Tax Guide for US Citizens Living in Canada
- Living as an Expat in Canada
- Canada at a Glance
- What Are Canada's Taxes like for US Expats?
- Who Has to File Taxes in Canada?
- Who Qualifies as a Tax Resident in Canada?
- Canadian Tax Year and Due Date
- What Types of Taxation Does Canada Have?
- Canadian Federal Income Tax Rates
- Does the US Have a Tax Treaty with Canada?
- Does the US Have a Totalization Agreement with Canada?
- What Tax Forms Do Americans Living in Canada Have to File?
- US Tax Forms for Expats
- What Tax Deductions Are Available for Expats Living in Canada?
- Navigating Tax Filing as a US Expat in Canada
Living as an Expat in Canada
US expats living in Canada must be aware of Canadian taxes for US expats, as they will be subject to both US and Canadian tax laws and may need to file tax returns in both countries.US expats living in Canada must be aware of Canada taxes for US expats, as they will be subject to both US and Canadian tax laws and may need to file tax returns in both countries.
If you’re considering moving to Canada, there are some things you should know about living as a US expat. Here are some key factors to keep in mind:
- Work visas and permits: US citizens must obtain a work visa or permit to work in Canada, depending on the job and length of stay. The Canadian government offers programs to expedite the process for skilled workers, students, and others.
- Taxes: As a US expat in Canada, you’ll need to file a US tax return each year and a Canadian tax return if you have Canadian income. However, the US and Canada have a tax treaty to avoid double taxation.
- Healthcare: Canada’s publicly-funded healthcare system is available to all residents, but some employers offer private health insurance. Wait times can be long, and finding a family doctor is crucial.
- Housing: Housing costs in Canada vary by location, and renting is a standard option for expats. It’s essential to know rental laws in your province or territory.
- Culture and lifestyle: Canadians tend to be more reserved than Americans, and Canada uses the metric system.
Moving to Canada as a US expat can be exciting and rewarding with proper preparation and knowledge.
Canada at a Glance
- Primary Tax Form for Residents: Form T1
- Tax Year: January 1st to December 31st.
- Tax Deadline: April 30th of the year following the tax year.
- Currency: Canadian dollar (CAD).
- Population: 38 million (As of 2021)
- Number of US Expats: Estimated 1 million US citizens living in Canada (As of 2021)
- Capital City: Ottawa, Ontario.
- Primary Language: English and French
- Tax Treaty: Yes
- Totalization Agreement: Yes
What Are Canada’s Taxes like for US Expats?
Canada prides itself in providing its citizens with a wide variety of benefits, and it has comprehensive tax systems to make that possible. Many US expats struggle to understand Canada’s complex provincial, municipal, and federal tax policies.
Here’s a brief overview of Canada’s Tax System
- Tax residency: If you’re living and working in Canada, you may be considered a tax resident of Canada. You will be subject to income tax in Canada based on your global income. You will also need to file a Canadian tax return each year, regardless of your income in Canada.
- Tax rates: Canada’s tax rates can vary depending on your income level and province of residence. The federal tax rate for 2022 is 15% on the first $50,000 of taxable income, 20.5% on the next $50,000, and so on, up to 33% on income over $214,368. Depending on the province, provincial tax rates can add a layer of taxation, ranging from 10% to 21%.
- Tax credits: As a US expat in Canada, you may be eligible for certain tax credits and deductions, such as the basic personal amount and the Canada Employment Amount. These credits can help reduce your overall tax liability and may be claimed on your Canadian tax return.
- Foreign assets: US expats in Canada must report their foreign assets to the US government each year, including bank accounts, investments, and real estate. Failure to report these assets can result in penalties and other consequences.
Navigating Canada’s tax system as a US expat can be complex, but with the proper preparation and knowledge, staying compliant and minimizing your tax liability is possible.
Plus, virtually all US citizens are required to file an annual US Federal Tax Return regardless of where they live. This only adds to the confusion of Americans living in Canada, who often have to file tax returns with both the Canadian government and Uncle Sam.
To help clear things up, here’s an overview of how Canada’s tax policies impact US expats living in Canada.
Who Has to File Taxes in Canada?
In Canada, tax residents (“deemed residents”) must file an annual income tax return to report their worldwide income. Non-residents, on the other hand, will only need to file a tax return if they receive certain types of Canada-source income, such as:
- Employment income
- Rental payments
- Royalty payments
- Pension plans
- Annuity payments
Non-residents will then only be taxed on their Canada-source income, not worldwide.
