American citizens are obligated to file US expat taxes with the federal government each year, even if you are living north of the border in Canada! In addition to the regular income tax return, you could also be required to file an informational return on your assets held in foreign bank accounts. While the US is one of the few governments that taxes the worldwide income of its citizens and permanent residents, it does have provisions to protect us from double taxation. So make sure you know the facts before filing your US expat taxes in Canada!
How Working in Canada Affects Your US Expat Taxes
For starters, you will likely be required to file and pay taxes to the Canadian Revenue Service. Living and working in Canada could alter your contributions to Social Security. It also may affect your eligibility for Old Age Security and the Canada Pension Plan.
Am I Required to File Taxes if I’m Living in Canada?
Yes! US citizens are required to file and pay US expat taxes on worldwide income. It does not matter if you have already paid taxes in Canada. You still must file US expat taxes.
Canadian Tax Rates
What rates can I expect in Canada as a resident?
2020 Federal Income Tax Rates in Canada (Taxable income in Canadian dollars)
- 15% on the first $48,535 of taxable income, plus
- 20.5% on the next $48,534 of taxable income (on the portion of taxable income over 48,535 up to $97,069), plus
- 26% on the next $53,404 of taxable income (on the portion of taxable income over $97,069 up to $150,473), plus
- 29% on the next $63,895 of taxable income (on the portion of taxable income over 150,473 up to $214,368), plus
- 33% of taxable income over $214,368
Who Is a Resident of Canada?
The Canada Revenue Agency considers significant and other residential ties to determine an individual’s residency status.
Significant ties include:
- Owning a home in Canada
- Having a spouse/common-law partner in Canada
- Having dependents in Canada
Other residential ties include:
- Owning personal property in Canada
- Having other social and economic ties to Canada
- Maintaining a Canadian driver’s license, passport, or health insurance with a Canadian province or territory
Also, anyone who is in Canada for 183 or more days in a year may be considered a resident for tax purposes.
Is Foreign Income Taxed in Canada?
If you are a resident of Canada, you are going to be taxed on worldwide income. However, non-residents must report only income earned in Canada.
Canadian Tax Year and Due Date
The Canadian tax year is January 1 through December 31, which makes filing your US expat taxes easier because you do not need to pro-rate your income! The typical tax due date to file the main Canadian tax form, a T1, is April 30 of the following year. For businesses, the Canadian tax deadline is June 15, though tax payments are still due on April 30.
Remember: you will need to complete your Canadian taxes in order to complete your US expat taxes!
Canadian Social Security
The US and Canada have a Totalization Agreement in place to help those who otherwise would have to pay social security taxes to both countries on the same earnings. Without the agreement in place, it could create a wrinkle with retirement, disability, or survivor’s benefits.
Generally, if you pay Canadian Social Security, you do not pay US Social Security. Different circumstances of your employment will factor into where you will be paying.
The same holds true for Canadians living in the US. Canada also has pension plans (Old Age Security and Canada Pension Plan) that you cannot access until age 65 and are subject to income limits.
Canadian RRSPs and RRIFs
Currently, Canadian registered retirement income funds (RRIFs) and registered retirement savings plans (RRSPs) currently qualify for tax deferral similar to US IRAs and 401(k) plans. This is good news for expats in Canada who can put off paying taxes on the income they contribute to these savings plans. However, you’ll still need to report these financial assets to the US government if you meet the FBAR and Form 8938 requirements.
Prior to October 2014, taxpayers with RRIFs and RRSPs had to file Form 8891 to elect deferral, and reporting requirements included disclosing contributions, income, and distributions from the plans. This is no longer required. However, if you’ve lived or worked in Canada for several years, you may remember these earlier tax rules.
Other Canadian Tax Topics
Federal sales tax in Canada is level is 5%. Each province adds between 0% and 10% to this rate.
Ending your residency in Canada is also a taxable event. When expats leave the country, you must pay capital gains tax on the fair market value of any assets you liquidate.
US-Canada Tax Treaty
The US and Canada have entered into a tax treaty to aid taxpayers in reducing and eliminating double taxation. Several provisions in the treaty are worth noting:
- Article X provides for a reduced rate of taxation on qualifying dividends
- Article XI provides for a reduced rate of taxation on qualifying interest income
- Article XV provides for an exclusion of qualifying income (provided it does not exceed $10,000) from dependent personal services
- Article XVIII provides for a reduced rate of taxation on qualifying pensions
The savings clause should be taken into account when electing tax treaty provisions.
US Filing Requirements
The US tax year is January 1 through December 31. Each year, US citizens living abroad must file and pay their expat taxes by the deadlines below:
- April 15th – Filing deadline for U.S. individual income tax returns, although expats get an automatic extension until June 15th. Remember, this is an extension of time to file, but not of time to pay! Payments are still due on April 15th, and interest will accrue thereafter. This is also the due date for FinCEN Form 114 (aka FBAR) returns, with an automatic extension to October 15.
- June 15th – the filing due date for those who were out of the country on April 15th. Unless you file for an extension, you must file your taxes by this date.
- October 15th – last due date for US income taxes (if you filed for an extension), and FBAR returns.
If the due date for your returns falls on a Saturday, Sunday, or legal holiday, the deadline is moved to the next business day.
US Expat Income Tax Obligations
The US requires you to report your worldwide income on your tax return. All income is generally subject to taxation. However, the US has some provisions to help prevent double taxation. These include:
- The Foreign Earned Income Exclusion, which allows you to exclude up to $105,900 of foreign-earned income from your 2019 US taxes and up to $107,600 from your 2020 US taxes,
- The Foreign Tax Credit, which allows you to offset the taxes you paid to Canada against your US income taxes, dollar-for-dollar, and
- The Foreign Housing Exclusion, which allows you to exclude certain household expenses that occur as a result of your living abroad.
Need Help With US Expat Taxes in Canada?
If you have any more questions about your US expat taxes, or if you’d like to learn more about our expat tax services, please contact us, and we’ll be happy to help!