Know your tax obligations as a U.S. citizen or permanent resident living in Canada.
Note: All amounts reported are in U.S. dollars unless stated otherwise
Given the close economic and geographical ties between Canada and U.S., it is not uncommon for U.S. citizens and permanent residents to live in Canada - be it for temporary employment transfer or residing on a permanent basis. In spite of living in Canada, these persons are obligated to file annual U.S. income tax return and adhere to various government reporting requirements.
U.S. tax filing requirements
As a U.S. citizen or permanent resident, you are required to file annual U.S. income tax return (reporting worldwide income from all sources) regardless of where you live. Likewise, you are still required to satisfy your Canadian tax obligations. Nonetheless, in order to mitigate the potential for double taxation you can make use of foreign earned income exclusion and foreign tax credit.
Filing deadlines
Although, U.S. tax return is required to be filed by April 15 of the following year, an automatic extension is available up to June 15 provided you were residing outside the U.S. on April 15. Keep in mind any amounts owing to the IRS are still due by April 15.
U.S. foreign reporting requirements
In addition to being subject to U.S. income tax, U.S. citizens and permanent residents are required to comply with various financial reporting as discussed below.
Report of Foreign Bank and Financial Accounts (FBAR) - File FinCEN form 114 (Report of Foreign Bank and Financial Accounts - FBAR) if you have an interest in financial account(s) in a foreign country and the accounts’ aggregate value exceeds $10,000.
Foreign financial asset reporting - File Form 8938 (Statement of Specified Foreign Financial Assets) if you have an interest in specified certain financial assets with a total value exceeding the following thresholds:
Individuals: $200,000 at the end of the year, or $300,000 at any time during the year.
Taxpayers filing a joint return: $400,000 at the end of the year, or $600,000 during the year.
U.S. Social Security
If you receive U.S. Social Security payments 85% of the amount has to be included on your Canadian income tax return. However, these payments are not subject to tax in the U.S., as you can claim the amount received is treaty-exempt from U.S. tax.
For Canadian residents (and their eligible surviving spouses or common-law partners) who have been in receipt of U.S. Social Security benefits since before January 1, 1996 the inclusion rate is 50%.
For professional advice contact Alpha Accountzy, Accounting & Tax Solutions.
