What Happens to Your RRSP, TFSA, and RESP in a Streamlined Filing: Deferral Restored, Earnings Taxed, Trust Forms Filed

A Canadian streamlined submission is largely an exercise in reporting three registered accounts correctly for the first time. The RRSP is the easy one: the IRS's 2014 guidance treats an eligible individual as having elected the treaty deferral for every year, so the submission simply reports the account on the FBAR and Form 8938 and claims nothing as income. The TFSA is the hard one: the US does not recognize it, its earnings are income for each of the three years, and the conservative position treats it as a foreign grantor trust requiring Forms 3520 and 3520-A for each year. The RESP is the TFSA with an added item: the government grant is income to the subscriber when credited. Each account is on the FBAR for all six years.

Key takeaways

• RRSP and RRIF: no income to report for the three years (the deferral under Article XVIII(7) is automatic for an eligible individual under Rev. Proc. 2014-55, retroactive to all years); the account appears on each FBAR at its maximum value and on Form 8938; Form 8891 is obsolete; a Form 8833 disclosure is optional but common. Withdrawals in the covered years are pension income with a foreign tax credit.
• TFSA: the interest, dividends, and realized gains inside the account for each of the three years are added to income (converted to US dollars); Canadian mutual funds inside it are PFICs with Forms 8621; the account is on the FBAR and Form 8938; the conservative position files Forms 3520 (each year) and 3520-A (each year) treating the TFSA as a foreign grantor trust, with the streamlined submission protecting against the trust-form penalties.
• RESP: same as the TFSA for the subscriber (a US person who is the subscriber has a foreign grantor trust; the plan's earnings are income annually; the CESG is income when credited); Forms 3520 and 3520-A each year; on the FBAR and Form 8938. A US-person beneficiary who received EAPs in the covered years has income too.
• LIRA, LIF, DPSP, RPP: treated like the RRSP; deferred; reported.
• After the submission: keep the RRSP; close the TFSA; have the Canadian parent subscribe to any RESP going forward.

The RRSP

Before 2014, a US person with an RRSP had to file Form 8891 each year to elect the treaty deferral, and a missed form meant the deferral was lost and the RRSP's income was taxable. Revenue Procedure 2014-55 replaced that: an "eligible individual" (a US citizen or resident who has been filing US returns, or who is catching up, and who has not previously reported the RRSP income as taxable) is treated as having made the election for all years, automatically, without a form. The streamlined submission therefore reports no RRSP income for the three years. The account goes on each of the six FBARs at its maximum value (converted at the year-end Treasury rate) and on Form 8938 for each of the three years. Many preparers attach Form 8833 disclosing the treaty position; it is not required for the deferral but is harmless. Withdrawals in the covered years (RRIF payments, a lump sum) are pension income on the returns with a foreign tax credit for the Canadian withholding.

A taxpayer who, in an earlier filed return, reported the RRSP's income as taxable (having not elected the deferral) is not an eligible individual for the years so treated; the submission then computes basis for the amounts already taxed.

The TFSA

The US does not recognize the TFSA as a tax-advantaged account. Its earnings (interest, dividends, realized gains, and, for Canadian mutual funds or ETFs inside it, PFIC income) are income to the US person each year. The streamlined returns for the three years include that income, computed from the account statements and converted at the average rate; Canadian funds inside require Form 8621 each with the excess distribution regime (or a mark-to-market election on the first year, where available). The account goes on the FBAR and Form 8938.

The trust question: the IRS has not ruled on whether a TFSA is a foreign trust, and practitioners divide. The conservative position (and the one most large cross-border firms take) is that a TFSA held in a trust arrangement with a trustee is a foreign grantor trust, requiring Form 3520 (the owner's report of transactions with the trust) and Form 3520-A (the trust's annual return, prepared by the owner as a substitute) for each year. The penalties for missing those forms (5% per month of the trust's value up to 25%; 35% of contributions) are severe, and the streamlined submission waives them for the covered years. Filing the forms in the submission is the safe course; a TFSA structured as a deposit account rather than a trust (some are) may not require them.

