US Citizens living in Canada read this!
By Robb Lovell, MBA
A tax crackdown by the U.S. IRS has more than one million Americans and green-card holders living in Canada scrambling to figure out how to comply with previously unenforced U.S. tax rules.
Being a border town, Windsor is full of U.S. citizens that are residing in Canada, some of whom might never have even lived in the United States. So there is little doubt that this is having a major impact in our community.
The IRS crackdown is a move on the part of the U.S. government to ensure that the U.S. citizens are filing an annual tax return and paying what they owe on foreign accounts, assets and income.
Despite the fact that the vast majority of Americans living in Canada will owe nothing on a U.S. return for income they earned in Canada, they are still required to file a U.S. Return as U.S. tax law is based on citizenship and not residency, like Canada.
Further, any U.S. citizen is required to provide a federal U.S. tax form annually called an F-Bar which details out all foreign accounts and holdings (savings accounts, chequing accounts, RRSP, investment account, TFSA accounts and even RESP accounts).
Failing to file an F-Bar form annually and on time can result in penalties of up to $10,000 and unfortunately the IRS rule does not distinguish between U.S. citizens living in Canada under a tax treaty and those who might be circumventing U.S. taxes by living in tax havens like the Caribbean.
What is perhaps most disturbing is that the IRS can level penalties on individuals that do not owe any tax whatsoever simply because they failed to file the required forms.
Starting in 2013, the IRS will require financial institutions to outline and disclose all accounts held by current and former U.S. citizens. Canadian Finance Minister Jim Flaherty said that Canada is not a tax haven and that the U.S. Foreign Account Tax Compliance Act will place an onerous burden on Canadian Financial Institutions.
If you know someone facing this issue, contact our office as we have the information and resources to direct that person on this complex and somewhat disturbing turn of events by the IRS.