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US Citizen in Canada Taxation


As Torontonians, it is pretty common that most of us know at least one individual who is a US Citizen.  It is very common for US Citizens to move to Canada for business or employment purposes.  Most of the time US Citizens are not aware of the taxation system in Canada and it can become overwhelming.  As such, we want to go over some of the requirements and filings needed for a US Citizen living and working in Canada.

US Tax Filings

US Citizens legally have to file a US Individual tax return regardless of whether they live in the USA or not.  Therefore, an individual who has their US citizenship living in Canada would need to file a US tax return as well.  As such, form 1040, U.S. Individual Income Tax Return will need to be prepared while living in Canada.  Generally, the due date to file your U.S. tax return for a particular year is April 15th of the following year (can be extended in the event of Holidays).

Additional information can be found via link below:

https://www.irs.gov/pub/irs-pdf/i1040gi.pdf

Report of Foreign Bank and Financial Accounts (FBAR)

As a US citizen living abroad, you will most likely have Canadian financial interest in bank accounts, mutual funds, RRSPs, TFSAs, etc.   Therefore, you will need to report these interests in accordance with the Bank Secrecy Act using the FBAR form if the total of your non US financial accounts exceed $10,000 at any time during the taxation year.  This reporting in essence has the same purpose as the Canadian T1135 reporting on foreign investments (mechanics being different).  The due date for this reporting is also April 15th of the following taxation year.  Not complying with this reporting requirement can lead to significant penalties, therefore, you would want to ensure you report these.

Additional information can be found via link below:

https://www.irs.gov/businesses/small-businesses-self-employed/report-of-foreign-bank-and-financial-accounts-fbar

Canadian Tax Filings

A Canadian Tax return will need to be filed in Canada based on the residence status (i.e., whether the US citizen has moved to Canada and living in Canada with their family).  If the US citizen had moved entirely to Canada with their family, possessions, purchased and residing in a home in Canada, they will most likely be considered a Canadian resident for tax purposes.  As such, their worldwide income will be taxed in Canada. Also, a similar foreign reporting T1135 form may need to be filed if they have US accounts and investments over $100,000CDN.

Double Taxation?

Based on the above, it may appear that the US citizen would be subject to double taxation in Canada and USA.  However, fortunately there are foreign tax credits available in each country.  How this will work for a US citizen living in Canada would be for them to first file their Canadian T1 Income tax return and pay your Canadian taxes if applicable.  Then you would prepare form 1116, Foreign Tax Credit to IRS which will provide you with a credit for the taxes paid in Canada.  In most instances, since Canadian tax rates are much higher than the US, it would result in no taxes in the USA.

Additional information can be found via link below:

https://www.irs.gov/pub/irs-pdf/i1116.pdf

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