A U.S. citizen resident in Canada must deal with both the Canadian and U.S. income tax systems as the U.S. is one of the few countries in the world that taxes its citizens on their worldwide income, whether or not they are physically in the United States.
On the other hand, Canadian residents who are not U.S. citizens with investment or property in the U.S. may subject to unexpected tax filings obligations and U.S. income tax on investment income from such investments. A Canadian resident who dies owning U.S. investments may also subject to U.S. estate taxes which is part of a complex tax system that has no equivalent in Canada.
Non-compliance with U.S. tax filing obligations may result in civil penalties (e.g. 50% of the highest bank balance during the year), fraud penalties, and criminal penalties (e.g. imprisonment up to 5 years) to be imposed. In addition, improper estate tax planning could result in an unexpected large tax bill upon death as the U.S. estate tax rate is as high as 40% (subject to change every year).
Numerous tax filing requirements for U.S. citizens living in Canada can be intimidating and the failure to comply could expose taxpayers to a substantial amount of interest and penalties. Our U.S. tax team has the qualification and many years of experience in helping U.S. citizens sort out their U.S. tax matters including filing delinquent tax returns, reduce or eliminate penalties for missing U.S. filing requirements. We also have the expertise in providing strategic estate tax planning to minimize or eliminate your exposure to U.S. estate tax.
The interaction between the U.S. and Canadian tax system can be highly complex. Please consult with our U.S. tax team if you are contemplating on any cross-border transactions.
U.S. Citizens in Canada
United States citizens (or green card holders) living in Canada generally have both Canadian and U.S. tax filing obligations. However, many U.S. citizens living in Canada were not aware of their U.S. tax filing obligations. It is critical to take immediate action and fulfill all the U.S. tax filing obligations as the Internal Revenue Agency can now have access to details of all Canadian bank accounts held by U.S. citizens due to the introduction of Foreign Account Tax Compliance Act (“FATCA”) and the recent Intergovernmental Agreement between Canada and the U.S. The penalties of not filing a correct U.S. tax return and the required informational returns can be substantial.
We are specialized in providing the following tax services for U.S. citizen living in Canada:
- Preparation of U.S. federal tax returns (Form 1040), international informational returns (e.g. Forms 3520, 3520A, 5471, 5472 and 8621 and Foreign Bank and Financial Account Report (FBAR – FinCEN Form 114);
- Preparation of U.S. state tax returns;
- Filing delinquent and amended tax returns along with required international informational return and FBAR – FinCEN Form 114 under the streamlined foreign offshore procedures to avoid or reduce penalties;
- Tax planning to avoid double taxation
United States taxes may also apply to Canadian residents who are not U.S. citizens. A non- U.S. citizen may be subject to U.S. tax on income generated on U.S. investments (e.g. U.S. real estate) and on sale of such investments. A non U.S. citizen may also be subject to the U.S. estate tax on the ownership on such U.S. investments.
We are skilled in providing the following tax services for non-U.S. citizens:
- Preparation of non-resident alien individual tax return (Form 1040 NR) for U.S. rental income, capital gains from U.S. rental property, salary and business income earned in the U.S.;
- Treaty based disclosure based report (e.g. Form 8833 – Disclosure of Treaty Based Position – disclosing the basis for exclusion of income, and Form 8840 – Closer Connection Exemption – to prevent taxation of world income in the United States by virtue of presence in the U.S. – through the establishment of a closer connection to Canada); and
- Evaluation of U.S. estate tax issues for Canadian residents holding U.S. investments (including U.S. real estate), and related tax planning to minimize or eliminate exposure to U.S. estate taxation
Other U.S. Tax Services
Other U.S. tax services that we have expertise at including the following:
- Preparation of U.S. partnership returns (form 1065) and partner statements (form K1); and
- Preparation of payroll remittances and summary reporting (forms W2)