The FBAR in Your First US Year: The Canadian Accounts Everyone Forgets and the Maximum-Value Rule

Short version: First-Year FBAR and Form 8938 for New U.S. Residents

The FBAR is the filing Canadians most often miss in their first US year, because it is filed with FinCEN rather than the IRS, because the threshold is low, and because the accounts it covers include ones a Canadian does not think of as bank accounts. Every RRSP, TFSA, RESP, LIRA, RRIF, brokerage account, credit union account, and cash-value life insurance policy in Canada is a foreign financial account for a US person. So is a joint account with a Canadian spouse, and so is a corporate or trust account the person can sign on without owning. The threshold is $10,000 in aggregate at any point in the year, measured at each account's maximum value, and the penalty for a non-willful miss can run up to $16,536 per report (the statutory $10,000, adjusted for inflation).

Key takeaways

• Who files: every US person (citizen, green card holder, resident alien under the substantial presence test or a residency election) with a financial interest in, or signature authority over, foreign financial accounts whose aggregate maximum value exceeded $10,000 at any time in the calendar year.
• What counts: bank and credit union accounts, brokerage and investment accounts, RRSPs, RRIFs, LIRAs, TFSAs, RESPs, RDSPs, cash-value life insurance and annuities, mutual fund accounts held directly with a fund company, and accounts held through a Canadian corporation or trust the person controls. Cryptocurrency held on a foreign exchange is not currently required but is expected to be.
• Maximum value: each account is reported at its highest balance during the year, converted to US dollars at the Treasury year-end rate; the $10,000 test is on the sum of the maximums.
• First-year timing: the FBAR covers the full calendar year in which the person became a US person, not just the post-arrival period; a Canadian who became a US resident on July 1 reports the accounts' maximum values for the whole year.
• Filing: electronically with FinCEN (Form 114) by April 15, with an automatic extension to October 15. Not filed with the tax return. Penalties: up to $16,536 per non-willful violation (the inflation-adjusted statutory $10,000; per report, not per account, following the Supreme Court's Bittner decision), and far more for willful violations.

The accounts Canadians forget

Registered plans. RRSPs, RRIFs, LIRAs, and LRSPs are foreign financial accounts; the treaty defers US tax on them but does not exempt them from the FBAR. TFSAs and RESPs are reportable and, separately, have foreign trust exposure. RDSPs too.

Joint accounts. A US person with a financial interest in a joint account (even one funded entirely by a Canadian spouse) reports the full maximum value of the account.

Signature authority. A US person who can sign on an account they do not own (a parent's account under a power of attorney, a Canadian corporation's operating account as a director or officer, a trust account as trustee) reports it as signature authority, with the owner's details.

Corporate accounts. A US person who owns more than 50% of a Canadian corporation is treated as having a financial interest in the corporation's accounts and reports them.

Life insurance. A Canadian whole life or universal life policy with cash surrender value is a foreign financial account; term insurance is not.

Credit unions and online banks. Reportable like any bank.

Accounts closed during the year. Reportable for the year if they were open at any point with a balance that contributes to the aggregate.

The maximum-value mechanics

For each account, identify the highest balance at any point during the year from statements, convert it to US dollars at the Treasury's year-end exchange rate for the year, and sum the results. If the sum exceeds $10,000, every account is reported, including small ones. A Canadian with a $9,000 chequing account and a $200,000 RRSP reports both.

The first year

A Canadian who became a US resident on July 1 is a US person for FBAR purposes for the calendar year (the FBAR does not prorate). The accounts are reported at their maximum values during the year, which for most Canadians means the balances before departure, when the accounts were fullest. Accounts closed before departure still count if they were open in the year.

The FBAR interacts with the dual-status return: a person who elects full-year US residency, or whose residency starts under the substantial presence test, is a US person for the year. A Canadian who was a US resident under the substantial presence test in earlier years without knowing it (a snowbird who met the day count) has FBAR exposure for those years too.

Form 8938

The FBAR is filed with FinCEN; Form 8938 (Statement of Specified Foreign Financial Assets) is filed with the 1040 under FATCA and covers a broader set of assets (including foreign stock held directly and interests in foreign entities) at higher thresholds ($50,000 single / $100,000 joint at year-end for US-resident filers; $200,000 / $400,000 for filers abroad). Most Canadians in their first US year file both.

Catching up

A US person who has missed FBARs and reported all the income files the delinquent FBARs through FinCEN with a reasonable-cause statement; no penalty applies where the income was reported. A US person who has missed FBARs and the income (the TFSA earnings, the Canadian dividends) uses the Streamlined Foreign Offshore Procedures (if abroad) or Streamlined Domestic Offshore Procedures (if in the US, with a 5% penalty), filing three years of returns and six years of FBARs.

Worked example

A Toronto couple move to Florida on June 30. He holds a $400,000 RRSP, a $60,000 TFSA (closed in May), and a $12,000 chequing account; she holds a $250,000 RRSP and a $15,000 savings account; they hold a $30,000 joint account; he is a director with signing authority on his brother's Canadian company's $200,000 operating account.

• His FBAR. RRSP ($400,000 maximum), TFSA ($60,000 maximum, reported though closed), chequing ($12,000), joint account ($30,000 full value), and the corporate account as signature authority ($200,000). Aggregate well over $10,000; all reported.
• Her FBAR. RRSP ($250,000), savings ($15,000), joint account ($30,000). All reported.
• Timing. Due April 15 of the following year, extended automatically to October 15; filed with FinCEN, separate from the 1040.
• Form 8938. Both file; the RRSPs and accounts exceed the resident thresholds.

Official sources

"A United States person that has a financial interest in or signature authority over foreign financial accounts must file an FBAR if the aggregate value of the foreign financial accounts exceeds $10,000 at any time during the calendar year." — Financial Crimes Enforcement Network, Report of Foreign Bank and Financial Accounts (FBAR), https://www.fincen.gov/report-foreign-bank-and-financial-accounts

"A U.S. person, including a citizen, resident, corporation, partnership, limited liability company, trust and estate, must file an FBAR to report: a financial interest in or signature or other authority over at least one financial account located outside the United States if the aggregate value of those foreign financial accounts exceeded $10,000 at any time during the calendar year reported." — Internal Revenue Service, Report of Foreign Bank and Financial Accounts (FBAR), https://www.irs.gov/businesses/small-businesses-self-employed/report-of-foreign-bank-and-financial-accounts-fbar

Practitioner note

The FBAR miss that costs the most is the snowbird's: a Canadian who met the substantial presence test three winters ago has three years of unfiled FBARs on accounts that were never hidden and income that was reported in Canada. The fix is the streamlined procedure, and it is cheap compared to the penalties, but it has to be filed before the IRS asks. In the first US year, we list every Canadian account the client has ever signed on, and we file the FBAR from that list.

See also: For who files, what counts, and why the penalties are so steep, read the full guide: FBAR for Canadians Living in the U.S.. Planning a move? Start with the Canada-to-US tax checklist and browse every corridor by city, province, and state.

Next step

Fairlight prepares the first-year FBAR and Form 8938 from a complete account inventory, and the streamlined catch-up where prior years were missed. See cross-border pricing or book a call.