US-Canadian Dual Citizenship Tax Issues

Dual Citizenship

Dual citizenship provides many benefits, including job mobility and voting rights. It provides a platform for individuals to travel for long periods between countries for personal and professional reasons, without restrictions and without being required to apply for a visa.

Canada and the United States have different tax filing requirements and regulations depending on the citizenship and residency of the taxpayer. As mentioned above, in Canada, one’s tax filing requirements depend on the residency of the taxpayer, while in the United States, the tax filing requirements are based on your U.S. person status, such as U.S. citizenship. For over one million U.S. citizens living in Canada, they would have to file income tax returns in both countries. When it comes to holding dual citizenship, you have to consider the tax factors associated with dual citizenship status.

As a U.S./Canada dual citizen, taxes can get tricky — dual citizens have few more tax and financial challenges than the typical resident that affect not only taxes on your wages, but taxes on investments, pensions, and properties as well.

Cross-border tax for Dual Citizens of the U.S. and Canada can get very complex and challenging especially for dual citizens residing in Canada. Dual citizenship has its perks but can become difficult when it comes to filing taxes in both the U.S. and Canada due to double taxation, foreign reporting obligation, investments, retirement, and continuous upkeep of the laws. Let us overview the three main issues an individual could undergo holding dual citizenship.

1 – Financial Reporting Obligations besides filing taxes for dual U.S. Canadian Citizens

Holders of Canadian bank accounts, Canadian retirement accounts, and other Canadian financial assets are required to file and report FBAR (Foreign Bank Account Report (FinCen Form 114)) and Form 8938 (Statement of Specified Foreign Financial Assets). Foreign Account Tax Compliance Act (FATCA) governs the foreign reporting for both FBAR and form 8938.

There are heft penalties for not reporting foreign accounts and assets which can go up to 50% of the total account value not reported.

2 – Obligations on U.S. border cross citizen tax-free accounts

It is a matter of extreme disappointment for the dual U.S. Canadian citizen that some of the tax-free investment, retirement, and saving accounts in Canada are not tax-free in the U.S. If you have a Canadian Registered Education Savings Plan (RESP), Tax-Free Savings Account (TFSA), or a Registered Disability Savings Plan (RDSP), your incomes are subject to U.S. taxes. 

There is hope through US Canada Tax Treaty, which provides special tax treatment to Canadian pensions and retirement accounts. The special treatment comes in the form of whether a reeducate tax rate is applied, tax exemption of certain types of income, and tax credit. In the majority of cases, a dual citizen is allowed to defer U.S. tax on undisputed earnings from an RRSP, RRIF, LIRA, and other similar Canadian plans. 

As per law, Canadian retirement and investment accounts are subject to report Foreign Bank and Financial Accounts (FBAR) and FATCA (Foreign Account Tax Compliance Act). Likewise, your Canadian Pension and Retirement plans require reporting on form 1040.

3 – IRS Amnesty Programs for non-compliant U.S. nationals

IRS has designed a series of Offshore Voluntary Disclosure Programs (OVDP)-Streamlined Foreign Offshore Procedures. This program allows overseas Americans to file overdue U.S tax returns and provide them an opportunity to bypass the penalties by getting a full penalty waiver and coming into compliance.

Following are two requirements for the Streamlined Foreign Offshore program:

An applicant is non-willful; if you unknowingly violated the FBAR laws and failed to file the U.S tax returns.

An applicant is a foreign resident; must have resided outside of the U.S for at least 330-days in at least one of the last three tax years that passed. Thus, must not have lived in the U.S. for at least one of the three most current tax years.

Have dual citizenship in the U.S. and Canada? Filing Taxes is here to help with your taxes. Tax filing in one country is enough to give anyone a headache, and it only gets more complicated for dual citizens of the U.S. and Canada. But no matter your situation, we’ve got a tax solution for you.

Tax planning allows the taxpayer to use various tax exemptions, deductions, and benefits to minimize their tax liability. Thus it is a cumulative result of various income tax planning techniques. All the above-mentioned tax planning techniques should be considered only after consultation with our expert Toronto income tax planning tax professionals.

If you need any advice on tax-saving strategies from an expert tax accountant in Toronto, Mississauga, Oakville, and Hamilton feel free to reach out to Filing Taxes at 416-479-8532. Schedule an NTR engagement appointment with us and take the first step towards proper management of your finances.

Disclaimer: The information provided on this page is intended to provide general information. The information does not consider your personal situation and is not intended to be used without consultation from accounting and financial professionals. Salman Rundhawa and Filing Taxes will not be held liable for any problems that arise from the usage of the information provided on this page.

Written By:
Salman Rundhawa
Salman Rundhawa is the founder of Filing Taxes. Salman provides valuable tax planning, accounting, and income tax preparation services in Toronto, Mississauga, Oakville, and Hamilton.

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