Cross Border Tax Issues for Americans Living In Canada

 

Americans have been moving to Canada like never before, especially in 2020. This is really important that as a U.S. Citizen you familiarize yourself with tax obligations.

The U.S. taxes its citizens and permanent residents on world-wide income no matter wherever they reside. Canada taxes its residents (not citizens) on their worldwide income. Therefore, Americans in Canada must file both U.S. and Canadian income tax returns.

Filing income tax returns in both countries result in some double taxation issues. Fortunately, the U.S. Canada tax treaty provides relief from the double taxation. As the tax rates are higher in Canada it results in the lower to no taxes owing in the U.S.

This is important to know that U.S. citizens are subject to two important foreign assets reporting regime: FATCA and FBAR. If you meet certain thresholds you must file FINCEN 114 and 8938 to ensure compliance. If you fail, penalties are outrageously steep.

TFSAs and RESPs are not taxable in Canada however they are in U.S. you must prepare and file 3520A and 3520 along with your income tax return.

If you are an American and own the shares of Canadian corporations, you might have to deal with additional tax issues related to GILTI. This is of extreme importance that you familiarize yourself with the Controlled foreign corporations and passive foreign investment company rules.

A quick primer on the cross-border tax issues for Americans living in Canada can be found in this post written by Maroof H. Sabri.

There have been cases where Americans did not file income tax returns for past many years. Not only returns, other important forms such as FINCEN 114. There are penalties ticking for that non-compliance. If IRS has not contacted you before, you may have the option to file these returns by taking advantage of Streamlined Procedures.

Maroof HS CPA Professional Corporation is a Toronto based CPA firm providing cross-border tax services for U.S. and Canada. The firm is managed by a licensed U.S. CPA and a Canadian Chartered Accountant. Trusted and loved by many, you can take advantage of boutique income tax services for both U.S. and Canada at one-stop!

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