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Phil Hogan, CPA, CA, CPA (CO)
Cross-Border Tax and Investment Specialist
I am a Canadian citizen living in Toronto and my wife is a U.S. citizen and living in Toronto with PR status. Below is the situation wrt Roth IRA disclosure:
• Due to lack of awareness (assumed all retirement accounts are the same and therefore not required to be disclosed on CRA From T1135 or have any activity reported in annual return), have not reported or included Roth IRA activity on CR Form T1135.
• Capital gains and income from Roth IRAs should have been reported on tax returns
• Need to do an Election for Roth IRAs with the CRA to defer taxes
• Penalties will be assessed – the lesser of $100/ month for each month since the date of original requirement (April 2011) or $8,000
• Amendments will have to be filed for all taxes since 2007 (since I became landed) to account for income/ gains/ losses in all Roth IRA accounts (I have 4 or 5)
• Will open the door to form T1135 (Foreign Income Verification Statement) not having been filed for all previous years before 2014 – heavy penalties
• Will open the door to review of my filings also, as my spouse with similar T1135 filing obligations
• There is list to of entitled elections (provisions) that are eligible to be filed late
• As this one is not there (in the 2007 list), we need to know if it is eligible.
• If so, don’t know how to do a late election filing as the steps are not clear.
• As there late filing penalties, should an appeal to forgive any penalties be included automatically with Election filing?
• Does a late election have to be part of a voluntary disclosure or can it stand on its own
• Technically a Roth IRA falls under a category required to be reported on a form T1135 with the CRA.
• Also any income (interest, dividend) or capital gains or loses from a Roth IRA are to be included as part of a yearly tax return.
• ** How far back do you have to go
Need guidance wrt to the big picture and the detail.
Key concerns are related to:
• Retroactive payments
• Potential of audit of spousal taxes
• The destruction of the earth
That’s quite a list, but I’ll do my best to try and outline some helpful considerations:
Income and capital gains from the ROTH IRA will not need to be reported on a Canadian return assuming you have, or will make the ROTH IRA election. In most cases they will allow you to make the election late.
Make sure not to contribute to the ROTH as they may invalidate the deferred nature of the ROTH
Yes, the $100 election penalty does exist, however the competent authority seems to be allowing for the late filing of the election. This does still carry lots of risk though.
There’s also a question whether the ROTH IRA is actually reportable for T1135 purposes. Some would argue that the exception for traditional IRAs on T1135 reporting would carry over to ROTH IRAs
If you do get penalized you can appeal the penalty by filing a taxpayer relief application. However I would consider filings these late elections under VDP is possible
Hope that helps.