Author Topic: Americans Living in Canada (or Abroad) -- Tax Questions  (Read 2816 times)

thecornercat

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Americans Living in Canada (or Abroad) -- Tax Questions
« on: November 26, 2014, 10:03:18 PM »
My partner is an American living in Canada and he hasn't done his taxes for the US for a few years. We are going to do them now, especially after I stupidly advised him to open a TFSA (the Canadian in me thought it'd be a great idea) and discovered that the US doesn't recognize it as a tax-free account and requires him to report it especially. We are going to make sure we close the account ASAP so it doesn't go into another tax year and also gather all the related forms he needs for such an account.


If you have experience filing taxes as an American from Canada (or, I suppose, another foreign country--not sure if there are differences), any pointers or advice would be appreciated. I have googled information and found some helpful information from tax accountants as well as individuals, and I have also placed a hold at the library for this book: http://www.carswell.com/product-detail/a-tax-guide-for-american-citizens-in-canada/


But I would appreciate tips from people who have personal experience filing taxes while living abroad. My aim is to NOT have to go to an accountant for this: or, if we do, I want to fully understand the situation first.

nonsequitur

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Re: Americans Living in Canada (or Abroad) -- Tax Questions
« Reply #1 on: November 26, 2014, 10:30:48 PM »
You are in for a bureaucratic nightmare!  FBAR, FATCA, Form 3520, Form 8621 (PFICs)...

Here are the tips for your partner:

1) Avoid foreign accounts other than ordinary bank & brokerage accounts.

2) Absolutely do not invest in non-US mutual funds.  Try to avoid all foreign investments.  If you want to invest in the stock market, invest in the US market with a US broker who will let you have a foreign address, or a foreign broker that will let you invest in the US market with low fees. 

3) File FBARs & tax returns in a timely manner.

4) File the back-FBARs and back tax returns.  Your choice on quiet disclosure or not. 






thecornercat

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Re: Americans Living in Canada (or Abroad) -- Tax Questions
« Reply #2 on: November 26, 2014, 10:38:58 PM »
I didn't even know what quiet disclosure was! I've google it, and I thank you for bringing it up. This article on the topic did a sufficient job of terrifying me: http://www.moodysgartner.com/irs-hates-quiet-disclosures-and-they-really-mean-it/
Everything I encounter about American taxes is full of warnings about penalty this, penalty that, always around the amount of $10,000. And so complicated!
Luckily we don't have to worry about Form 8621, but so far, the other forms you mentioned (grah, that TFSA) we have to deal with.




Cottonswab

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Re: Americans Living in Canada (or Abroad) -- Tax Questions
« Reply #3 on: November 26, 2014, 11:12:22 PM »
Yes.  Unfortunately, paying taxes in this situation is complicated.  I lived and worked in Canada for 2 years, and my Employer hired Deloitte to file my taxes.

Even if my employer hadn't paid for the tax filing services, I would have personally paid for a professional tax advisor.  Therefore, I recommend hiring a specialist In US and Canadian income taxes.

In particular, you should be concerned about a Canadian tax on his net worth, if he leaves Canada after living there for more than 5 years.  Also you should be aware that American citizens are required to file income taxes in the US every year, regardless of where they live or work.

Bikeguy

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Re: Americans Living in Canada (or Abroad) -- Tax Questions
« Reply #4 on: November 28, 2014, 10:45:40 AM »
Article in the WSJ with in the last few months about Americans living in Canada renouncing citizenship to avoid US tax bureaucracy.

thecornercat

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Re: Americans Living in Canada (or Abroad) -- Tax Questions
« Reply #5 on: November 28, 2014, 01:19:05 PM »

However, when you cease to be a resident of Canada for tax purposes (which is not linked to any particular minimum number of years), you are deemed to dispose of all your property at fair market value, which may cause you to have to pay capital gains on assets you have not disposed of.


We weren't even thinking about what his situation will be once he decides to leave... we haven't gotten there yet, but this is very helpful to remember for when that time comes.

CPA CB

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Re: Americans Living in Canada (or Abroad) -- Tax Questions
« Reply #6 on: November 28, 2014, 01:32:03 PM »

However, when you cease to be a resident of Canada for tax purposes (which is not linked to any particular minimum number of years), you are deemed to dispose of all your property at fair market value, which may cause you to have to pay capital gains on assets you have not disposed of.


We weren't even thinking about what his situation will be once he decides to leave... we haven't gotten there yet, but this is very helpful to remember for when that time comes.

There are a few cross-border tax experts out there, if you should choose to decide to get a quote from someone, I know a few, one of whom operates in the GTA. I know you wanted to avoid the accountant route, but it may be better to get some expertise here as the other folks are correct - navigating the US/Canadian Tax Treaty is a complex matter...


Goldielocks

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Re: Americans Living in Canada (or Abroad) -- Tax Questions
« Reply #7 on: November 29, 2014, 12:36:15 AM »

However, when you cease to be a resident of Canada for tax purposes (which is not linked to any particular minimum number of years), you are deemed to dispose of all your property at fair market value, which may cause you to have to pay capital gains on assets you have not disposed of.


We weren't even thinking about what his situation will be once he decides to leave... we haven't gotten there yet, but this is very helpful to remember for when that time comes.

There are a few cross-border tax experts out there, if you should choose to decide to get a quote from someone, I know a few, one of whom operates in the GTA. I know you wanted to avoid the accountant route, but it may be better to get some expertise here as the other folks are correct - navigating the US/Canadian Tax Treaty is a complex matter...

Working as a Canadian that had to file us taxes on my rollover..because IRS does not look at common sense things without it being detailed out...ARGH. The only thing I had to do was write the word "rollover" beside the line with a "0" on it.... After two formal warning notes about failure to file.

 My advice is to hire the expert one year, then use this year's filing as your template for all future years.  Keep an eye on the blogs and they will post when changes or loopholes specifically for you come available.

Double this advice if you have not filed or completed US tax forms before.  The process us nothing like Canadian taxes, which are straightforward by comparison ( just imagine that!).