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? 
While it’s not a great feeling to discover you’re delinquent in your U.S. tax filing obligations, the IRS has introduced a programs that encourages U.S. citizens to come forward and correct this issue. 
The first is the Streamlined Disclosure Program, which requires you to back-file your delinquent U.S. tax returns for the past three years and your Report of Foreign Bank and Financial Accounts (FBAR) statements for the past six years, and to respond to some questions regarding your non-filing. Being accepted under this program could save you tens of thousands of dollars in potential penalties for failure to file certain forms. There are several tests you must meet to qualify for this program and we encourage you to contact us on this matter. 

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: 
As you will be in Canada for only five months, you will likely not be considered a tax resident of Canada, which means you may not be subject to a final tax in Canada on your Canadian source income (i.e., the employment income related to the services performed in Canada). You will, however, be required to file a Canadian T1 income tax return no later than April 30 to report your Canadian source employment income, regardless of the ultimate tax liability. 
If you are, in fact, subject to Canadian tax on your earnings, you will be eligible to claim a foreign tax credit (for Canadian tax paid) on your U.S. federal tax return, which will offset some (or all) of the U.S. tax otherwise payable on the same income (thereby reducing the risk of double taxation). Depending on the state in which you live and pay tax, there may be a similar foreign tax credit mechanism that will allow for a reduction of your state income tax. 
If you were issued a work permit to enter Canada, you will likely need to apply for a Canadian Social Insurance Number (SIN), which is a requirement of everyone who is working in Canada. 

Your employer’s payroll tax obligations: 
If you are working in Canada, your employer (Canadian or non-Canadian) has payroll withholding obligations in Canada. Whether you remain on the U.S. payroll or not, your employer will have a requirement to withhold Canadian income tax, Canada Pension Plan (CPP) and other payroll taxes (such as the Ontario Employer Health Tax) and remit these to the Canada Revenue Agency (CRA) on a periodic basis, just as would be done for employees resident in Canada. Your employer may also subject to penalties for failing to withhold, remit and report on your employment income. 
Even if you are not subject to tax in Canada, your employer still has a responsibility to withhold and remit unless a tax waiver is obtained from CRA. Employers are also required to withhold and remit (CPP) premiums unless exempted under Social Security ‘totalization agreements’ with your country of residence. Regardless of whether or not a waiver is obtained, your employer would be required to issue to you Form T4, Statement of Remuneration Paid (the equivalent of a W2,), no later than February 28 the following calendar year. 

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? 
Under U.S. tax law, most Canadian (or non-U.S. listed) mutual funds and exchange-traded funds (ETFs) are considered to be passive foreign investment corporations (PFICs). Because a Mutual Fund or ETF has interests in US Securities or is a "US Indexed" fund, does not make it a US Corporation and exempt from PFIC reporting. If you own these funds, you may be required to file Form 8621 with your annual U.S. tax return. In addition, your interest in these funds should be disclosed on the annual Report of Foreign Bank and Financial Accounts (FBAR) form. 

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): 
1. At least 75 percent of its gross income is passive income (e.g., interest, dividends, rents) 
2. At least 50 percent of its assets are passive assets (e.g., cash, non-operating assets, investments) 
Any income you earn from a PFIC investment is recognized as income only when funds are distributed to U.S. shareholders. At that point, a calculation is done to determine if the distribution is considered ‘excess’—meaning taxable at the highest ordinary tax rate in effect. If not excess, PFIC distributions are taxed at ordinary U.S. tax rates (i.e., not at qualified dividend rates), even if for Canadian tax purposes the distribution is considered a dividend. 

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. 
Most tax specialists consider the additional reporting for mutual funds or ETFs held within an RRSP to be unnecessary for U.S. tax purposes (as the U.S. tax on these funds is deferred until the funds are withdrawn from the RRSP). As such, the negative tax implications would not apply. 
We have counselled many individuals on the various options to exit or simplify their holdings in Canadian Mutual funds or ETFs.

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) 
FinCen Report 114, Report of Foreign Bank and Financial Accounts (previously Form TDF 90-22.1, this form is required because the balance is greater than $10,000 in the year) 
Additionally, as California does not recognize the Canada–U.S. Income Tax Treaty, you will need to disclose and pay tax on all income and gains earned within the RRSP annually on your California tax return. 

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.