If you’re a Canadian or U.S. citizen living abroad, working abroad, or with investments or real estate in a country other than your own, our team of specialized tax accountants can answer your questions about your expatriate, cross-border or non-resident income tax filing obligations.
Citizen Abroad Tax Advisors has been providing expert guidance and advice to American expatriates for more than 40 years. In that time we’ve come to know the most common cross-border and non-resident income tax questions U.S. citizens have when they’re working or living in Canada or overseas.
Find your tax question among the categories below:
Frequently Asked Tax Questions for US Taxpayers
What are the common tax forms a U.S. citizen living in Canada should file each year with the IRS?
The typical U.S. tax forms to be filed by American citizens living in Canada are:
Form 1040, U.S. Individual Income Tax Return, and its related schedules:
Form 2555, Foreign Earned Income Exclusion
Form 1116, Foreign Tax Credit
Form 8938, Specified Foreign Financial Assets
Form 8621, Passive Foreign Investment Corporations (reports interest in Canadian mutual funds)
Form 8833, Treaty Based Position Disclosure (for various Canada–U.S. Income Tax Treaty elections that may be required in your U.S tax return)
The following forms may also be required for certain persons:
Form 5471, Information Return of U.S. Persons with Respect to Certain Foreign Corporations (for Americans with an ownership interest in private non-U.S. corporations)
Form 3520-A and Form 3520, Annual Return to Report Transactions with Foreign Trusts and Receipt of Foreign Gifts (for U.S. owners or beneficiaries of Canadian trusts)
FinCen Report 114, Report of Foreign Bank and Financial Accounts (previously Form TDF 90-22.1)
Failure to file these forms could result in minimum penalties of $10,000 for non-willful infractions.
|I am a U.S. citizen and have lived in Canada for most of my adult life. I pay taxes on my worldwide income on my Canadian tax return. I just realized that I should have been filing U.S. tax returns for this entire period and haven’t been doing so. What is the best action I can take here? Why would I start filing these now?|
I am a U.S. citizen and have lived in Canada for most of my adult life. I pay taxes on my worldwide income on my Canadian tax return. I just realized that I should have been filing U.S. tax returns for this entire period and haven’t been doing so. What is the best action I can take here? Why would I start filing these now?
We understand a person’s resistance to filing tax returns and potentially paying tax or penalties to a country to which they have limited or no ties (with the exception of citizenship or a Green Card), especially if they have never lived in the United States. But it’s no longer in your favor to take a ‘head down’ approach and ignore the issue. Since 2008, the IRS has increased its focus on U.S. citizens living abroad or U.S. residents holding (but not disclosing) assets outside of the United States. The U.S. Foreign Account Tax Compliance Act (FATCA) requires most non-U.S. institutions around the world to identify, report and possibly withhold on any U.S. citizen or U.S. taxpayer accounts held at those institutions—which means ‘doing nothing’ is not an option for U.S. citizens who are not compliant on their tax and reporting obligations. Voluntary disclosure is always the preferred option—and one that allows for greater leniency on penalty application than being ‘caught’ by the IRS.
My U.S.-based employer is sending me to Canada for five months. I live in the United States and my family will remain there while I’m away. My compensation during this time will be more than $20,000 USD. Are there any Canadian personal tax consequences I need to know about?
This question needs to be looked at from two angles: your personal obligations and your employer’s obligations.
Your tax personal obligations:
Your employer’s payroll tax obligations:
Citizen Abroad can assist you and your employer in meeting these requirements.
|I have heard that owning Canadian mutual funds can result in unintended negative tax implications and requires additional reporting in my tax return. What are the additional reporting requirements and what are the tax implications?|
I have heard that owning Canadian mutual funds can result in unintended negative tax implications and requires additional reporting in my tax return. What are the additional reporting requirements and what are the tax implications?
A non-U.S. corporation is a PFIC if it meets one of two criteria (applies not only to Foreign Mutual Funds and ETFS and any other Foreign Corporation):
Capital gains on PFICs for U.S. purposes are prorated as earned over the holding period of the PFIC fund, and are taxed at the top rates in effect over that period (recently as high as 37 or 39.6 percent), with an interest charge on the tax on the portion of the total gain allocated to prior year.
|I am a former Canadian resident who now lives in California. I don’t have any non-U.S. bank accounts with the exception of my Canadian RRSP, which has a balance of $120,000. What do I need to report on my U.S. tax return?|
You will likely need to complete the following forms with your 1040 tax return:
Form 8938, Statement of Specified Foreign Financial Assets (this form is required because the value of the asset is more than $100,000 on the last day of the year)
I have recently moved to Canada but I am not yet a permanent resident or a Canadian citizen. What are my tax obligations?
Residency status determines how individuals are taxed in Canada. ‘Tax residents’ of Canada are subject to Canadian income tax on their worldwide income regardless of where it is earned, paid or credited. Non-residents (for tax purposes) are subject to Canadian income tax on Canadian source income only (e.g., income from a Canadian rental property, employment income earned while physically working in Canada, dividends from Canadian companies).
You may be deemed a tax resident of Canada if you spend more than 183 days in the country in any calendar year. However, the more common situation is ‘factual’ residency: if you have created or severed significant residential ties in Canada—regardless of the number of days spent in Canada in the calendar year—you may be considered to have changed your residency status.
Residency (outside of deemed residency) is not defined in the Canadian Income Tax Act. The Canada Revenue Agency (CRA) relies on standards created by court cases, tax treaties and CRA communications to assist in residency determinations. In general, residency is determined by looking at one’s primary and secondary ties to a country or countries.
Primary ties include:
Location of home (rented or owned, as long as it is available for your use)
Location of spouse and dependents
Location of employment or business interests
Secondary ties include:
Location of bank and investment accounts
Location of memberships and associations
Location of vehicle registration
Voting registration location
What jurisdiction issued the driver’s licence
Location of health care
If it appears an individual could be resident in two countries (because the ties are split), the terms outlined in tax treaties are used as a ‘tiebreaker’ to determine residency.
Residency can affect all of your tax filings and exposure to compliance risk. We encourage you to contact us to discuss your specific situation.