Who Qualifies as a Tax Resident in Canada?
In Canada, residency status is determined by dwelling, spouse, and dependents. First and foremost, residents have a fixed abode for themselves in Canada. But other factors can also come into play regarding residency status, such as:
- Social ties
- Business ties
- Club memberships
- Ties to religious organizations
- Owning a Canadian driver’s license
Finally, anyone who spends at least 183 days in Canada during a single year is considered a resident, even if they don’t meet any other qualifications.
Learn where the best tax havens are, common traps, and ways to save money on your US expat taxes.
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.
For example, your 2022 tax return is due April 30, 2023. It’s important to note that if you owe taxes, the payment must be received by April 30 to avoid penalties and interest charges.
You must file your Canadian Taxes to complete your US expat taxes.
What Types of Taxation Does Canada Have?
Canada has a longstanding commitment to the social distribution of its residents’ wealth, and as such, many specific taxes are applied to expats who fit certain financial scenarios. The most common taxes are described below.
If you’re considered a resident of Canada, you will be taxed on your worldwide income. However, Canada has tax treaties with many countries, including the US, to avoid double taxation.
Peripheral benefits from employment—such as low-interest or interest-free loans—are taxed as employment income in Canada. Contributions from your employer into a qualified pension plan or deferred profit-sharing system will also be taxed once you receive a distribution.
On the other hand, several types of income are not taxed in Canada. These types of income include:
- Death benefits from a life insurance policy
- Lottery winnings
- Strike pay
- Income derived from a tax-free savings account
- Compensation paid to a victim of a crime or vehicular accident
- War disability pensions
- Income from First Nations if the individual lives on a reserve
- Tax benefits from child credits
Income tax comes in two forms in Canada: federal and provincial or territorial. The federal rates apply equally to all Canadian residents, while the provincial rates vary from province to province. The income tax rates in Canada are listed below. (All amounts are given in CAD.)
Canadian Federal Income Tax Rates
|47,630–95,259||7,145 plus 20.5% of the excess over 47,630|
|95,259–147,667||16,908 plus 26% of the excess over 95,259|
|147,667–210,371||30,535 plus 29% of the excess over 147,667|
|210,371||48,719 plus 33% of the excess over 210,371|
The provincial and territorial rates are typically progressive in Canada and vary widely. To give you a sense of the different taxes faced in each province, we’ve listed the highest income bracket’s tax percentage below.
|Location||Top Rate Percentage||For Taxable Income Starting At:|
|Newfoundland and Labrador||18.3%||187,913|
|Prince Edward Island||16.7%||63,969|
Remember: non-residents are only taxed on certain forms of Canadian-sourced income.
Self-employed expats will have business income, including income obtained from any activities to boost profits. This income is taxed at the same rate as employment income.
Financial losses from self-employment can offset the tax liability from income earned. These losses can be carried back for three years and carried forward for 20 years. The burden of proof, in this situation, lies on the self-employed individual to demonstrate that this is where the income came from and does not include employment income.
Capital Gains Tax
In Canada, half of the capital gains (minus any applicable capital losses) are included with standard income and taxed at the same rate. However, any capital gain realized from the disposition of an expat’s primary residence is exempt from taxation.
While Canada does not have a formalized system for taxing estates and inheritance, anyone who gives a gift of property is treated as disposing of the property for proceeds equal to the fair market value. And when a resident dies, they are treated as having disposed of all of their property immediately before the time of death at fair market value.
Goods and Services Tax
This federal 5% tax is applied to most goods and services in Canada. It functions much like a value-added tax, but it does not apply to certain products and services like:
- Medical care
- Most international freight
Harmonized Sales Tax
The harmonized sales tax is a tax across five provinces that synchronizes Canada’s taxation systems and includes a goods and services tax.
- In New Brunswick, the rate is 15%
- In Newfoundland and Labrador, the rate is 15%
- In Nova Scotia, the rate is 15%
- In Prince Edward Island, the rate is 15%
- In Ontario, the rate is 13%
The luxury and excise tax applies to alcohol, cigarettes, and fuel-inefficient vehicles.
While Canada has no national property tax, municipalities levy local taxes on property owners.
