It is often a surprise to US citizens, after living their entire adult life in Canada, to find out that their US tax reporting obligations didn’t stop when they left the United States many years ago. This is not information that you want to learn from a US border patrol agent!
Unlike Canada, and virtually ever other country in the world, the US imposes a filing obligation on its citizens, regardless of where they live. Â This means that US citizens are required to continue filing US returns and US foreign asset disclosure forms even if all sources of income are earned in Canada.
Most dual residents with Canadian employment, business or investment income, will not pay additional US tax. Foreign tax credits and earned income exclusions eliminate any US tax otherwise owing.
Foreign Asset Account?
Additionally, many US citizens will also have a requirement to file supplementary foreign asset reporting forms if they own, co-own or have signing authority over foreign financial accounts including registered and non-registered investment accounts. The failure to file these forms can result in significant penalties that are based on a minimum $10,000 penalty up to a percentage of the assets held.
One additional element under the US FATCA law – Canadian financial institutions are now required to identify and report on accounts held for US citizens. At some point in the future, it is possible that the IRS could start contacting non-compliant US citizens to demand filings and start assessing penalties.
Need Relief from Potential Penalties?
The IRS continues to make available an opportunity for US individuals, both living in the US and abroad, to seek relief from penalties relating to missed US income tax and disclosure filings. The IRS offers a program, Streamlined Filing Procedures, which is designed to resolve delinquent filings where no penalties will be imposed.
Want help? Contact us to discuss your filing requirements and your path forward to compliance with the IRS. The experienced team of professionals at Ernst and Company are available for confidential and personalized assistance.
