1 / 36

Living in Canada with US citizenship

Living in Canada with US citizenship. A few basics for the US citizen. Agenda. Who needs to be aware of US tax compliance Some basics for the US Citizen in Canada Some differences between US and Canada Some common scenarios and forms that need to be filed FATCA – briefly , what is it ?

coryk
Download Presentation

Living in Canada with US citizenship

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Living in Canada with US citizenship A few basics for the US citizen

  2. Agenda • Who needs to be aware of US tax compliance • Some basics for the US Citizen in Canada • Some differences between US and Canada • Some common scenarios and forms that need to be filed • FATCA – briefly , what is it ? • Offshore Voluntary Disclosure Initiatives • Estates and Gifts

  3. There are a few things every US Citizen needs to know if they are going to live outside the US. What has to be filed for Canada? What has to be filed for the US? Where can you find the resources you need to help you ?

  4. Who should file a US Tax Return ? • US Citizens • Resident aliens who lived or worked in the US • Green Card holders • Anyone who does business in the US • Anyone who has rental property in the US • Anyone who had tax withheld by the US and wants a refund

  5. Canadian • Taxation based on residency • Foreign Tax Credit (FTC) for taxes paid to US • Unused FTC can be used 3 yrs back & forward 10 yrs United States • Taxation based on residency or citizenship • Foreign Tax Credit (FTC) for taxes paid to Canada • Unused credit can be used 1 yr back & forward 10 yrs Canadian / US comparison

  6. Canadian • Tax Return • Foreign Reporting ? • Informational filings ? United States • Tax Return • Foreign Reporting ? • Informational filings ? Canadian and US requirements

  7. Quick reference chart

  8. Canada ( INNS3) • taxes due in 1 of 2 prior years > $3000 and current year taxes owed will be > $3000 • Instalment Due Dates • March 15th, June 15th Sept 15th & Dec 15th • Penalty may be applied if late or underpaid US (1040 ES) • taxes due of $1000 or more • Instalment Due Dates • April 15th, June 15th Sept 15th & Jan 15th • Penalty may be applied if late or underpaid Estimated Tax Payments must pay if:

  9. Canadian Tax Return (T1) • Due date April 30th • No extensions • One return per person • Worldwide income included • Foreign tax credits available • 10 year carry forward period US Tax Return (1040) • Due date June 15th incl 2 mnthext • Extension to Oct 15th • Joint returns for couples • Worldwide income included • Foreign taxcredits available • 10 year carry forward period • Some exemptions for specific types of income • CPP, Soc Sec, foreign wages Basic Income Tax Returns

  10. Forms to include with US tax return Form 2555 – Foreign Earned Income US allows a set amount of foreign earned income to be excluded from income tax • 2015 exclusion limit is $100,800 • Form 2555 is used to elect the use of an excluded amount • Earned income includes salary, wages, professional fees, home or car allowances paid to you • Foreign earned income does not include: pension or social security, dividends, capital gains, or alimony • Also used for the housing deduction and exclusion calculation • Due Date - submit this with your 1040 return

  11. Forms to include with US tax return Form 2555 – Foreign Earned Income – cont’d To Qualify to use this form, your tax home must be in a foreign country (like Canada) AND one of these two tests must be met: • Bonafide residence (part II of form 2555) • Resident for one full tax year • Physical Presence (part III of form 2555) • Resident for 330 days within 12 month period

  12. Forms to include with US tax return Form 1116 – Foreign Tax Credit This form will calculate the foreign tax credit available for use against US taxes. • Taxes paid on excluded income are not included here • Each category of income and taxes paid on that income are reported separately • Catagories included are: • Passive – dividends, interest, rents, royalties, • General – wages, salary, business income • 901(j) income – from certain sanctioned countries (no credit for tax) • Income re-sourced by Treaty • Lump sum distributions from pension

  13. Forms often overlooked Some forms are commonly missed probably because they are informational and don’t calculate tax BUT they still need to be completed and filed. • FinCEN 114 FBAR Report of Foreign Bank Accounts (FBAR) • Form 8621 Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund • Form 8938Statement of Specified Foreign Financial Assets • Form 5471 Information return of US persons with respect to certain foreign corporations • Form 8833 Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b) • Form 3520 A & Form 3520 Foreign Trusts with US owner

  14. FinCEN 114 FBARReport of Foreign Bank and Financial Accounts This is an informational form listing out the details of all non-US financial accounts and their highest balances during the year Some accounts included are: • Bank accounts (incl GICs), brokerage, TFSA, RESP, RRSP, life insurance with cash value Complete form and file if: • Total value of non-US accounts equal or > $10K any time during the year

