U.S. Citizens Residing in Canada Still Need to File U.S. Tax Returns and to Report Their Worldwide Income
Key Takeaways
U.S. citizens living in Canada must comply with IRS tax obligations, regardless of their residency status or where their income is earned
This includes filing annual U.S. tax returns and reporting foreign financial accounts if certain thresholds are met. Non-compliance can result in severe penalties or even criminal charges.
The introduction of FATCA has significantly increased information sharing between the IRS and CRA
As a result, dual citizens and Canadian residents with U.S. connections must understand their obligations to report foreign accounts, including under FBAR and FATCA, and seek professional advice to manage exposure.
U.S. Tax IQ provides strategic support for Americans in Canada to achieve full U.S. tax compliance
Their team of cross-border tax professionals helps clients navigate filing obligations, avoid double taxation through treaty relief and foreign tax credits, and resolve non-compliance efficiently through available IRS programs.
Over a million United States citizens reside in Canada, and although they live here, they are still subjected to paying taxes as mandated by the Internal Revenue Service. Whatever income a US citizen earns in the world, she/he still has to file her/his annual taxes and pay at times hefty penalties if they don’t comply with the applicable US tax law.
The same is also true for Canadian residents, who are subject to Canadian taxation regardless of where their income is earned in the world. To assist in mitigating double taxation, the United States provides a foreign tax credit. In addition, the Canada-US income tax treaty the possibility of double taxation is greatly reduced. US citizens who live in Canada are subject to the complexity of international tax rules of both countries, as well as further complications arising from the application of the Canada-US income tax treaty.
A significant number of American citizens are just now finding out about the requirements to file and report a tax return in the United States, as well as to disclose foreign assets and bank accounts on Foreign Bank Account Reporting (FBAR), despite their income having been earned in another country and despite their compliance with that country’s tax filing and reporting obligations. Due to the enactment and the implementation of the US Foreign Account Tax Compliance Act (FATCA), people who have not been or currently are not in compliance with US tax law need to carefully review their options for becoming compliant. A difference between being in compliance and disregarding (or ignoring) the applicable tax filing and disclosure requirements may be the difference between being criminally charged or penalized with hefty monetary penalties, on the one hand, and going to bed without stressing out, on the other hand.
The implantation of FATCA have led to an enormous enhancements in information exchange between the US Internal Revenue Service (IRS) and Canada Revenue Agency (CRA). Therefore, dual citizens and Canadian residents who have a bank account, investments, or assets in Canada must understand that they may need to report those accounts and assets to the US Department of Treasury and the IRS, provided certain reporting thresholds are met. Failure to do so may lead to serious consequences, including potential criminal prosecution, if IRS discovers the non-compliance. Similar disclosure requirements, although not as harshly punishable, exist for Canadians with foreign, including US, bank accounts and assets.
We at US Tax IQ have professional advisors, including US tax accountants and US tax lawyers with substantial experience that can assist you in becoming tax-compliant. We help US citizens who become residents of Canada or who otherwise have Canadian-source income and / or work in Canada, to stay compliant with the US tax law. Our proactive approach helps our clients avoid expensive controversy in the future or be prepared for any possible outcome. We often advise our US clientele about reporting and routine filing requirements along with helping delinquent US taxpayers to catch-up and become compliant.
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We understand how cumbersome and costly becoming compliant and obtaining required documentation can be. We also understand the legal and financial consequences of not being in compliance. Our team of experienced US tax advisors will work hard to help you solve your tax compliance issues quickly and efficiently.
DISCLAIMER: Please note that the information contained in this article is general in nature, is current only as of the date of posting the respective information on the website, and does not (nor is intended to) provide legal or tax advice or an opinion on any matter or issue discussed. You should consult your qualified U.S. tax advisor for any advice on any matters or issues discussed in this article.