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Question

Hello,

I’m a Canadian citizen resident living in Vancouver BC and I recently found out that I’m also a  US citizen (born in the US and left when I was really young). Apparently I’m required to file US tax returns for 3 years and FBARs for the last 6 years. I’ve been doing some research on my options and it seems like the new streamlined tax filing program will be a good fit for me.

I’m hoping you can help me with some of my questions. Here’s my situation:

  • Earned self employment income, small amounts of investment income and small portfolio gains (losses in 2010) over the last 3 years. Income averages at $120,000 net per year.
  • Also have a small holding company that owns a rental property in Victoria BC. The company is running a net loss over the last 3 years.
  • I also have a $10,000 TFSA, one $50,000 RRSP and 2 RESPs for my 2 kids.
  • I’m married to a Canadian citizen with no US ties
  • Other than my small portfolio (outside of my registered accounts) I don’t have any significant assets other than a joint chequing account.

My questions are as follows:

  1.  Based on the information provided above will I qualify for the streamlined filing program?
  2. I’m afraid I’ll also have to file 3520 forms for the RESP, is this true?
  3. Does my wife have to file any US returns?
  4. Are there any other forms that I need to worry about?

Thanks for your help and please let me know if you need any additional information.

XXXXXX

Answer

Hi XXXX

It would probably be best if we discussed your situation over the phone so I can best outline your US tax requirements, however let me try and outline some of your US tax issues with the information you’ve provided below.

You are correct, as a citizen of the US you are required to file US tax returns and related forms regardless of whether you live in the US or whether you have US source income or not.

To answer your questions:

Based on the information provided above will I qualify for the streamlined filing program?

Please refer to the article we wrote in September with respect to the streamlined tax filing qualifications. Generally speaking if you don’t owe more than $1,500 in any particular year, you haven’t resided in the US since January 1, 2009 and you have a valid US tax ID you “should” be eligible. Your eligibility however may depend on additional factors, hence the reason why a proper consultation would be appropriate.

I’m afraid I’ll also have to file 3520 forms for the RESP, is this true?

Yes, you are correct. The TFSA and RESP are considered foreign trusts and as a result, you are required to file forms 3520 and 3520-A. You’ll have to report the earnings incurred within the plan and tax those earnings in each respective year on your 1040 income tax return. This may result in extra US taxes owing.

Does my wife have to file any US returns?

If you wife is not a US citizen, US greencard holder or resident of the US she should not have to file US tax returns. She may however need to file US tax returns if she earned any US source income.

Are there any other forms that I need to worry about?

Based on the information you provided above there may be additional forms required to be filed with the US tax return. As you mentioned above you’ll need to file FBAR forms (TDF 90-22.1) for any year where your financial accounts exceed $10,000 in aggregate.

You may need to file form 8938 for 2011 if your financial accounts reached $300,000 throughout the year or were more than $200,000 at the end of the year (this is assuming you are filing you US tax return as married filing jointly).

You mentioned below that you have a holding company. If this is an incorporated private company that you own more than 10% of the value or votes of the corporation you’ll have to file form 5471 along with your 1040 income tax returns.

You’ll also need forms 8891 for your RRSPs in order to ensure you properly defer taxation of earnings within the RRSP.

As previously mentioned a proper review of your tax situation is beyond the scope of this outline and a proper consultation should occur in order to gauge your actual US filing requirements.

If you would like some assistance in preparing your late US tax filings please call me at 250-381-2400 and I would be happy to discuss those requirements in more depth.

Regards

Phil Hogan, CA

Phil Hogan

Phil Hogan is a Canadian and US CPA working with clients throughout Canada and the US. Phil advises on cross border tax and financial planning matters. Phil can be reached at phil@hutcheson.ca or via telephone at 250-661-9417. You can also read more about Phil at Hutcheson.ca/phil.
Phil Hogan

3 Responses to “US Citizen Living in Canada – Late in Filing of US Tax Returns”

  1. T says:

    I also have the same but I live in Toronto. But I find your responses very helpful. Are you able to help people outside of your province?

  2. amy says:

    I’m in the same boat and I’m really thinking about just filing my 2012 1040 and 2012 fbar forms this year without worrying about any of the prior year returns.

    Is this a really risky approach?

    Amy

    • Phil Hogan Phil Hogan, CA says:

      Hi Amy

      It’s definitely not advisable to only file the current year’s 1040 especially considering that the IRS has given specific guidance since September on how US citizens should be filing late 1040 income tax returns.

      If you would like some assistance with your late returns please give me a call at 250-381-2400 and we can chat.

      Cheers

      Phil

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The information contained in this article is for general use only and should not be viewed as professional advice. Accounting and tax rules and regulations regularly change and individuals should contact a competent professional to obtain accounting and tax advice based on their specific situation.

Phil Hogan

Phil Hogan is a Canadian and US CPA working with clients throughout Canada and the US. Phil advises on cross border tax and financial planning matters. Phil can be reached at phil@hutcheson.ca or via telephone at 250-661-9417. You can also read more about Phil at Hutcheson.ca/phil.
Phil Hogan

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