Are You a U.S. Citizen Living in Canada?

December 11, 2018

If you answered yes to the above question, there are a few things you should know about how the U.S. taxes individuals.

In addition to residency, the U.S. taxes individuals based on citizenship. It is one of only two countries in the world to do this.

As a U.S. citizen, your obligation to file a U.S. tax return continues for as long as you maintain your U.S. citizenship. Generally, if your world-wide income from all sources is greater than the standard deduction, you should file a U.S. personal income tax return, even if you no longer reside in the U.S.

The U.S. has many information forms that are required to be filed. Some forms, such as the Statement of Specified Foreign Financial Assets, Form 8938, are part of the U.S. personal income tax return and cannot be filed separately from the tax return. As such, you may have a U.S. personal income tax filing requirement even if your world-wide income is less than the standard deduction. 

A common form that must be filed annually by U.S. citizens living outside the U.S. is the Foreign Bank and Financial Account Reporting Form, FinCEN 114. This form must be filed by a U.S. citizen who has foreign (non-U.S.) bank accounts whose aggregate value exceeds $10,000 USD at any time during the tax year. The accounts that are required to be reported include Canadian Registered Retirement Saving Plans and Registered Retirement Income Funds. This form is not part of the U.S. individual income tax return and must be electronically filed.

The United States does not recognize Canadian Tax-Free Savings Accounts and Registered Education Savings Plans as tax deferred plans. Income earned within these accounts by a U.S. citizen is taxable income from a U.S. tax perspective. Also, as these accounts are often set up with Canadian financial institutions as a trust arrangement, they are considered foreign trusts from a U.S. tax perspective. In general, U.S. citizens who contribute to, are the beneficial owner of, or receive distributions from a foreign (non-U.S.) trust may have additional annual information filing requirements such as The Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts, Form 3520 and the Annual Information Return of Foreign Trust With a U.S. Owner, From 3520-A.      

The U.S. generally imposes a minimum, non-willful compliance penalty of $10,000 per year, per form, for failure to file many information forms, including the above-mentioned Forms 8938, 3520, 3520-A and FinCEN 114. Penalties for willful non-compliance are much more severe and could include criminal penalties. 

If you are U.S. citizen living in Canada and were not aware of your ongoing obligation to file a U.S. tax return or other information forms, there is a program that you may be able to take advantage of to become compliant and avoid the past failure to file penalties. Under the Streamlined Filing Compliance Procedures, a non-compliant U.S. citizen may be able to file the last 3 years of U.S. Individual Income tax returns, 6 years of Foreign Bank and Financial Account Reporting Forms, along with any other information forms that were required to be filed. A certification form indicating that you are eligible for the program and a statement of the facts explaining your failure to report all income, pay all tax and submit all required information forms must also be filed.

If you are a U.S. citizen living in Canada and require U.S. personal income tax services, including assistance in preparing a submission under the Streamlined Filing Compliance Procedures contact our Cross-Border Tax Services Manager, Jay P. Trudell, CPA, CA, CPA (Illinois) at 519-539-4717 extension 205 or email jtrudell@bng-cpa.ca.

 

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