U.S. Personal Taxes

You have U.S. filing requirements if you are a Canadian citizen who:

• Works part of the year in the U.S.; or

• Run a business in the U.S.; or

• Has a rental property in the U.S.

Our team can answer your filing requirement questions and prepare your returns as needed.

Over the last few years, many people who have resided in Canada for years have come to a realization that their ties to the U.S. may require them to file a U.S. tax return.

The United States is different from just about any other country in the world in that it requires U.S. citizens, no matter where they live in the world, to file an annual income tax return. Canada, for example, taxes based upon “residency” (where you live) – your citizenship does not matter.

Starting in 2010, and continuing since then, the U.S. has stepped up efforts to ensure that all U.S. citizens are declaring all of their worldwide income. The most recent effort is the Foreign Account Tax Compliance Act (FATCA) regulations. FATCA is the law that was introduced to force banks and countries around the world to report accounts held by U.S. citizens.

The implication of this is that for many people it is not if the IRS will eventually locate you, it is only a matter of when. This means that for many people there is now urgency to filing that did not exist prior to 2014.

For many individuals this can be a very overwhelming process. We urge anyone who is considering what to do with their U.S. filing obligations seek the help of one of our U.S. tax specialists.

Do you have friends and family in the U.S. that you regularly visit? In a recent IRS report from September 2014, it was identified that the IRS needs to do more to enforce tax filing policies. One of the possibilities discussed is the concept of stopping people at the border if they have not filed. This is referred to as a “Customs Hold.”

The US will now start to withhold passports for delinquent tax filers. The discussion of the regulations suggestion that you would owe more than $50,000 US owing in taxes. While this may sound like a large number, it is surprisingly easy to hit that. The reason an ordinary person may find out that they are over this amount is that the minimum fine for a FinCEN 114 failure to file penalty starts at $10,000 per year.

The first question that needs to be answered is: “are you an American citizen?”

If you hold, or have held, a U.S. passport, you are likely an American citizen.

Citizenship laws are sometimes a complex maze, but generally speaking if you were born in the U.S. you are an American citizen. If one or more of your parents was born in the U.S., and you were born outside of the U.S., you may be an American citizen. The actual determination will depend upon how long your parent(s) were in the U.S. after turning age 18.

Many people who left the U.S. prior to the 1980’s and became a Canadian citizen at that time automatically lost their U.S. citizenship. But during the latter part of 1980’s, laws were changed and many people who had previously lost their citizenship found that they were now dual citizens.

If you are not certain, then you should contact a U.S. consulate to discuss your particular situation. This is the first step you need to take before filing any U.S. returns.

As to how far back you have to go when filing, this will be based upon which program you may fit under for filing. The U.S. has a process designed to allow delinquent taxpayers to file returns, Foreign Bank Account Reports (FBARs), and any other normally required forms.

The U.S. will ask “did you willfully avoid filing my tax returns?”

If you are able to answer “no” to the question, then you will likely qualify for the Streamlined Foreign Offshore Procedures. The benefit of this is that the penalties for late filing or failure to file penalties will be waived. The IRS will reserve the right to review your return and whether or not you qualify for this program.

You will have to file the following:

• The last three years of U.S. Tax Returns, along with any required forms or reports.

• The last six years of Foreign Bank Account Reports (FinCEN 114)

• A certification that you did not willfully avoid filing your U.S. returns

A common question, and a valid concern, is will you have to pay taxes twice? Many people think it will be once to Canada and another time to the U.S.

The normal answer is no. Canada and the U.S. have a tax treaty that provides for certain types of tax relief. For example, that you only pay taxes on social security, Old Age Supplement, and Canada Pension in the country where you live.

In addition to the tax treaty, you are able to claim “foreign tax credits” for taxes paid in Canada.

The net result is that for many individuals, they will not have to pay U.S. taxes.