taxpayers) we would default to the definition above. Generally speaking however, Canadians will report the following accounts (usually held in Canada):
Some examples of Non-US accounts (often Canadian based accounts):
Penalties for late filing of FBAR forms can be significant. In cases where the taxpayer is not considered “willful” in their non-disclosure the penalty should not exceed $10,000. In cases where the government can prove “willful non-filing” the penalty can be the greater of $100,000 and 50% of the unreported financial accounts.
You’re options for late filing FBARs are different depending on your particular situation. For the purposes of this article we will assume that the non-disclosure is “not willful”.
In cases where the taxpayer is currently compliant in filing US tax returns and all the income related to the non-disclosed financial accounts have been reported and properly taxes on the US income tax returns, the late FBARs may be able to be late filed without penalty.
In cases where the income from the foreign financial accounts have not been reported, the taxpayer has a few options:
Streamlined Tax Filing Program – This program allows delinquent FBAR filers to late file FBARs without threat of penalty. Under the program taxpayers will file 3 years of late (or adjusted) 1040 US tax return and 6 years of late FBAR filings. Please contact us for more information on the streamlined tax filing program.
Offshore Voluntary Disclosure Program – The IRS also administers a less flexible program for those that don’t qualify for streamline. You can review the program in more detail on the IRS website here.
As a tax resident of Canada you will only be subject to FBAR reporting if you are in fact a US citizen, Green Card holder or tax resident of the US. In those cases FBAR reporting as outlined above will be required. In cases where you have yet to file US tax returns or FBAR forms taking advantage of the streamlined tax filing program as outlined above is a good alternative to filing these forms late.
Form 8938 although similar is not the same form as the FBAR. It was introduce as part of FATCA in 2011 and is included in the 1040 for each taxpayer that requires the form to be filed. The threshold for having to file the form however is much higher than that of the FBAR. For more information on form 8938 filing thresholds please click here.
If you think you need to file late FBARs or simply have a question about form 114 or any of the items outlined above please contact me here and I’ll do my best to help answer any questions you may have. Also feel free to leave a comment below with your question and someone will get back to you as soon as possible.
The information contained in this article is for general use only and should not be viewed as professional advice. Accounting and tax rules and regulations regularly change and individuals should contact a competent professional to obtain accounting and tax advice based on their specific situation.
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Does this mean that all such assets disclosed will be taxed or only the income on those assets.
Does this mean that all assets disclosed will be taxed or only the income on those assets?
I am Canadian commuting to USA from Windsor to Detroit for engineer job under TN visa. I do not have US green card, nor US citizenship.
Questions:
1. I have US dollar mutual funds income in 2016 from Canada TD waterhouse. Should I include Canada mutual fund income in US 1040 schedule D? if yes, how can I claim Foreign tax credit in Canada T1 since the mutual funds are not US income?
2. Should I report Canada bank account to US in form 114? I am not US citizen nor green card holder.
It seems different answers from a couple of local tax professionals and I am confused which direction I should follow.
Thanks a lot for help!