The United States taxes its citizens and green-card holders on their worldwide income, regardless of whether they live in the US or not. This is because US tax liability and filing obligations are generally based on citizenship, not residency. As a result, if you’re a US citizen who is resident in Canada, you’re required to file both a Canadian and a US income tax return (certain exceptions may apply), even if you owe no US tax.
Although the filing deadline for US income tax returns is April 15 of the year following the reporting year, you can have an automatic extension to June 15 if you are a US citizen living in Canada. However, any tax due must be paid by April 15. In certain cases, an additional extension to October 15 may be available. Where there’s a tax liability on a late-filed US income tax return, a person will be subject to a failure to file and failure to pay penalty unless it can be shown that the failure was due to reasonable cause and not due to willful neglect.
In addition to the requirement to file a US income tax return, US citizens living in Canada may also need to disclose a substantial amount of other financial information to the US government. For example, the Report of Foreign Bank and Financial Accounts (FBAR) form needs to be filed by US citizens, regardless of where they are resident if they hold foreign (i.e., Canadian) financial accounts with an aggregate balance of over US$10,000 at any time in the year. Foreign financial accounts include Canadian bank, investment, and registered accounts such as RRSPs or RESPs as well as TFSAs. The penalties for not filing this form when required can be severe.
If you’re a US citizen living in Canada, you should discuss your US filing obligations with your tax adviser, especially if you’re not up-to-date with your required filings. There are special voluntary disclosure programs and new guidance available from the Internal Revenue Service for US citizens who are delinquent in some or all of their US tax and financial information filings.