As in Canada, US citizens are required to report their world-wide income. They can also claim the US taxes paid, as will be described below.
Although the income earned in the US before immigrating to Canada is not taxable in Canada, it is important to report that income to the Canada Revenue Agency. World wide income is considered when applying for various benefits such as GST Rebates and Child Care Benefits
Foreign Earned Income Exemption
US citizens living abroad may claim up to US $107K of various types of earned income which may be exempt from taxes in the US.
You may qualify for the foreign earned income exclusion, the foreign housing exclusion, and/or the foreign housing deduction. To claim these benefits, you must have foreign earned income, your tax home must be in a foreign country, and you must be one of the following:
- A U.S. citizen who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year,
- A U.S. resident alien who is a citizen or national of a country with which the United States has an income tax treaty in effect and who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year, or
- A U.S. citizen or a U.S. resident alien who is physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months.
Foreign Tax Credits
When you earn income in Canada and pay taxes to the Canada Revenue Agency, you may be entitled to claim part of all of those taxes in your US tax returns.
Claiming foreign tax credits in your US tax returns helps to avoid double taxation.
Occasionally, the International Division of the Canada Revenue Agency will ask for documentation to prove that US tax returns were filed and taxes were already paid. The IRS doesn’t always mail a notice of assessment like the CRA does. You may need to call the IRS to request an Account Transcript, which will be faxed to you. This is the document required by the CRA to confirm that your claim re: foreign tax credits is legitimate.
Most clients are required to file a FBAR if they have non-retirement financial assets that total over USD 10K. We can prepare and file these returns that are separate from the US 1040s
If a US citizen moves to Canada and then moves back to the US after 5 years, they may be liable for a 25% departure tax on their assets. This is a complex issue and requires planning and expertise. Please contact our founder, Randy Larson, for more information.