  15. FinCEN 114 FBAR • Due Date – to be received by June 30th • Online filing required using BSA (Bank Secrecy Act) e-filing system – paper forms rejected • Online help phone number – 1 866 346 9478 • This form is not sent to IRS • Penalties • Up to $10K per violation • Possibly nothing if a good reason is given • Wilfully not filing can be larger of a)$100K or b) 50% of balance at time of violation plus criminal penalties Report of Foreign Bank and Financial Accounts

  16. FinCEN 114 FBARReport of Foreign Bank and Financial Accounts Information to have when filing FBARs • Bank name & address • Account # & whether it is jointly held or separate • Type of account – chq, brokerage, other (RRSP) • Highest balance in account during tax year (US $)

  17. Forms to include with US tax return Form 8621 Information Return by a Shareholder of a Passive Foreign Investment Company (PFIC) or Qualified Electing Fund • PFICs are defined by test • Non US corporation > 75% of income is passive or > 50% of assets are passive • This captures Canadian Mutual funds and ETFs • One form per PFIC per year, filed with tax return (1040) • Can be higher tax rates on included income amounts • Accuracy penalty is doubled when associated with understatement of PFIC tax

  18. Forms to include with US tax return This is an informational form listing out the details of all non-US financial assets, their highest balances during the year and income earned Complete & File form if: filing status is ”single” ANDfinancial assets >$200,000 on the last day of the tax year or more than $300,000 at any time during the tax year; threshold doubles for MFJ • Due Date : Form is due with tax return • FATCA compliance • Treasury Reporting Rates has 1$ US = 1.3860 Can as at Dec 31, 2015 Form 8938Statement of Specified Foreign Financial Assets

  19. Form 8938 Statement of Specified Foreign Financial Assets cont’d Assets to be reported include: • All financial accounts FBAR items • All other assets, such as notes, bonds, trust interests, stock of foreign companies, partnership interests Assets not included are : • CPP & OAS • Direct interest in real estate

  20. Canadian T1135 Foreign Income Verification Statement • Filed separately from tax return • Based on cost of foreign assets; total assets > $100K cost • Report income earned on foreign property • Includes real property • Penalties - $25 per day (minimum $100 and maximum $2,500). US Form 8938 Statement of Specified Foreign Financial Assets • Filed with the tax return • Based on FMV of assets; differing thresholds • Report income earned on foreign property • Does not include real property • Penalties - $10K + $10K for each month past 90 days after notification (to $50K max) A look at foreign reporting…

  21. Informational forms Form 5471 Information return of US persons with respect to certain foreign corporations This is an informational form that will report the details of your ownership interests in foreign corporations (one form for each corp). Your ownership or amount of control will dictate the amount of information you need to provide. Who files: • US person or resident who owns or acquires 10% or more of foreign corporation • US person that has control of foreign corporation

  22. Informational forms Form 5471 Information return of US persons with respect to certain foreign corporations • Self employed that are incorporated complete this form • Dormant corps still need to file • “Filed pursuant to Rev. Proc. 92-70 for Dormant Foreign Corporation “ (type in top margin of first page) • Due Date - due with income tax return • Penalties • $10K + $10K for each month past 90 days after notification (to $50K max) • 10% (plus) reduction in foreign taxes used for foreign tax credits

  23. Informational forms Form 3520 A & 3520 Foreign trusts annual return and transaction reporting • Form 3520 A is an informational annual return filed by the trust / trustee giving details (non US trust with US owner / beneficiary) • Form 3520 is used to report transactions that occurred in the trust during the year – filed by the individual • Form 3520 is also used to report receipt of foreign gifts: • Gifts or bequests valued at more than $100 K from a nonresident alien individual or foreign estate or • Gifts valued at more than $15,601 ( 2015) from foreign corporations or foreign partnerships

  24. Informational forms Form 3520 A & 3520 Foreign trusts annual return and transaction reporting • TFSAs and RESPs are reported using these forms • Due Date • 3520 – same as income tax return but do not mail with your return. • 3520 A – 15th day of 3rd month after year end • Mailed to a separate address, do not attach to tax return • Penalties • Form 3520 – greater of $10K or b) 35% of gross distributions / contributions • Form 3520A – greater of a) $10K or b) 5% of gross value of assets owned by US person

  25. FATCAForeign Account Tax Compliance Act FATCA US law aimed at the reporting of Foreign Financial Assets. One focus is the reporting by Foreign Financial Institutions in regards to accounts held by US citizens and another focus of the laws is the self reporting by US taxpayers about their foreign assets. • Enforcement of some pieces of law (withholding) extended to Jan 2016 • Foreign Financial Institutions (FFI) are required to enter into agreements with the IRS to provide this information or face a 30% withholding tax on payments going out of the US to the institution • The FFI will need to get a waiver signed by the account holders • Form 8938 is part of FATCA – the part that the individual is most familiar as this is where foreign assets are to be reported