Canada has a comprehensive social security system funded by taxing employee wages. In some cases, Americans living and working in Canada may be required to contribute to this system. Fortunately, the US-Canada totalization helps lay clear terms for which system expats must pay into, helping you avoid contributing to both.
- If you work for a US employer in Canada for less than five years, you will pay into US Social Security.
- If you work for a US employer in Canada for over five years, you will pay into Canadian social security.
- If you work for a Canadian employer in Canada, you will pay into Canadian social security.
Does the US Have a Tax Treaty with Canada?
Yes, the US has a formal tax treaty with Canada. Countries sign tax treaties to help determine how they will treat taxes for individuals and businesses who operate between those two countries. These treaties can significantly impact how much tax is paid by residents of each country, and they can help avoid double taxation.
The treaty between the US and Canada covers various tax topics, including the taxation of individuals, corporations, and partnerships. It also covers the taxation of dividends, interest, royalties, and capital gains.
One of the key benefits of the treaty is that it helps to prevent double taxation. Individuals and businesses in the US and Canada will not have to pay taxes on the same income. Instead, the country where the US Expat earned the income will be the only one where they pay taxes.
The treaty also provides for reduced tax rates on certain types of income. For example, Canadian residents who earn income from US sources may be eligible for reduced withholding tax rates on dividends, interest, and royalties under the treaty.
Does the US Have a Totalization Agreement with Canada?
The US and Canada have a Totalization Agreement to help those who otherwise would have to pay social security taxes to both countries on the same earnings. Without the agreement, 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 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.
What Tax Forms Do Americans Living in Canada Have to File?
As an American living in Canada, you’ll probably have to file tax forms with the US and Canadian governments. Let’s look at some of the most common forms for each country.
Canadian Tax Forms for Expats
T1 General: Income Tax and Benefit Return
The T1 General: Income Tax and Benefit Return is Canada’s primary income tax return—the Canadian equivalent of IRS Form 1040. This is the form expats must use to report virtually every form of income, including:
- Employment income
- Self-employment income
- Capital gains
- Rental income
The standard due date for filing Form T1 is April 30. However, self-employed expats have an automatic extension to June 15. (Though the deadline for paying taxes is still April 30.)
Unfortunately, other extensions are only available if they apply to all taxpayers. For example, if the deadline falls on a weekend, the government will push the deadline to the following Monday.
If necessary, you can apply for a deadline extension for filing Form T1
Canadian tax residents with foreign investment property valued at more than 100,000 CAD must report this using Form T1135: Foreign Income Verification Statement. If you are required to file Form T1135, you should attach it to your Form T1 and file it simultaneously.
US Tax Forms for Expats
IRS Form 1040: Individual Income Tax Return
Form 1040 is the standard US individual income tax return. Every US citizen must file Form 1040 regardless of where they live and work.
The due date for Form 1040 is typically April 15 (April 18th, 2023), but in the case of expats, that due date is automatically extended to June 15th, 2023 (You can also request a further extension to October 16th, 2023.)
IRS Form 8938: Statement of Specified Foreign Financial Assets (FATCA)
If you own non-US financial assets valued above certain thresholds, you must file a FATCA report. (The financial threshold will depend on your filing status and whether you are a bona fide resident of Canada.)
If you have to file a FATCA report, attach it to your Form 1040 and submit them simultaneously.
FinCEN Form 114: Report of Foreign Bank and Financial Accounts (FBAR)
If you have a combined total of at least $10,000 in one or multiple non-US bank accounts, you must report it by filing FinCEN Form 114, better known as the FBAR.
The FBAR must be filed electronically through the FinCEN BSA E-Filing System. The standard due date is April 15, but if you miss that deadline, the deadline automatically extends to October 15.
What Tax Deductions Are Available for Expats Living in Canada?
Because of the US-Canadian tax treaty, most American expats living in Canada are already exempt from double taxation. In addition to this, the IRS also provides several other potential tax credits and deductions for expats, such as:
- Foreign Earned Income Exclusion
- Foreign Tax Credit
- Foreign Housing Exclusion (or Deduction)
Navigating Tax Filing as a US Expat in Canada
Navigating the complex world of taxes as a US expat living in Canada can be challenging. Still, with the correct information and guidance, you can confidently fulfill your tax obligations. Consult a qualified tax professional or seek advice from the appropriate authorities if you have any questions or concerns about your tax situation.
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