Navigating the US tax norms while being away and staying in Canada can be a challenge. Why? Well, mostly because both Canada and the US have their unique tax requirements and deadlines. This complicates the matter for ordinary citizens, who know almost nothing about the tax treaties between the two countries. This is why you need a dedicated CPA firm to help you - people who have experience in handling US tax return for Canadian residents. This will help you meet the tax deadlines while also filing accurate expat returns.
For those wondering if you still need to file income tax while living abroad, yes, you must! We tell this to all who ask us, and will once again reiterate - filing income tax for US citizens living abroad is an absolute must, provided you meet the filing requirements and thresholds. In fact, you must report all income sources on the US return, even when that income is not coming from anywhere in the US. There’s more to this! US citizens living in Canada may also have to file a Foreign Bank and Financial Accounts Report, popularly known as FBAR, if they have more than $10,000 in their bank account outside the US, during any time of the year.
For people staying in Canada, they need to file the T1 general tax every year. This covers all the basic types of income - be it income from employment, income from investments, and even governmental benefits. If you have a business, you have to file the T1 tax as well because of your business income. That said, people residing in Quebec are required to file a separate provincial tax return as it has its own unique tax laws.
Here’s some help on foreign asset declaration/ reporting for both Canadians and Americans. Canadian residents with foreign property or income need to fill up the T1135 form - the Foreign Income Verification Statement. It is meant for people who own foreign property amounting to more than CAD $100,000. The form will ask specifics as to where the property is located and whether it generates any income. As for Americans residing abroad, they have to report their foreign assets and income through many different tax forms! That said, they must fill up form 1040, even when they owe no tax, because of the Foreign Earned Income Exclusion. However, if their account balance exceeds $10,000 at any time of the year, they will have to submit a FABR. That said, if he or she paid foreign taxes, they’ll have to submit Foreign Tax Credit form 1116 to avoid double taxation.
The Canada-US tax treaty previously had a very long name and so, let’s not even discuss that, however, the treaty did some good for the masses. Here’s how you still benefit from it.
The prime aim/ goal of the treaty was to do away with double taxation, where an individual living outside his home country had to pay taxes in both the US and Canada for the same income! This was solved through Foreign Tax Credit.
The treaty allows US citizens in Canada to defer tax on any all income contributed to Canadian RRSPs i.e. Registered Retirement Savings Plans. This is similar to the IRA in the US.
Here’s more info on income tax for US citizens living abroad! Americans living in Canada are spared from double taxation in the event of death. So, any estate, inheritance, or gift taxes imposed by the other country, which in this case is Canada, has to be credited against the tax levied by the other country.
The treaty also protects US Social Security benefits and Canadian Social Security benefits. They;re only taxable in the individual’s country of residence.
All this being said, it’s hard to leverage these benefits until of course you are CPA yourself or understand taxes far too well, which I suppose is a rarity. This is where our experts at Expat Global Taxes come in. We have a team of vetted tax experts who specialize in all things expatriate tax Canada, thereby making sure that your tax filings have been done right, they meet treaty provisions, and comply with the tax rules in both Canada and the US. Connect with our experts now!
Almost no one really understands different interpretations and applications of US tax return for Canadian residents, and if you too feel the same, we’re here for you!
Expertise in cross-border taxation: We at Expat Global Tax are proud to have a seasoned team of CPA experts, who are adept at handling tax issues between Canada and the US. We understand the intricate provisions of the Canada-US tax treaty, thereby helping you in maximizing tax benefits.
Tailored tax solutions: At Expat Global Tax, we provide tailored/ custom tax strategies that cater to your individual needs. Whether you have diverse income sources, have a few foreign assets, or specific investments, we make sure your tax papers always comply with the law of both the countries.
Proactive tax planning: We help you stay one-step ahead of the changing/ evolving tax norms. We help you with proactive tax planning, keeping you abreast with new tax laws and how they impact your financial situation. We make sure that you never have to face penalties or legal issues regarding taxation.
Comprehensive support: Foreign expatriate tax in Canada can be a little daunting for most people, but we make it manageable for you. Our thorough understanding of the foreign income verification requirements helps us file your assets and incomes right, thereby reducing chances of audits and penalties.
Frequently Asked Questions
What is the Foreign Earned Income Exclusion and does it apply to me?
FEIE or Foreign Earned Income Exclusion allows US citizens living in other countries to exclude a certain portion of their foreign-earned income from US taxes. For 2024, the limit is $120,000. When you team up with us, we find out if you meet the eligibility, and proceed with maximizing your benefits and reducing your taxable income – in short, easing your tax burden.
What is the process of reporting my Canadian income on my US tax return?
At Expat Global Tax, we specialize in income tax for US citizens living abroad. To report your Canadian income on your US tax return, you must first complete form 1040, the standard US individual income tax return. Include all Canadian income, even if it’s not taxed in the US, under the ‘income’ sections. You may then use form 2555 for the Foreign Earned Income Exclusion or form 1116 to claim a Foreign Tax Credit, reducing chances of double taxation.
Can I claim a credit for taxes paid to Canada on my US tax return?
Yes, you can! You can opt for a credit for taxes paid to Canada on your US tax return. For this, you need to fill up form 1116 – the one for Foreign Tax Credit. This credit reduces your US tax liability, and reduces chances of double taxation on the same income. Know more about this by hiring our experts for your taxation needs.
For your FREE consultation on any tax related matters, please contact us via the phone number or email listed below or request a call back using the forum.
