Taxation of Americans in Canada

Dale Walters, Sally Taylor, David Levine

Description

Living in Canada and not paying as much in taxes is a privilege that many Americans enjoy -- or is it? Legally, the Internal Revenue Service (IRS) can collect taxes on US citizens no matter where they permanently reside. Even dual citizens or those who have lived in Canada for many years are subject to some IRS rules, some CRA rules, and the Canada-US Tax Treaty. Recently, the IRS has been cracking down and collecting taxes from its citizens who live in foreign countries. Author Dale Walters understands the fear and confusion that Americans may experience when confronted by the IRS and the CRA. In his book, Taxation of Americans in Canada, Walters seeks to calm those fears so that you can be proactive about the situation.
1 Before You Go to Canada 1
1. Planning Your Move 1
2. Expatriation 3
2.1 Relinquishing US citizenship 3
2.2 Relinquishing Lawful Permanent Resident status 4
3. Your Rights after US Citizenship Is Terminated 8
3.1 The Reed Amendment 8
4. Tax Planning before You Go 9
4.1 US bank and nonqualified brokerage accounts 9
4.2 Nonqualified US brokerage accounts 10
4.3 Qualified accounts 11
4.4 Cashing out your IRA, 401(k), or RRSP 11
2 Your First Year in Canada 13
1. Overview of Filing Requirements When You Are in Canada 13
2. Determining Canadian Residency 14
3. First Things First 15
4. Deemed Acquisitions 15
5. First-Year Tax Filing 16
6. Contributions to Retirement Plans 18
6.1 RRSP deduction limit formula 19
7. Social Security 20
Contents
iv Taxation of Americans in Canada
8. Differences in How Certain Income Is Taxed 20
8.1 Dividends 20
8.2 Capital gains 21
8.3 Gambling winnings 21
8.4 Registered accounts 21
8.5 Alimony 21
9. Deductions and Credits 22
10. US Filing Requirements 23
11. The Totalization Agreement 24
12. Canadian Health Insurance 25
3 An Overview of Canadian Taxation 26
1. Two Important Points to Set the Stage 26
2. History of Canada Revenue Agency (CRA) 28
3. Filing Requirements in Canada 29
3.1 Unwinding a previous deemed disposition 30
4. Summary of Major Differences between Canadian
and US Taxes 31
5. Filing Requirements in the US 32
5.1 When to file your individual income tax return 34
5.2 Electronic filing 34
6. Penalties and Interest for Underpayments, Late Filings,
and Late Payments 35
6.1 United States 35
6.2 Canada 35
7. Filing Status 36
8. Address Changes 36
8.1 Notifying the IRS when you have a change of address 36
8.2 Notifying CRA when you have a change of address 37
9. Overview of Entity Taxation and Rates 37
9.1 Partnerships 37
9.2 Limited Liability Companies 38
9.3 Trusts 38
9.4 Corporations 38
10. Carrying Charges 40
11. Alternative Minimum Tax 41
11.1 Canadian Alternative Minimum Tax 41
11.2 US Alternative Minimum Tax 42
Contents v
12. Residency 43
12.1 Step 1: Determine if you have residential ties
with Canada 47
12.2 Step 2: Determine your residency status and its
tax implications 48
13. Tax Audits and Dealing with the CRA 49
13.1 The CRA examination (audit) process 49
14. Dealing with the CRA 50
4 The Treaty 52
1. History of the Canada-US Tax Treaty 52
1.1 The relationship of the “laws of the land” to the Treaty 53
2. Treaty Overview 53
3. Inside the Treaty 54
3.1 Saving clause 55
3.2 Disclosing treaty benefits claimed 55
4. Residency 55
5. Real Property 57
6. Dividends, Interest, and Royalties 58
7. Gains on Personal Property 59
8. Personal Services 59
9. Artists and Athletes 59
10. Pensions and Annuities 60
11. Social Security 62
12. Government Service 62
13. Students 62
