U.S CITIZENS LIVING IN CANADA

The United States taxes individuals based on U.S citizenship as well as residency. Therefore, if you are a U.S citizen living in Canada you are required to file a U.S tax return and report your world-wide income regardless of where that income was earned. However, there are procedures which prevent double taxation.

One of the most common traps that a U.S citizen falls victim to is that the U.S considers income earned from a registered pension plan to be taxable as that income is earned. This means that income earned within a Canadian RRSP is U.S taxable on a annual basis. Their are new procedures and elections which can be made to defer this tax IF MADE ON A TIMELY BASIS. The IRS estimates that as many as 20,000 U.S citizens living in Canada may have a tax liability to the U.S and not even be aware of it !

 

Another common trap are capital gains where the capital gains exemptions is claimed resulting in no Canadian Income Tax. The U.S does not recognize the capital gains exemption and therefore this income is subject to U.S taxes. The IRS and CRA regularly exchange information to identify U.S citizens living in Canada and claiming the capital gains exemption.

 

Another area of concern for the IRS are U.S citizens living in Canada who earn dividend income. Dividends are taxed at a lower rate in Canada because of the dividend tax credit. In Canada an individual can earn over $30,000 of dividend income and not have any tax liability if this is the only source of income. Thus dividend income is used for many income spitting tax plans in Canada. However, this same dividend income will generate a U.S tax liability.  

WHAT CAN THE IRS DO ?
If the IRS discovers you first a number of actions could occur.

• - levy interest and penalties  
  
• - deny the foreign earned income exclusion credit                                                                  
  
• - seize U.S owned property for delinquent taxes
• - put a lien against your Old Age Security benefits                                                                                                
  
• seize your vehicle at the border as you enter the U.S for delinquent tax (drastic but is has happened )             
  
• - refuse to issue an US passport 

 

WHAT SHOULD I DO ?

I suggest that you take the initiative before the IRS discovers you and file a U.S Non-resident Tax Return for the last 3 yrs plus the current year. We will be happy to assist you with this matter. Call me at 1-866-mytaxes.