In addition to the many obligations and filing responsibilities there are also significant opportunities to reduce or eliminate your U.S. tax liabilities by applying tax credits for taxes paid in Canada or applying other provisions of the Canadian and US tax systems and treaties.
Here are some areas that require consideration:
- If you have not filed tax returns for many years, or have never filed a U.S. tax return, file your returns as soon as possible, even if you do not owe any tax. To claim certain exclusions and tax credits to reduce your tax liability and to avoid penalties, voluntarily file your return
- Foreign Earned Income. You can elect to exclude a portion of your foreign earned income to reduce or eliminate your U.S. tax liabilities provided election is made on a tax return that has been filed on time. Failure to file on time can result in exemptions being denied
- Housing Exclusion. If your employer has paid all, or a portion of your foreign housing costs or if you are self-employed, you may be able to claim a foreign housing deduction
- Foreign Tax Credits. You may claim a dollar-for-dollar credit against your U.S. tax liability for tax paid to Canada on income that has not been excluded
- Income Exempted by Treaty. U.S. Social Security benefits, Canadian CPP and OAS are exempt, by treaty, from U.S. tax for residents of Canada providing certain requirements are fulfilled
- U.S. Reporting Requirements for Canadian RRSPs and RRIFs. Income recognition from RRSP’s and RRIF’s can be deferred until distributed to the plan beneficiaries provided appropriate attachments are submitted with your U.S. tax return
- Foreign Bank Accounts. The identity and location of foreign financial accounts, with balances exceeding certain limits, must be disclosed and reported. Failure to do so may result in fines and serious penalties.