14. Taxes Imposed by Reason of Death 63
5 Foreign Tax Credits 64
1. What Are Foreign Tax Credits? 65
2. The Foreign Tax Credit in Canada 65
2.1 Foreign non-business income tax credit 66
2.2 Foreign business-income tax credit 69
3. The Foreign Tax Credit in the US 69
6 Retirement Plans, Pensions, and Social Security 71
1. US Taxation of Canadian Retirement Plans 71
1.1 Canadian pension contributions 71
1.2 Spousal RRSP 72
vi Taxation of Americans in Canada
1.3 Pension withdrawals 72
1.4 Old Age Security and Canadian Pension Plan
contributions and benefits 73
2. Canadian Taxation of US Retirement Plans 74
2.1 Contributions to US retirement accounts 74
2.2 Pension withdrawals 75
2.3 Social security 76
2.4 Planning for US retirement accounts 77
2.5 Rolling your US account into an RRSP 79
3. The Totalization Agreement and the Windfall Elimination
Provision (WEP) 80
7 Investing in Canada 82
1. Comparing the US and Canadian Securities Markets 82
2. Taxation of Dividends in Canada 86
2.1 Eligible dividend rules 86
2.2 Dividends and corporations 87
2.3 Designating an eligible dividend 87
3. Basics of the US Net Investment Income Tax (NIIT) 88
3.1 Planning opportunities 89
3.2 Net investment income defined 89
3.3 Reporting net investment income 90
3.4 Foreign tax credits 90
3.5 Calculation examples 90
4. Savings Accounts for Retirement and Education 91
4.1 General information 91
4.2 Canadian Education Savings Grant (CESG) 91
5. Real Estate 92
5.1 Depreciating real estate 94
8 Common Deductions on Canadian Income Taxes 95
1. Employment or Office Deductions 97
2. Business Deductions 98
2.1 Advertising expenses 100
2.2 Meals and entertainment 101
2.3 Bad debts 101
2.4 Insurance 101
2.5 Interest 101
2.6 Other loan costs 101
Contents vii
2.7 Salaries, wages, and bonuses 102
2.8 Private health services premiums 102
2.9 Motor vehicle expenses 102
2.10 Other expenses 104
2.11 Capital cost allowance 104
2.12 Lifetime capital gains deduction 105
2.13 Qualified farm property and qualified fishing property 107
3. Other Personal Deductions 107
3.1 RRSP contributions 107
3.2 Split pension amount 107
3.3 Child care expenses 108
3.4 Disability support 108
3.5 Moving expenses 108
3.6 Spousal and child support payments 109
3.7 Deduction for foreign non-business income tax 109
3.8 Other deductions 110
4. Nonrefundable Tax Credits 110
4.1 Basic personal credit 111
4.2 Spouse or common-law partner credit 111
4.3 Eligible dependent credit 112
4.4 Infirm dependent credit 112
4.5 Caregiver credit 112
4.6 Universal child care benefit 112
4.7 Age credit 113
4.8 CPP and QPP credits 113
4.9 Employment Insurance (EI) credit 113
4.10 Pension income credit 113
4.11 Canada employment credit 113
4.12 Volunteer firefighters’ and volunteer search and
rescue credit 113
4.13 Adoption expenses credit 114
4.14 Public transit passes credit 114
4.15 Children’s fitness credit 114
4.16 Children’s arts credit 114
4.17 Disability credit 114
4.18 Medical expenses credit 114
4.19 Home buyer’s credit 114
4.20 Donations and gifts credit 115
viii Taxation of Americans in Canada
4.21 Interest paid on student loans credit 115
4.22 Federal dividend credit 115
4.23 Overseas employment tax credit 116
4.24 Federal foreign tax credit 116
5. Refundable Tax Credits 117
5.1 Refundable medical expenses 117
5.2 Refundable GST/HST credit 117
5.3 Working income credit 118
9 Tax Planning 121
1. The Direction Your Planning Should Take 121
2. US Foreign Account Filing Requirements 122
2.1 If you own a Canadian corporation 123
2.2 If you own a Canadian trust 127
2.3 Registered Education Savings Plans 128
