Tax Changes for Americans Living in Canada

Currently there is an estimated one million U.S. Citizens living in Canada, for them; there has been a number of tax-related developments they should be paying attention to.

For one, Americans must file U.S. tax returns every year reporting their worldwide income.  In addition; if they own more than $10,000 of foreign assets they must file the Foreign Bank Account Reporting (FBAR) form.  This includes Canadian RRSPs, TFSAs, RESPs and non-registered accounts.

In January, The Offshore Voluntary Disclosure Program was announced; it obliges non-resident Americans to file eight years of tax returns, eight years of FBAR, and all kinds of other returns. 

“Obviously not all Americans living in Canada have been compliant with this for the last four years,” says Jamie Golombek of CIBC Private Wealth Management.  However, the U.S. government has launched some new programs to help people get started.

In September the IRS released its ‘New Streamlined Filing Compliance Procedures for Non-Resident, Non-Filer U.S. Taxpayers’; meant to encourage those who have not being filing their U.S. returns to get on board and come clean.

The new system is for ‘Low-risk tax payers’; these are non-resident U.S. tax payers who have lived outside the U.S. and have not filed tax returns since January 1, 2009.  They also owe less than $1500 of U.S. tax per year.  “If this applies to you, you have to file three years of returns, six years of FBARs, pay any related taxes and interest – and the IRS says ‘no penalties or follow-up actions” (will be taken) says Golombek.

There will always be those who will ignore the new rules under the belief the IRS will never find out.  This would be a mistake, as these people will now have to deal with the U.S. Foreign Account Tax and Compliance Act, or FATCA.

Starting in 2014, FATCA obligates Canadian financial institutions to disclose information about U.S. persons directly to the IRS; and will impose severe penalties for noncompliance.

FATCA, which was formed as a direct result of the U.S. revamping their withholding tax code, proposes a 30% withholding tax on certain payments made to foreign financial institutions and non-financial foreign entities that refuse to identify U.S. account holders and investors.

Starting next year Golombek believes Canadian financial institutions will probably start providing the U.S. government with information on Canadian accounts held by U.S. persons.

Penalties can be as high as 27.5% of the highest balance of foreign accounts.  So if you or someone you know is an American living in Canada; and you haven’t filed your U.S. returns, it is time to come clean.   Talk to your accountant, or if you don’t have one; talk to me and I will point you in the right direction.   Avoid the penalties, it’s not worth it.

Have a great weekend,

Tracey

 

Source:  Jamie Golombek, Renaissance Investments Live and Interactive and Vikram Barhat, Advisor.ca article published Nov. 1, 2012.