Smart tax tips:

Are you a “US person” residing in Canada? Make sure your US filing obligations are up-to-date!

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  • Are you a “US person” residing in Canada? Make sure your US filing obligations are up-to-date!
  • The United States taxes its citizens, residents and green-card holders (collectively, US persons) on their worldwide income, regardless of whether they live in the United States. As a result, if you’re a US person living in Canada, you’re generally required to file both a Canadian and a US income tax return.

    If you have not been filing a US income tax return, you should get professional advice as there can be significant penalties for non-compliance. In addition to filing a tax return, you may also be required to disclose a substantial amount of other financial information to the US government. This could involve filing an annual Report of Foreign Bank and Financial Accounts (FBAR) and/or Form 8938, Statement of Specified Foreign Financial Assets. While there are special voluntary disclosure and streamlined programs for US persons who are delinquent in some or all of their US tax and financial information filings, this relief may only be temporary and will not apply to all taxpayers.

    If you hold an interest in a Canadian RRSP or RRIF, you should also be aware of some fairly recent changes regarding what you need to report to the IRS. Previously, a US person was generally required to file an election on Form 8891, US Information Return for Beneficiaries of Certain Canadian Registered Retirement Plans, to defer taxation on the undistributed income generated in the RRSP or RRIF. The IRS eliminated this form at the end of 2014. US persons will now generally automatically qualify for the US tax deferral treatment for such accounts. Also, if you failed to comply with the formal reporting requirements in prior years, you will be treated as having retroactively made valid elections in the past, provided you meet certain conditions. It should be noted that because you no longer are required to file Form 8891, you will now have to disclose these RRSP and RRIF accounts on Form 8938, Statement of Specified Foreign Financial Assets, if you meet the filing thresholds for this form. There are also special reporting requirements for RESPs, RDSPs and TFSAs as they are not deferred plans under US tax rules.

    If you are not in compliance with your US tax obligations, you should discuss your options with your tax advisor.

    July 20, 2015