2.4 Tax-Free Savings Accounts 128
2.5 US entities 129
2.6 Principal residence 129
2.7 Other issues 130
3. Tax Planning Ideas 130
4. An Overview of the Tax Benefits of Moving to the US 131
10 Canadian and US Death Taxes 132
1. Canada’s Death Tax: Deemed Disposition of Property 132
2. Gift Tax in Canada 134
2.1 Attribution rules 134
3. Probate in Canada 135
4. US Death Taxes 135
4.1 Estate tax issues for expatriated US citizens 135
4.2 Passing assets to a non-citizen spouse 138
4.3 Jointly held property 140
4.4 Issues for non-US persons (citizens or
green card holders) who own US property 141
4.5 Treaty 142
5. US Foreign Trust Rules 146
11 Tax for Americans Living in Canada 147
1. US Citizens 147
2. Green Card Holders 148
Contents ix
2.1 The Treaty as it applies to green card holders 148
2.2 Termination of green card status 148
2.3 Expatriation 149
3. Surrendering Your Green Card 149
3.1 Long-term residents of the US 150
4. Substantial Presence Test 153
4.1 Days of presence in the US 154
4.2 Exempt individual 154
4.3 Closer connection exception 155
5. Residency Starting and Ending Dates 155
5.1 Starting date under the green card test 155
5.2 Starting date under the substantial presence test 156
5.3 Starting date under the first-year choice 157
5.4 Starting date under the terms of the treaty 158
5.5 Residency during the next year 158
5.6 Ending date under the green card test 159
5.7 Ending date under the substantial presence test 159
5.8 Statement required to establish your residency
termination date 160
6. Foreign-Earned Income Tax Exclusion 160
6.1 Bona fide residence test 161
6.2 Physical presence test 161
6.3 Housing exclusion 162
7. Owning Real Estate in the US 162
8. Foreign Trust Rules 164
8.1 Canadian foreign trusts 164
8.2 US foreign trusts 165
8.3 General rules of trust taxation 165
8.4 Throwback rule 167
8.5 Transfers to a foreign trust 169
8.6 Loans from foreign trusts; intermediary transfers 169
8.7 Tax reporting 169
12 Americans in Noncompliance with the IRS 171
1. Ways of Becoming a US Citizen 171
2. Reporting of Foreign (Non-US) Bank and
Financial Accounts 172
2.1 Signature authority 173
x Taxation of Americans in Canada
3. Offshore Voluntary Disclosure Program 174
3.1 Streamlined filing procedures 174
3.2 Eligibility for the streamlined foreign
offshore procedures 176
3.3 Scope and effect of procedures 178
3.4 Specific instructions 179
3.5 Eligibility for the streamlined domestic
offshore procedures 181
3.6 Scope and effect of procedures 181
3.7 Specific instructions 182
Resources 187
Tables
1 Comparison When Cashing Out Accounts 12
2 Do You Have to File a US 2015 Federal Tax Return? 33
3 Canadian Corporate Tax Rates 39
4 Tax Rates for Canadian-Controlled Private Corporations 42
5 Combined Maximum Personal Tax Rates 2016 43
6 Provincial/Territorial Tax Rates for 2016 44
7 Canadian Federal Individual Tax Calculation 46
8 US Required Minimum Distribution Table 78
9 Minimum RRIF Distributions (Canada) 79
10 Pros and Cons of Rolling 401(k) or IRA to an RRSP 80
11 Stock Markets 83
12 Stock Sectors 83
13 A US-Canada Stock Market Comparison 85
14 Thresholds for US NIIT 88
15 Comparison of 529 Plans versus RESP Accounts 93
16 Determining Taxable Income in Canada:
Federal Individual Tax Calculation 96
17 Commonly Used CCA Classes 106
18 Disability-Related Tax Measures 109
19 Credits and Prorating 111
20 Non-Eligible Dividend Gross-Up Percentages and Tax Credits 116
21 GST/HST Credits 118
22 Summary of 2016 Nonrefundable Personal Tax Credits 120
23 Comparison of Form 8938 and FBAR Requirements 124
24 Court Probate Costs 136

