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Income Tax Guide for US Expats Working in Canada

  To many Americans, Canada might appear to be a parallel universe: a land of courteous people who generally speak English yet do not hold American citizenship—a country that is both close and far away. Others remember Canada as the country that invaded the United States in 1812 and burned down the White House (despite the fact that Canada did not exist at the time, and the British bear sole responsibility for the attack on Washington, DC). However, approximately 800,000 US citizens call Canada home. Cities such as Toronto, Calgary, Vancouver, and Edmonton, as well as other parts of the country near the US border, have large numbers of US expats. Taxpayers in Canada must pay both federal and provincial (or territorial) taxes, much as citizens of the United States do to the IRS and state governments. The primary distinction is that most Canadian provinces (with the exception of Quebec) do not need the filing of a separate return; the federal government collects provincial. Because o...
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Tax Filing Essentials for US Citizens in Canada

 Media coverage of United States income tax reporting requirements—which apply to all US citizens living outside of the country—has surged recently in Canada. For US citizens living in Canada, these filing requirements could cause significant taxes, interest, and fines. Given Canada's strong geographical and economic ties to the United States, American citizens are not unusual to find living in Canada. A job move could cause some to visit Canada temporarily; others could be permanent residents. As a US citizen, you must file yearly US income taxes even if you live in Canada. Many of these filing rules also apply to permanent US residents (green card holders), who are typically recognized as US citizens for income tax purposes. In our alert, we identified US citizens and green card holders as "U.S. persons." This warning pertains to many US tax obligations that US citizens living in Canada should know about. All figures are US dollars unless otherwise stated.Filing US Income Taxes: Requirements

Citizenship and residence in the United States determine a person's income tax liability

Regardless of where you live or how long you have been away from the US, as a US citizen you must submit yearly US income tax returns. You have to document all of your worldwide income for US tax considerations. This has no bearing on your obligation as a resident of Canada to pay Canadian taxes and turn in a Canadian tax return. Two strategies, income exclusions and tax credits, help to reduce the likelihood of double taxation nonetheless. Based on your work and/or self-employment income, you might be qualified for a foreign earned income exclusion (up to $120,000 for the 2023 tax year and $126,500 for the 2024 tax year), if you are a US citizen living overseas. In addition, you can claim a foreign tax credit against your US tax load for Canadian taxes paid. Usually since Canadian tax rates are greater than US ones, the credit can be used to cover any US income tax obligations. Although the American and Canadian tax systems are similar, their methods of income recognition and deduction of expenses vary. You can thus still owe US income taxes even if you assert the abroad earned income exclusion and/or a foreign tax credit.

Depending on the type of income earned or the sought exclusions, the evaluation of actual

Canadian and US foreign tax credits may be challenging. Your BDO tax consultant can assist you to handle these challenges when getting ready your US and Canadian income tax returns. March 23, 2010 saw the passage by the United States government the Patient Protection and Affordable Care Act, sometimes known as Obamacare. The law charged unearned income a 3.8% net investment income tax (NIIT). Interest, dividends, capital gains, annuities, royalties, rentals, passive pass-through income makes up unearned income. Beginning on January 1, 2013, the NIIT affects everyone in the United States who makes more than particular statutory levels. Married couples filing jointly whose modified adjusted gross income (MAGI) comes beyond $250,000 are covered by the NIIT. Whereas for solo filers the MAGI is $200,000, for married couples filing separately it is $125,000. Should you be liable for the NIIT, you could have to pay taxes in the United States since the Internal Revenue Service (IRS) has said that foreign tax credits will not be accepted against this tax. Over years, these restrictions have stayed the same.The Foreign Account Tax Compliance Act (FATCA) was passed by the United States in March 2010 as part of its offshore projects, mandating non-US financial institutions to report accounts kept by US citizens to IRS. February 5, 2014 saw Canada and the United States sign an Intergovernmental Agreement (IGA). Under the IGA, Canadian banking institutions submit relevant information about US accounts to the Canada Revenue Agency (CRA), which subsequently distributes the material to the IRS per line with the Canada-US Income Tax Convention ("the Treaty"). Not applicable to registered accounts including RRSPs, RRIFs, RESPs, and TFSAs are these reporting requirements.

Particularly those living abroad and with significant assets in non-US accounts

FATCA aims to find non-compliant US citizens. The IRS is therefore probably going to get in touch with reported non-compliant US citizens to get tax returns and pay the relevant taxes, interest, and penalties. Under the Treaty, the IRS might ask the CRA to help it collect delinquent taxes from UScitizens living in Canada that it found to be owing during the past 10 years. The CRA has made clear, nonetheless, that this rule does not apply to the penalty collecting for FBAR information reporting. Moreover, regardless of whether they were also US citizens, the CRA has said it will not help in the collection of any debts owing to the IRS by those who were Canadian citizens at the time the debts were acquired. Non-compliant US citizens living in Canada have a range of options for keeping current on their US tax filing obligations. The IRS released the most current Streamlined Foreign Offshore Procedures (SFOP) for taxpayers living outside of the United States in July 2014.The processes call for reporting FBAR information for the past six years and submitting original or amended income tax returns for the past three years. Program authorized taxpayers are exempt from civil or criminal fines for late-filed information reporting forms as well as failure-to-file or failure-to-pay penalties. Unpaid taxes, however, will keep building interest.

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