The RESP

The RESP is a trust: the promoter holds the contributions and grants in trust for the beneficiary, with the subscriber controlling the plan. For a US-person subscriber, it is a foreign grantor trust; the plan's earnings are the subscriber's income annually (with PFIC treatment for any Canadian funds inside); the Canada Education Savings Grant and any provincial grant are income to the subscriber when credited; Forms 3520 and 3520-A are filed each year; the plan is on the FBAR and Form 8938. The streamlined returns include the earnings and grants for the three years.

A US-person beneficiary (a child who is a US citizen) who received educational assistance payments in the covered years has income (the earnings and grant portion) and a Form 3520 for the distribution; the child may have a filing obligation depending on the amount.

The other registered plans

A LIRA, locked-in RRSP, LIF, or LRIF is an RRSP or RRIF for treaty purposes: deferred, reported on the FBAR and 8938. A DPSP or an RPP account (a defined contribution pension) is a pension: employer contributions are not US income when made (under the treaty's pension provisions) and the plan is reported. An RDSP is a trust like the RESP with the grants and bonds as income.

What to do after

The RRSP stays; it works in both countries. The TFSA is closed the year after the submission (the withdrawal is tax-free in Canada; the earnings to the closing date are on the final year's return; a final Form 3520 reports the termination). The RESP, if the family has a Canadian parent, is transferred to that parent as subscriber where the plan permits, or collapsed; the CESG is repaid on collapse.

Worked example

A US citizen in Ottawa submits under SFOP for 2023 to 2025 with a $420,000 RRSP, a $95,000 TFSA (holding Canadian equity funds), and a $60,000 RESP she subscribed to for her daughter.

• RRSP. No income on any return. On each of six FBARs and each Form 8938. Form 8833 attached.
• TFSA. Earnings for each year (the funds' distributions and any gains) as income; Forms 8621 for each fund for each year; Forms 3520 and 3520-A for each year; on the FBAR and 8938. Roughly $4,000 a year of income; the streamlined submission waives the 3520 penalties.
• RESP. Earnings and the $500 annual CESG as income each year; Forms 3520 and 3520-A each year; on the FBAR and 8938.
• Tax. Salary covered by the foreign tax credit; US tax on the TFSA and RESP income, a few hundred dollars a year, plus interest. No penalties.
• After. TFSA closed in 2026; RESP transferred to her Canadian husband as subscriber; RRSP kept.

Official sources

Under Rev. Proc. 2014-55 an "eligible individual" — one who "is or at any time was a U.S. citizen or resident (within the meaning of section 7701(b)(1)(A)) while a beneficiary of the plan" and has filed any required U.S. returns — is treated as having made the Article XVIII(7) election to defer U.S. tax on income accrued in an RRSP or RRIF until distribution, without filing Form 8891. — Internal Revenue Service, Revenue Procedure 2014-55, https://www.irs.gov/pub/irs-drop/rp-14-55.pdf

The IRS states that U.S. persons file Form 3520 to report "certain transactions with foreign trusts" and the "receipt of certain large gifts or bequests from certain foreign persons." — Internal Revenue Service, About Form 3520, https://www.irs.gov/forms-pubs/about-form-3520

The IRS states that "a U.S. person that is a direct or indirect shareholder of a passive foreign investment company (PFIC) files Form 8621" if they receive certain distributions, recognize gain on a disposition of PFIC stock, or are reporting a QEF or mark-to-market election, among other triggers. — Internal Revenue Service, About Form 8621, https://www.irs.gov/forms-pubs/about-form-8621

Practitioner note

The RRSP is a reporting item, the TFSA is an income item and a trust-form item, and the RESP is both plus the grant. A streamlined submission that reports the RRSP as taxable, or omits the TFSA's trust forms, is incomplete, and the second omission is the one with the penalty. We report all three the conservative way in the submission, and we close the TFSA the year after.

See also: If you are a US citizen or green card holder in Canada catching up, start with what you still owe the IRS, and browse every cross-border tax topic guide, organized by situation.

Next step

Fairlight prepares the treatment of each registered account in the streamlined returns, the trust forms for the TFSA and RESP, and the account changes after the submission. See cross-border pricing or book a call.