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Tax Requirements for Canada-US Dual Citizens

There are many Canadian citizens (and residents) that also hold U.S. citizenship. They may have been born a U.S. citizen or became one later in life. Some may have only lived in the U.S. briefly as infants while others recently moved to Canada. Others may earn income in of from the U.S. while many have no financial connections to there at all. But one thing that all of these Canada-U.S. dual citizens have in common is that they all have to file U.S. tax returns. This may or may not result in taxes being payable to the IRS (although the Canada-US tax treaty and some other rules eliminate tax liability for many U.S. citizens, NOT filing liability)

The U.S. is one of only two countries in the world that imposes comprehensive world-wide taxation on the basis of citizenship only (the other is Eritrea). In fact, the U.S. taxes its non-resident citizens using the same marginal tax rates as resident citizens (though it does allow the exclusion of some foreign income from US taxation and may allow tax credits for income taxes paid to other countries). The Internal Revenue Service requires non-resident citizens to file a number of forms that discloses their foreign income and assets, and this can become exceedingly burdensome when U.S. citizenship is the only connection to the person has to the U.S.. This issue affects an estimated one million Canada-US dual citizens.

This requirement has existed for as long as the U.S. has had income taxation. However, since July 1, 2014, the Canada Revenue Agency started sharing information with the IRS. The CRA will send financial information it has on U.S. citizens living in Canada with the IRS and this information will come from Canadian Banks (this is the dreaded FATCA compliance you’ve probably heard about). What the banks have and don’t have to report about the holdings of U.S. citizens may provide a false sense of relief. Canadian banks don’t have to report on federally registered accounts (RRSPs, RESPs, TFSAs), but where the accounts hold more than $50,000.00 you (as the dual-citizen account holder) will have to report this to the IRS and may have to pay tax. The onus of reporting, therefore, is shifted onto the individual.

If you have never filed a U.S. return but are a U.S. citizen, you will have to catch up on your U.S. filings. This can be very costly, though not as costly as the penalties the IRA imposes for not filing (up to $10,000 per form not filed). You may be eligible for streamlined tax filing procedures the IRA offers which may reduce the filing to 3 years of tax returns and 6 years of FBAR forms.

Faris CPA has helped many of its clients come into compliance with their U.S. filing requirements. Talk to Faris CPA today and get peace of mind.

Testimonial

Sam Faris reduced the significant unreported income based on net worth audit to be nil. Sam’s approach in fighting these types of complex audits is unique and sophisticated. He found countless mistakes made by the auditor which were rectified when Sam appealed the audit decision. Instead of owing significant amount of taxes, Sam reduced it to zero. I highly recommend to hire Sam for this type of audits and any CRA problem.”

E.M., Ottawa