Tax guide for US citizens living in Canada
Guía de impuestos para los estadounidenses que viven en Canada
Guide des impôts pour les Américains qui habitent au Canada
Introduction
July 1, 2019. Happy Canada Day! I had hoped to put out this tax guide by June 15 to coincide with the US tax return due date for US persons living abroad, but I had just finished setting up my 2019 tax workpapers and calculating my 2019 estimated tax for Canada and the US and paid Q2 estimated taxes (called Instalments in Canada) just in time, and uh, the time has been passing me by as it often does.So, this will be my Canada Day gift to you all. I have spent most of this Canada Day weekend writing up this guide. Better than last year's Canada Day weekend, which was entirely spent doing a long take-home assignment for a job I was interviewing for and eventually did not get. Hmmpfffffff. But I have more peace of mind now, after sorting out and writing about tax matters that are relevant to me.
I took my time to research, think about, and set up workpapers for my 2019 taxes. For the 2019 tax year, besides the normal wage income, I have interest income from a number of Canadian and US banks, rental income from my new duplex with one 100% rental unit and the other my primary home with 2 rooms rented out, and a few IRAs back in the US. That all should be more straightfoward going forward, except for the rental real estate, but it took a lot of time to learn about all the potential tax issues, do the planning, and set up the workpapers.
Because I have spent an inordinate amount of time doing tax research, planning, and preparation over the past year since moving to Canada (easily a few hundred hours) and wish I had someone to turn to for help, I am putting together this guide for other US expats (I am using this term loosely and colloquially to mean what the IRS calls "US persons", or US citizens and resident aliens who have tax filing obligations in the US) living in Canada. The focus is on US expats living in Canada based on my situation, but I hope some of this information will be of use to all newcomers to Canada, as well as US persons living in other countries.
Important warning! I do not provide tax, legal or accounting advice. I am writing this guide only for informational purposes, and based heavily on my own unique personal facts and circumstances. And I am a unique individual with a unique background and my unique set of personal facts and circumstances, so what is applicable to me might not be applicable to you. This guide, like all other content in this blog, is not intended to provide, and cannot be relied on for, tax, legal or accounting advice. You are responsible for consulting your own tax, legal and accounting advisors to obtain advice on your personal situation.
In other words, if you are one of those excessively litigious Americans who are one of my many reasons for leaving the US, please stop reading, or at least ignore the rest of this post and my guide. I am writing this guide to put what I have learned in one place, both to have a reference for myself and also hopefully to help other US expats.
Expatriate taxation is a very complex field, so I encourage you to seek professional help; however, having basic knowledge in this field will help you find the right professional for your situation, as well as review the work of professionals you do hire. Keep in mind that tax advisors are very busy, especially during tax season, when everyone else is scrambling to file. They work long, hard hours and sometimes make mistakes. However, you will still be on the hook to the IRS or CRA for any additional tax liability resulting from the mistakes of your tax professional.
I am also writing this guide to vent my frustration with those who refused to help me. I believe in helping each other out; since beginning my immigration journey, I have been fortunate enough to connect with a number of immigrants in a number of whatsapp groups whose purpose was to help each other out, both with information and emotional support. I have had the privilege of forming some good friendships here in Canada with some of these people and have met quite a few since moving here.
Unfortunately, I have found that many Americans are more individualistic and unwilling to help others. In particular, shortly after landing in Toronto last year, I found out about a group for US expats in Toronto and looked forward to connecting with and learning from other US citizens in Canada. However, I soon saw that the senior group members were extremely unwilling to help anyone who asked any tax question. These people would quickly quash any discussion by dismissively telling the questioner to consult a tax professional, even when people were asking simple and/or general questions. Certainly, people should not blindly rely on information on the internet as advice and should do their due diligence regarding the applicability of the information to their personal situation. But to censor any substantive tax discussion is, in my opinion, very unhelpful, and it is very presumptuous to assume that any particular individual is incapable of learning complex expat taxes.
So, here is my tax guide that I am freely sharing with anyone who wants to read it, even if it's just for bedtime reading to fall asleep to😉, as long as you won't rely on this information as personal advice and won't sue me for it. It's still a first draft at the moment, and I will be making revisions whenever I can.
Table of Contents
Sourcing Rules
How to determine to which country to source each kind of income
Canada Tax - a primer for US expats
Tips for Newcomers (and beyond)
Basis of AssetsRoth IRA Election
No foreign mutual funds
US muni bond interest
Canada benefits and credits
Principal Residence Exemption
Depreciation
Home expenses
Foreign Tax Credit and Foreign Information Reporting
Federal Foreign Tax Credit
Provincial or Territorial Foreign Tax Credit
Retirement Planning
RRSP
TFSA (not good for US persons)
RESP
Canadian tax treatment of US retirement accounts
Roth IRA
Traditional IRAs and 401(k)sStop contributing to all US retirement accounts after moving to Canada
What to do with US retirement accounts
Useful Links
US Tax Basics for US Expats
Overview/Filing Requirements/Due Dates
List of Possibly Required US Tax Forms
Income Tax Return Forms- Form 1040, U.S. Individual Income Tax Return, and its related schedules:
- Form 2555, Foreign Earned Income Exclusion
- Form 1116, Foreign Tax Credit
- Form 8833, Treaty Based Position Disclosure (for various US-Canada Income Tax Treaty elections that may be required in your US tax return)
- Form 8621, Passive Foreign Investment Corporations
Foreign Disclosure Forms
- FinCen Report 114, Report of Foreign Bank and Financial Accounts (aka FBAR)
- Form 8938, Specified Foreign Financial Assets
Other Forms
- Form 8865, Return of U.S. Persons With Respect to Certain Foreign Partnerships
- Form 5471, Information Return of U.S. Persons with Respect to Certain Foreign Corporations
- Form 3520-A and Form 3520, Annual Return to Report Transactions with Foreign Trusts and Receipt of Foreign Gifts (for U.S. owners or beneficiaries of Canadian RESPs or certain tax free savings accounts)
Business and Real Estate - Tax Considerations
Business Entities - For Workers/Independent Contractors
Forming a Canadian corporationSole Proprietor
Real Estate Planning
Entity/Ownership Structure- 3-tier Corporate Structure
- CFC and Subpart F issues for US persons
- what ownership structure can a US person without non-US person partners use?
- Depreciation differences
- Depreciation methods
- Depreciation Convention
- Should you take depreciation on the Canada side, and how much?
- 1031 exchanges
- Taxation of Capital Gains
- Primary residence exemption
- Rental Income Timing Differences
Renting Out Part of your Personal Residence
- Primary residence exemption
- How to rent out part of your primary residence and have the entire property qualify for the exemption in Canada
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