Taxes for the
US EXPATS
IN
CANADA 🇨🇦
TABLE OF CONTENTS:
- Introduction
- Do US Expats in Canada have to file their US Tax Returns?
- How is Canadian income taxed in the US?
- Can US Citizens in Canada get relief from Double Taxation?
- What is the filing due date for the Canadian Tax Return?
- What about reporting Foreign Bank Accounts and other Foreign Financial Interests in Canada?
Canada happens to be a popular destination for American expats given the proximity between the two countries. There were a good number of individuals who were actually commuting daily by crossing the borders on each side. The pandemic did seal the borders, however, there are still a large number of US expats living and working in Canada, second only to Mexico.
In this blog, we will discuss in detail the Tax filing obligations of US expats in Canada.
Do US Expats in Canada have to file their US Tax Return?
Yes, a US Citizen, Green Card Holder must file taxes for the current tax year to report all wages, interests, dividends, self-employment, rental income etc..on your U.S. Tax Return.
US Citizens and Green Card Holders are subject to Taxes on their WorldWide Income, irrespective of their residency. If your total US taxable income is above a certain threshold, depending on your filing status, or self-employed with income of over $400, you must file your tax return. If you would like to claim a refund on the withholding, because your income was less for the year or to claim a tax credit, you must file a tax return.
(The Table below can be used as an US Expat Tax Calculator for the Tax Year 2023)
| Filing Status | Age | Minimum Income requirement |
| Single | Under 65/65 and older | $13,850 and $15,700 |
| Married filing Joint | Under 65/65 and older | $27,700 and $29,550( both over 65) |
| Married filing separately | Any age | $5 |
| Head of Household | Under 65/65 and older | $20,800 and $22,650 |
| Qualifying widow with dependent child | Under 65/65 and older | $27,700 and $29,550( both over 65) |
| Self-employed | Any age | $400 |
If your Gross Income for the year is above the threshold mentioned in the table, you must file your US Tax Return.
How is CANADIAN INCOME TAXED FOR US EXPATS IN CANADA ?
US Expats have to report worldwide income from all sources. Canadian Income from T4(Employment), T5 (Investment) is all taxable on the US Tax Return.Â
The United States has a tax treaty with Canada. Any benefits given out from CPP (Canada Pension Plan), Quebec Pension Plan ( QPP) and Old Age Security (OAS) may not be subject to tax. It will be taxed in only one country. If you are a resident in the US, these will be taxed the same way as US social security. If you are a resident in Canada when you receive it, it will be taxed only in Canada, not in the US.
Another beneficiary of the tax-treaty was the treatment for deferring of the US Taxes on the undistributed earnings from a Canadian Registered Retirement Savings Plan (RRSP) or Canadian Registered Retirement Income Fund (RRIF) under Revenue Procedure 2014-55.
Not surprising, the revenue procedure does not affect any other reporting obligations that a beneficiary or annuitant of a Canadian retirement plan (including RRSPs and RRIFs) may have, including the requirement to file a Form 8938, Statement of Specified Foreign Financial Assets, and FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR).
However, the Treaty does not provide any relief from double taxation or current inclusion in income for other plans and accounts such as:
- Generally tax-exempt savings accounts such as Tax-Free Savings Accounts (TFSA) in CanadaÂ
Form 3520 & Form 3520-A may still be required to be filed. There is a lack of clarity on why TFSA is being treated as a Foreign Trust in the 1st place. The recent update through Rev. Proc. 2020-17 has brought about some much-needed change to reporting of Registered Education Savings Plan (RESP), or Registered Disability Savings Plan (RDSP). The new guidance exempts them from US annual Reporting. Under few conditions the Rev. Proc. 2020-17, could exempt the Form 3520 and Form 3520-A filing requirements for qualifying tax-favored foreign retirement trusts and qualifying tax-favored non-retirement savings trusts as well. Still have doubts? Connect with us.
CAN US Expats IN CANADA GET RELIEF FROM DOUBLE TAXATION?
For US Expats in Canada, you might be eligible for the Foreign earned income exclusion, Foreign Housing Exclusion (FEIE), or a Foreign Tax Credit (assuming taxes were paid/withheld abroad). For the 2023 Tax year, the Foreign earned income for exclusion is $120,000. In addition to this, you can claim foreign housing exclusion/deduction as well, which is subject to some threshold limit.
Form 2555 needs to be completed under the Bonafide Residence Test (BFR) or Physical Presence Test (PPT). This form is an election in itself, hence some tax planning is needed in advance to make the best use of it.
An Optimization calculation is needed in the year of departure on whether to claim FTC or FEIE.
What is the filing due date for THE Canadian Tax Return?
The due date for filing a Canadian tax return is April 30 of the following calendar year. Like the US, the Canadian tax year runs from January to December. Canada Taxes its resident/citizen on worldwide income like the US. Unlike the US, for non-residents (citizens) it taxes only on Canadian source income. If you are a new immigrant to Canada, you may have to paper file your 1st Tax return with the CRA.
WHAT ABOUT REPORTING OF FOREIGN BANK ACCOUNTS AND OTHER FOREIGN FINANCIAL INTERESTS IN CANADA?
If you do move to Canada and if your employer does deposit more than (USD) $10,000 into a Canadian Bank, you have to file FBAR or FinCen 114 with the Department of Treasury by the due date of your Tax Return. Similarly, if you have assets over a certain threshold, you have to file Fatca Form 8938. Reporting here isn’t only restricted to Foreign Bank Accounts. You may have to report foreign stocks, foreign pensions, Canadian RRIF, RRSPs, RESP, TFSA on their FBAR and Form 8938. Similarly, in Canada, US citizens must File Form T1135, if the value of their Foreign Property exceeds CAN $100,000. The penalties are severe in both these countries for Non-Compliance when it comes to reporting Foreign Assets.Â
Got Questions? Please let us know here.
DISCLAIMER: The above info should only be considered for the knowledge of US Tax. Every Taxpayer’s situation is unique, strongly advise you to consult a tax professional.
