U.S. Citizens Residing in Canada

U.S. citizens residing in Canada must file U.S. and Canadian income tax returns every year.  The U.S. return is the same return used by residents living in the United States (i.e. Form 1040).  Many U.S. citizens (and their Canadian tax practitioners) are unaware of the pitfalls and requirements of being a U.S. citizen living in Canada.  In order to complete the U.S. return correctly, and quite often the Canadian return as well, a detailed understanding of the Canada-U.S. Tax Treaty is often required.

There are an ever increasing number of situations where a U.S. citizen may undertake a strategy to minimize Canadian taxes without fully considering the U.S. tax consequences of such a plan.  In some cases, the Canadian taxes saved or deferred can be wiped out by an increase in U.S. taxes.   Areas of concern can include:

U.S. INCOME TAX RETURNS:

• Items of income, such as Canada Pension Plan payments, RRSP withdrawals, and/or distributions from Canadian trusts not being correctly reported on the U.S. return.
• Foreign tax credits calculated incorrectly and/or the benefits of carrying forward these credits are not considered.
• Whether the impact that The Treaty has on the foreign tax credits claimed has been considered.
• Has U.S. Alternative Minimum Tax (AMT) been considered?  AMT can apply to many U.S. citizens living in Canada.
• Whether the tax consequences and compliance requirements of establishing and maintaining a Canadian trust with U.S. citizen beneficiaries and/or settlor(s) has been properly considered.
• Whether the tax consequences and compliance requirements associated with a U.S. citizen owning a Canadian corporation has been fully considered.
• Have available deductions, such as the foreign earned income exclusion, been considered?
• Canadian RRSP’s are not dealt with correctly.
• U.S. self-employment taxes are often dealt with incorrectly.
• Effective 2013, the U.S. has added a new tax (Net Investment Income Tax (NIIT)) that applies to investment income if a U.S. citizen’s worldwide income exceeds certain limits.  The NIIT is a cost of being a U.S. citizen as it cannot be used to reduce Canadian taxes.