US Income Tax Issues
for
Expatriate Canadians
Americans that have lived in Canada
Relocations to the USA
Bradley Kirschner, TEP, CA, CPA
Certified Public Accountant since 1972
Society of Trust and Estate Practitioners
Ten years trust tax banking experience
Individual tax practice for 25 years
Chartered Accountant in British Columbia since 2004
Topics to be Covered
Residence for Tax Purposes
The Canada – US Income Tax Treaty
Comparison of Individual Income Tax Systems
Leaving Canada
First year in the US
Common Compliance Issues
RRSP/RRIF
Non-US Bank and Financial Accounts
Controlled Foreign Corporations
Mutual Funds
Tax Free Savings Accounts
Registered Education Savings Plans
Records to maintain
Using Grandma’s Canadian Address
Canadian Rental Property
Residence
Immigration – Visa holders are non-residents
Income Tax – Residence is a mechanical 183 day test
Resident – tax on worldwide income plus disclosure
Non-Resident – tax on US source income only
Canada – US Income Tax Treaty
Will normally override the law in both countries
Last amended in 2007
Article IV contains tie-breaking provisions for determining residency
Permanent Home
Centre of vital interests
Habitual abode
Citizenship
Competent authority
Comparison of Individual Income Tax Systems
Canada
US
Individual Returns for each spouse
Potential Joint Returns
Income from all sources
Less limited deductions
Income from all sources
Less limited deductions
Taxable Income
Adjusted Gross Income
Less itemized or Standard Deduction
Excess medical
Taxes
Interest
Charitable Contributions
Miscellaneous deductions
Less Personal Exemptions
Taxable Income
Taxable Income
Canada
US
Federal Tax
Less Credits
Personal
Medical
Charitable Contributions
Less Foreign Tax Credit
Federal Tax
Provincial Tax (except Quebec)
Less Credits
Personal
Medical
Charitable Contributions
Less Foreign Tax Credit
(State taxes administered by each State)
Less Foreign Tax Credit
Net Provencal Tax
Net Tax before payments
Net Tax before payments
Leaving Canada
Canada taxes worldwide income earned while a
resident plus Canadian sources.
Departure Tax – deemed to have sold all property at
FMV (Except Canadian Real Estate)
RRSP accounts remain untaxed until distribution
Non-business Canadian Income subject to withholding
First Year in the United States
Non-Resident
(Does not meet the 183 day test)
Only US source income subject to tax
No joint return with spouse
No Standard Deduction
Limited Itemized Deductions
Income Taxes
Charitable Contributions
Miscellaneous Deductions
Resident
Dual Status Year
US source income prior to residence subject to tax
Worldwide income after residency starting date subject
to tax
No joint return with spouse
No Standard Deduction
All Itemized Deductions available
Election for Married Couples
Treated as full-year residents
Worldwide income for the year subject to tax
File a joint return
Standard deduction available
Double taxation relief
Foreign Earned Income Exclusion
Foreign Tax Credit
Election to be Treated as a Resident
Must meet the 183 day test in year two
Resident from the residency starting date in year one
Why?
Tax on worldwide income
All itemized deductions are available
Joint return election if married
RRSP/RRIF
Canada will withhold tax at distribution
Not a US qualified plan
Income taxed today in the US
Income taxed upon distribution by Canada
(Double Taxation)
Election under the Treaty to defer tax until distribution
Must File Form 8891
Non-US Bank and Financial Accounts
Must file the FBAR – Form TD F 90-22.1
if the total of the maximum values of all accounts is
$10,000 US or more
Includes Bank Accounts, RRSP, Securities, Mutual Funds
If the total of the maximum values of all accounts
(expanded definition) exceeds the threshold, must file
Form 8938, Statement of Specified Financial Assets.
Significant Penalties come with each form.
Controlled Foreign Corporation
Generally 10% or more ownership, but complex tests to
determine who must file.
Reporting of the financial information of the foreign
corporation.
May result in the current US taxation of the
Shareholder’s share of certain foreign income. This is
similar in concept to the Canadian taxation of Foreign
Accrual Property Income (FAPI)
Canadian Mutual Funds
Reportable on the FBAR form.
May be a Passive Foreign Investment Company (PFIC).
Costly in terms of current taxation & compliance.
If a PFIC, must prepare Form 8621- Return by a Shareholder of
a Passive Foreign Investment Company
Applies to taxable accounts—not RRSP.
Don’t hold Canadian Mutual Funds
Tax Free Savings Accounts
Registered Education Savings Plans
Both are currently taxable in the US
US Reporting Requirements
Form 3520-A - Annual Information Return of Foreign
Trust with a US Owner
Form 3520 – Annual Return to Report Transactions with
Foreign Trust and Receipt of Certain Foreign Gifts
Records to Maintain
Assets subject to the Canadian Exit Tax (deemed sale at
Fair Market Value) have a US tax basis of FMV at date of
immigration. You should maintain a record of those
values.
RRSP/RRIF distributions will taxed by the US as an
annuity—you should maintain a record of your
investment in the account and the value at the time of
immigration.
Using Grandma’s Canadian Address
Jeopardize non-resident status
Payment of Canadian taxes on income
Securities Law Issues
Canadian Rental Property
Withholding required at 25% of gross rents.
Can file a Section 216 Return and pay tax on the net
rental income.
Can file a form NR6 and have withholding on estimated
net rental income.
Must file a Section 216 Return
Long-term implications of claiming Capital Cost
Allowance (Depreciation).
Bradley Kirschner, TEP, CA, CPA
180 Nickerson Street, Suite 301
Seattle, WA 98109-1631
(206)378-1886
brad@bwkcpa.com
www.bwkcpa.com