  26. For those who haven’t been filing US returns There is basically two options: 1. Streamlined Foreign Offshore Program or 2. Offshore Voluntary Disclosure Program (OVDP) • One or the other can be chosen, but not both

  27. For those who haven’t been filing US returnsStreamlined Program This option is aimed directly at those that are outside of the US, haven’t been filing their US returns or FBARs and want to become compliant. • This option allows you to get caught up (in compliance) by filing • 3 years worth of tax returns & informational returns • 6 years worth of FBARs • No penalties or other enforcement • Taxes and interest will apply • No protection from criminal prosecution

  28. For those who haven’t been filing US returnsStreamlined Program To qualify: • have lived outside US for 330 days (in 1 or more of last 3 years) • Failure to file is due to non-willful conduct Once you submit under this Streamline option, OVDP is no longer available

  29. For those who haven’t been filing US returnsOffshore Voluntary Disclosure Program (OVDP) The whole point of the program is to get taxpayers that have undisclosed foreign accounts or entities back into compliance with the IRS and US law by reporting these accounts knowing ahead of time the penalties that will be imposed • Unlike prior programs there is no deadline for disclosure • 2012 program updated July 2014 • Submission requirements is far greater than streamline option • Penalty is 27 ½ % ( to 50%) of highest balance of foreign entities / accounts or asset value during the disclosure period • All undisclosed accounts are added together & the highest balance found throughout the 8 year period will have penalty applied • This is in addition to tax, interest and accuracy penalties

  30. Estate and Gift taxes ………. a few words Basically if you are a US citizen, a permanent resident of the US, or just someone with assets situated in the US, you should be aware of the US Estate Tax rules and exemption amounts. • Estate tax will apply to a US citizens’ (and perm US resident) worldwide taxable estate. • Exemption amount $5.43 million (for 2015) • The US Estate Tax Return (Form 706) must be filed if   • 1) the gross estate which is FMV at the date of death  (plus gifts & specific exemptions) is greater than the $5.43 million (2015)OR • 2) if the executor wants to transfer the Deceased Spousal Unused Exclusion (DSUE) to the surviving spouse

  31. Estate and Gift taxes ………. cont’d • In regards to the Estate Tax - for federal tax purposes, the IRS recognizes same-sex marriages that are valid in the state where they were entered into, regardless of the married couple’s residence • you can transfer unlimited amounts, estate tax free to your US spouse/ US resident spouse • Estate tax is graduated and after $1 million is 40% • Due Date for return – 9 months from date of death • 6 month extension is available

  32. Gift taxes Gift tax is another part of the Estate Tax – without it you could give away all your assets prior to death and be left with no estate to tax. • Each US citizen can gift a maximum $ 14,000(for 2015) to multiple individuals without having to report for gift tax purposes • these annual exclusion amounts won’t count against your lifetime exemption amount • Medical & tuition amounts paid directly (by gifter) can be excluded from gifts • Gifts to US citizen spouse is not limited; gifts to non-US citizen spouse has annual exclusion amount of $147 K ( 2015) • Lifetime gift exemption is $5.43 million (2015) • Tax Return is Form 709 - United States Gift (and Generation-Skipping Transfer) Tax Return • Due Date is April 15th the following year • Extensions available, and automatic with federal income tax extension

  33. US tax bits • Individual States are not party to the US/CAN tax treaty • IRS does not mail out Notice of Assessments or letters indicating return has been received or processed • Some scenarios require the US return be paper filed • Extensions are available for most returns (federal) • Depreciation on buildings is not the option it is in Canada • If your living in Canada, Soc Security should be taxed in Canada – not the US and • 15% of SSN is not taxable at all

  34. Resources • Path to Offshore Voluntary Disclosure • http://www.irs.gov/uac/2012-Offshore-Voluntary-Disclosure-Program • Path to Streamlined Program Procedure option • https://www.irs.gov/Individuals/International-Taxpayers/Streamlined-Filing-Compliance-Procedures • Path to Foreign Currency exchange rate • https://www.fiscal.treasury.gov/fsreports/rpt/treasRptRateExch/treasRptRateExch_home.htm

  35. Resources • Taxpayers with AGI< $62K can e-file for free • Use IRS link to “freefile” • IRS site has free fillable forms available to everyone • Software is available to help you prepare & e-file • Make sure it accommodates a foreign address

  36. That’s it….done! Presented by : JPS Financial and Accounting Services ph 604 422 8211 205 – 2248 Elgin Ave Port Coquitlam, BC

More Related