Sujets

• Imposition (fiscalité)
• Tax
• Personal finance

Informations

• Publié par: Self-Counsel Press
• Date de parution: 30 avril 2016
• Nombre de lectures: 0
• EAN13: 9781770408746
• Langue: English
• Poids de l'ouvrage: 1 Mo

Extrait

Taxation of Americans in Canada
Are YOU at risk?
Dale Walters, CPA, PFS, CFP® with Sally Taylor, CPA, and David Levine, CA, CPA
Self-Counsel Press (a division of) International Self-Counsel Press Ltd. USA Canada

Copyright © 2016

International Self-Counsel Press All rights reserved.
Contents

Cover

Title Page

Chapter 1: Before You Go to Canada

1. Planning Your Move

2. Expatriation

3. Your Rights after US Citizenship Is Terminated

4. Tax Planning before You Go

Table 1: Comparison when Cashing Out Accounts

Chapter 2: Your First Year in Canada

1. Overview of Filing Requirements When You Are in Canada

2. Determining Canadian Residency

3. First Things First

4. Deemed Acquisitions

5. First-Year Tax Filing

6. Contributions to Retirement Plans

7. Social Security

8. Differences in How Certain Income Is Taxed

9. Deductions and Credits

10. US Filing Requirements

11. The Totalization Agreement

12. Canadian Health Insurance

Chapter 3: An Overview of Canadian Taxation

1. Two Important Points to Set the Stage

2. History of Canada Revenue Agency (CRA)

3. Filing Requirements in Canada

4. Summary of Major Differences between Canadian and US Taxes

5. Filing Requirements in the US

Table 2: Do You Have to File a US 2015 Federal Tax Return?

6. Penalties and Interest for Underpayments, Late Filings, and Late Payments

7. Filing Status

8. Address Changes

9. Overview of Entity Taxation and Rates

Table 3: Canadian Corporate Tax Rates*

10. Carrying Charges

11. Alternative Minimum Tax

Table 4: Tax Rates for Canadian-Controlled Private Corporations

Table 5: Combined Maximum Personal Tax Rates 2016

Table 6: Provincial/territorial tax rates for 2016

Table 7: Canadian Federal Individual Tax Calculation

12. Residency

13. Tax Audits and Dealing with the CRA

14. Dealing with the CRA

Chapter 4: The Treaty

1. History of the Canada-US Tax Treaty

2. Treaty Overview

3. Inside the Treaty

4. Residency

5. Real Property

6. Dividends, Interest, and Royalties

7. Gains on Personal Property

8. Personal Services

9. Artists and Athletes

10. Pensions and Annuities

11. Social Security

12. Government Service

13. Students

14. Taxes Imposed by Reason of Death

Chapter 5: Foreign Tax Credits

1. What Are Foreign Tax Credits?

2. The Foreign Tax Credit in Canada

3. The Foreign Tax Credit in the US

Chapter 6: Retirement Plans, Pensions, and Social Security

1. US Taxation of Canadian Retirement Plans

2. Canadian Taxation of US Retirement Plans

Table 8: US Required Minimum Distribution Table (Table III Uniform Lifetime Table*)

Table 9: Minimum RRIF Distributions (Canada)

Table 10: Pros and Cons of rolling 401(k) or IRA to an RRSP)

3. The Totalization Agreement and the Windfall Elimination Provision (WEP)

Chapter 7: Investing in Canada

1. Comparing the US and Canadian Securities Markets

Table 11: Stock Markets

Table 12: Stock Sectors

Table 13: A US-Canada Stock Market Comparison

2. Taxation of Dividends in Canada

3. Basics of the US Net Investment Income Tax (NIIT)

Table 14: Thresholds for US NIIT

4. Savings Accounts for Retirement and Education

5. Real Estate

Table 15: Comparison of 529 Plans versus RESP Accounts

Chapter 8: Common Deductions on Canadian Income Taxes

Table 16: Determining Taxable Income in Canada: Federal Individual Tax Calculation

