We help a lot of U.S. expats with their tax returns each year. We also help many expats with questions related to moving to Canada from the U.S. Outlined below are some of the most common questions we get from U.S. Citizens currently living in, or wanting to move to Canada:
GENERAL EXPAT TAX QUESTIONS
I’m a U.S. Citizen living in Canada. Do I still have to file U.S. taxes even though I’m out of the U.S.?
Yes, as a U.S. Citizen you are required to file 1040 income tax returns (including all related forms and disclosures) regardless of where you live in the world. In most cases you will also be required to file foreign bank account reporting forms e.g. form 114 FBAR
Will I have to pay both Canadian and U.S. Tax?
No, in most cases U.S. taxpayers in Canada will not pay tax twice. The Canada-U.S. tax treaty alleviates most of the common double taxation issues.
FOREIGN BANK ACCOUNT REPORTING
What are FBARs?
FBAR stands for Foreign Bank Account Reporting. All U.S. taxpayers that have more than $10,000 in highest aggregate balance related to financial accounts must file FBARs. The old FBAR form TDF 90.22.1 was replaced a few years ago by Form 114, a fillable PDF that is completed electronically and submitted to the treasury department.
I none of my bank or investment accounts exceeded $10,000 am I exempt from filing FBARs?
Not necessarily. The filing threshold for filing FBARs is not whether any of your accounts exceeded $10,000, but rather did the total of the highest balance in the year of all the accounts exceed $10,000. For example, if the highest balance in each of your 3 bank accounts was $2,000, $4,000 and $4,000 respectively you would need to file FBARs. None of the individual accounts exceeded $10,000, but the total of all 3 are over the $10,000 filing threshold.
I have joint bank accounts with my spouse, do those need to be reported on an FBAR?
Yes, accounts held jointly with your spouse will need to be reported on your FBARs under part 2.
If I transfer money from one account to another in the same year do I need to report both highest balances on the FBARs for both accounts?
Yes, in some cases you’ll have to report 2 accounts that represent the same amount of capital. This will be the case when money is transferred from one account to another during the year.
Do I need to pay tax on my U.S. Social Security in Canada?
Unlike many types of income, social security is only taxable in the country of residence. Therefore, if you’re a U.S. Citizen living in Canada you’ll be taxed on your social security in Canada (at 50% or 85%) only. You will however need to file appropriate elections in the U.S. to ensure the income is properly excluded.
I heard that if I live in Canada I could exempt all of my income with form 2555 and not pay any U.S. Tax?
It’s true that the U.S. allows taxpayers living abroad to exclude a certain amount of earned income from their U.S. tax return via form 2555 ($99,200 for 2014). This exclusion does not apply to other sources of income such as interest, dividends, rents, pensions, etc. If taxpayers choose to use form 2555 to exempt income they may also choose to use form 1116 to reduce any tax resulting from income in excess of the 2555 exemption.
ESTATE TAX FOR EXPATS
I’m a U.S. Citizen living in Canada, do I have to worry about U.S. Estate tax?
All U.S. Citizens regardless of whether they live in the U.S. are subject to U.S. Estate tax. The current estate tax limit is $5.43 Million. If you’re expected estate will be less than this limit, and assuming the limit does not change in the future you will not be subject to U.S. Estate tax. For those expecting to be over teh $5.43 Million estate tax exemption proper tax planning is necessary to ensure estate tax is properly minimized. Note that the estate tax rules and limitations are different for non-residents of the U.S. that own U.S. property.