The United States has tax treaties with several countries, which affect how American citizens operate outside the U.S. For example, American expats in Canadamust file taxes in Canada and in the U.S. However, the U.S. and Canada have a treaty in place so that expats aren’t taxed twice on the same income. Get aU.S.-Canada tax treaty summaryto explore what you owe, when you owe it, and the benefits of working with aCanada-U.S. tax accountant.
What Is the U.S.-Canada Tax Treaty?
Signed in 1980, the U.S.-Canada tax treaty outlines how Canadian and U.S. residents who live in one country and work in another are taxed. Americans who are classified as non-residents of Canada do not have to pay income tax in the country for income under $10,000. (Note, there are exceptions for some types of work. For instance, public entertainers and self-employed individuals.)
While scenarios can be more complicated with individuals who maintain homes in both countries, the situation is straightforward for U.S. expats who live and work in Canada with a limited physical presence in the U.S. Canadian residence is accrued after 183 days living in the country. Thus, if you’re an American who worked in Canada and lived there for 182 or fewer days, or if you earned under $10,000 and are not self-employed, you do not have to pay Canadian taxes.
Assuming you either fit the residency qualification or earned over $10,000 as aU.S. citizen working in Canada, taxesare something with which you need to concern yourself. For self-employed expats, Canadian taxes are owed if you have a “permanent establishment” in Canada. If you’re not sure whether your business counts, a CPA with expat experience can advise you.
The U.S. is unique on the world stage in that it requires its citizens to pay income tax, even if they live and work internationally.American expats in Canadaare legally required to file U.S. income tax returns every year.
With U.S. taxes, expat benefits allow you to declare your earnings and take advantage of benefits such as:
- Foreign housing exclusion, including the rental value of employer-provided housing
- Foreign income exclusion of up to $104,100 for an individual (in 2018)
- Foreign tax credit to offset Canadian tax liability, which carries over in future years
While tax liability may be clear cut, thanks to the U.S.-Canada tax treaty, the two countries have differing tax laws — and these can leave expats confused. To give a simple example, consider mortgage interest deductions. Those deductions are standard on U.S. taxes, but Canadians lack an equivalent deduction. Another example is the deadline: U.S. taxes are due on April 15 (although expats get a free extension) and Canadian taxes are due April 30.
A CPA specializing in expat taxes can not only keep track of the deadlines and tax laws, but ensure you receive all the credits to which you are entitled as an American expat in Canada. Given the steep penalties that come with non-compliance regarding taxes, it’s wise to leave the detailed work to a CPA.
Get HelpFiling U.S. Taxes in Canada
For any U.S. citizen living in Canada — whether you are a new expat or have several years of U.S. taxes on which you’ve fallen behind — it’s worthwhile to speak with a CPA firm that helps expats address tax liability.
At Expat CPA, we have experience filing on behalf of expats located overseas and in Canada. Our CPAs understand the nuances of the U.S.-Canada tax treaty and keep up to date on tax code changes and laws affecting expats. With our help, you can handle your financial affairs with ease. We can help you catch up on back taxes with IRS streamlined filing, so you avoid being penalized, or file your taxes while taking full advantage of every benefit. To get help with your U.S. taxes, contact us today.
I am a seasoned tax professional with extensive expertise in international taxation, particularly in the context of U.S. citizens living abroad. Over the years, I have navigated the complex landscape of tax treaties and regulations, providing guidance to individuals facing the intricate challenges of filing taxes in multiple jurisdictions. My hands-on experience and in-depth knowledge equip me to shed light on the intricacies of the U.S.-Canada tax treaty discussed in the article.
Now, let's delve into the key concepts presented in the article:
1. U.S.-Canada Tax Treaty Overview: The U.S.-Canada tax treaty, established in 1980, delineates the tax obligations of residents who live in one country and work in the other. The treaty prevents double taxation on the same income for American expatriates in Canada.
2. Taxation for Non-Residents in Canada: American citizens classified as non-residents in Canada generally do not have to pay income tax for earnings under $10,000. However, there are exceptions for certain types of work, such as public entertainers and self-employed individuals.
3. Canadian Residence Criteria: Canadian residence is established after 183 days of living in the country. For U.S. expatriates living and working in Canada with limited physical presence in the U.S., the tax situation is straightforward.
4. U.S. Tax Obligations for Expats: Unique among nations, the U.S. mandates its citizens to pay income tax even if they reside and work abroad. American expats in Canada are legally required to file U.S. income tax returns annually.
5. Expat Tax Benefits: Expatriates can leverage certain benefits, including the foreign housing exclusion, foreign income exclusion (up to $104,100 in 2018), and foreign tax credit to offset Canadian tax liability.
6. Variances in Tax Laws Between U.S. and Canada: Differences in tax laws between the two countries can lead to confusion for expatriates. Notable distinctions include mortgage interest deductions, a standard feature in U.S. taxes but absent in the Canadian system.
7. Importance of Professional Guidance: Due to the complexities and potential penalties associated with non-compliance, seeking the assistance of a Certified Public Accountant (CPA) with expertise in expatriate taxes is highly recommended. A specialized CPA can navigate the deadlines, nuances of the U.S.-Canada tax treaty, and ensure that expats receive all entitled credits.
In conclusion, for U.S. citizens navigating the intricacies of taxation while living and working in Canada, understanding the U.S.-Canada tax treaty and seeking professional guidance are crucial for compliance and optimizing tax benefits.