1. Employment or Office Deductions

2. Business Deductions

Table 17: Commonly Used CCA Classes

3. Other Personal Deductions

Table 18: Disability-Related Tax Measures

4. Nonrefundable Tax Credits

Table 19: Credits and Prorating

Table 20: Non-Eligible Dividend Gross-up Percentages and Tax Credits

5. Refundable Tax Credits

Table 21: GST/HST Credits: July 2015 – June 2016 (tax year 2014)

Table 22: Summary of 2016 Nonrefundable Personal Tax Credits

Chapter 9: Tax Planning

1. The Direction Your Planning Should Take

2. US Foreign Account Filing Requirements

Table 23: Comparison of Form 8938 and FBAR Requirements

3. Tax Planning Ideas

4. An Overview of the Tax Benefits of Moving to the US

Chapter 10: Canadian and US Death Taxes

1. Canada’s Death Tax: Deemed Disposition of Property

2. Gift Tax in Canada

3. Probate in Canada

Table 24: Court Probate Costs

4. US Death Taxes

5. US Foreign Trust Rules

Chapter 11: Tax for Americans Living in Canada

1. US Citizens

2. Green Card Holders

3. Surrendering Your Green Card

4. Substantial Presence Test

5. Residency Starting and Ending Dates

6. Foreign-Earned Income Tax Exclusion

7. Owning Real Estate in the US

8. Foreign Trust Rules

Chapter 12: Americans in Noncompliance with the IRS

1. Ways of Becoming a US Citizen

2. Reporting of Foreign (Non-US) Bank and Financial Accounts

3. Offshore Voluntary Disclosure Program

Resources

Publications and Useful Readings

Handy Form Names and Links

Canadian Health Insurance

Acknowledgments

About the Authors

Notice to Readers

Self-Counsel Press thanks you for purchasing this ebook.
Chapter 1
Before You Go to Canada

Assuming you decide Canada is the right place for you and you’re not already resident, before you move to Canada, you need do a lot of planning. Just moving across town you have to think about what to take and what to leave behind. You have to think about how to notify everyone of your new phone number and mailing address. You have to decide about packing and physically moving your belongings, and whether to do it yourself or hire a moving company.
When moving to a new country, the issues are exponentially more complex. You may think about immigration, applying for health insurance, and obtaining a tax ID number. Unfortunately, tax planning is typically ignored or postponed until it is too late.

1. Planning Your Move
Canada provides a number of good resources that will help with your move, but before you look at those resources you must consider the implications of leaving the US.
From a tax perspective, there are three broad categories that people fall into when leaving the US and each has different tax ramifications. The categories are US citizens, long-term permanent residents (green card holders), and anyone that is neither a US citizen nor a long-term green card holder. A long-term permanent resident is defined as a person who has been a “Lawful Permanent Resident,” also known as a green card holder, for at least 8 out of the last 15 years.
Note: The definition of a long-term resident is very precise and applies only to green card holders. Therefore you can be in the US for 10, 20, or more years using a Visa and you would never be considered a long-term permanent resident.
The easiest category from a tax perspective is that of US citizens that continue to retain their US citizenship when they move out of the US. As a US citizen, you simply need to do some tax planning before you move. We will talk about tax planning and expatriation later in this chapter.
If you are not a US citizen and are not a long-term green card holder, you are required to obtain a Certificate of Compliance, also known as a Sailing Permit, before leaving the US. To get a Certificate of Compliance, you must go to a local IRS office between two and four weeks before leaving the US. You must file either the Form 2063 tax statement (short form) or the Form 1040-C tax return (long form) and take it with you to an IRS office to obtain a Certificate of Compliance. The certificate cannot be issued more than 30 days before you leave. If you are married, you each must receive a clearance certificate; therefore you and your spouse must each file one of the forms and go to the IRS office.
Form 2063 is the short form that asks for some basic information, but does not compute the tax due. You are qualified to use the short form if you have filed a least one tax return (and paid tax, if applicable) in the US, and are an —
• individual who had no taxable income during the year up to the date of departure, or
• individual who had taxable income during the year or preceding year and “whose departure will not hinder the collection of any tax.” If the IRS has information indicating that you are leaving to avoid paying tax, you must file Form 1040-C and pay th