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There are an estimated one million American citizens living in Canada, including dual citizens.
Americans living in Canada, though, are subject to both U.S. and Canadian tax and financial reporting rules. This is because Canada, in common with most countries, taxes its residents, while the U.S. has a different type of tax system that taxes all U.S. citizens on their global income, wherever they may reside.
So as an American resident in Canada, you have to file tax returns to both countries every year.
As Canadian taxes are often higher, to avoid double taxation, it normally makes sense for most Americans living in Canada to file their Canadian taxes first, and then claim the U.S. Foreign Tax Credit by filing IRS Form 1116 when they file their U.S. tax return. For most Americans in Canada, this will eliminate their U.S. tax bill. If not, Americans in Canada can also claim all the same credits and exclusions as Americans in the States, as well as some extra ones, so most don’t end up paying any U.S. tax.
Americans residing outside the U.S. receive a two-month tax filing extension to June 15, and they can request a further extension to October 15 (October 17 in 2022, as October 15 is a Saturday), so they have plenty of time to file their Canadian taxes first.
As well as reporting their worldwide income, Americans in Canada may also have to report their non-U.S. accounts and assets every year. There are two U.S. reporting requirements relating to foreign held accounts and assets, known as FBAR and FATCA reporting.
FBAR Foreign Account Reporting For Americans in Canada
An FBAR is a Foreign Bank Account Report. However, FBARs don’t just encompass bank accounts.
FBARs were introduced as a U.S. filing requirement in 1970 to help reduce tax avoidance by American residents hiding money offshore. However, the rule is applied to all American citizens, including those living abroad who have normal, everyday financial accounts in the country where they live. Furthermore, the minimum reporting threshold hasn’t been raised in line with inflation, so it remains the same as in 1970, meaning millions more Americans have to report.
Which Americans in Canada Have to File an FBAR?
Any American citizen (or Green Card holder) who has a total of over USD $10,000 in foreign registered accounts at any time during a year has to file an FBAR.
This means that you have to add together the balances of all your foreign registered accounts to see if they exceeded $10,000. If they did, then you have to report all of your foreign accounts.
The requirement encompasses any type of foreign account that you have signatory authority over that has a positive balance. This includes checking and savings accounts, investment accounts, and individual pension accounts registered in Canada. It also includes accounts that may not be registered in your name but you have signatory control over, such as a business, trust, or joint accounts. The IRS has also indicated that offshore crypto accounts will soon need to be reported on FBARs, too.
The FBAR filing deadline is April 15 (April 18 in 2022) with an automatic six month extension to October 15 (October 17 in 2022). Most Americans living in Canada therefore opt to file their FBAR at the same time as their U.S. tax return.
No extra taxes are implied by having to file an FBAR – it’s just a reporting requirement.
How to File an FBAR
FBARs have to be filed to FinCEN rather than to the IRS. They should be filed online as FinCEN Form 114 in FinCEN’s BSA E-Filing System.
When filing an FBAR, you have to report the details of all of your financial accounts registered outside the U.S. These details include the name and address of the financial institution where the account is held, the account number, the type of account, and the maximum balance in the account during the year.
FATCA Foreign Asset Reporting for Americans in Canada
A separate, new foreign reporting requirement for Americans in Canada was introduced in the 2010 Foreign Account Tax Compliance Act (FATCA), part of an attempt to increase tax revenue from overseas Americans following the 2008 financial crisis.
FATCA contained a requirement for Americans with foreign registered financial assets to report them every year on IRS Form 8938, which should be filed as part of your individual U.S. tax return.
The minimum reporting threshold for FATCA Form 8938 is higher than for FBAR reporting. The rule is that Americans who live abroad who have at least $200,000 of foreign registered financial assets (so not physical assets, such as property) at the end of the year, or at least $300,000 at any time, have to file Form 8938. The thresholds are doubled if you are married and file jointly.
For Americans resident in the States, the FATCA reporting thresholds are lower, being $50,000 of foreign registered financial assets at the end of the year, or $75,000 at any time.
FBAR and FATCA penalties
Penalties for not filing FBARs are high, starting at $10,000 a year for an unintentional error or not filing.
Not filing FATCA Form 8938 also carries a minimum $10,000 failure to file penalty.
Note that Canadian banks and other financial firms are reporting the same information directly to the U.S. Treasury, and also that the U.S.-Canadian Tax Treaty allows for tax information sharing and mutual enforcement of penalties, so it’s important to seek specialist U.S. expat tax advice to ensure you both avoid penalties and file to your maximum advantage.
What if you haven’t been filing?
There are a number of IRS amnesty programs available to Americans living in Canada who haven’t been filing, such as the Streamlined Procedure program, or for those who have been filing their U.S. taxes but not FBARs, the Delinquent FBAR Submission Procedures.
Jeff Chaney is a Managing CPA at Bright!Tax, and a leading expert in US taxes for Americans living abroad. Bright!Tax is a multiple award-winning US tax services provider for American expats.
If you have any questions about or require assistance with U.S. taxes for Americans in Canada, fill out this form to get in touch with a representative from Bright!Tax:
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