Navigating taxation laws is one of the most significant issues that US expats living in Canada must manage. Thanks to the historical US-Canada tax treaty, the process has been streamlined. This treaty outlines how expats can calculateremit taxes in specific circumstancesincome groups. When filing your returns, consider hiring the services of an expat tax consultant in Canada, who can guide you on the dosdon’ts so you stay on top of the regulations. You’ll also get advice on the exclusions to take advantage ofhow to lower the applicable taxes. Here’s a quick look at some of the essential tips.
The Tax Treaty Helps US Expats Avoid Double Taxation
The US administration taxes citizensGreen Card holders regardless of where they reside, including all locations worldwide. However, Americans living in Canada are also liable to pay taxes in the country where they livework. The treaty has clauses that allow US expats to lower their tax obligationsavoid double taxation. For starters, you can use tools like the Foreign Earned Income Exclusion (FEIE)the Foreign Tax Credit (FTC) to offset some of the taxes. Using the Foreign Housing Exclusion (FHE), expats can get their housing expenses excluded from the taxable income.
Understanding Taxes on Retirement Funds
If you’ve been working for a Canadian employer, they’ll set upcontribute toward a Canadian Registered Retirement Income Fund (RRIF)Registered Retirement Savings Plan (RRSP). You’ll incur taxes on these payments similar to US Social Security benefits when filing returns with the IRS. But, you can defer paying taxes on the amounts you pay into these plans. At the same time, you must declare the assets in these accountscomply with Foreign BankFinancial Accounts Reporting (FBAR)Foreign Account Tax Compliance Act (FATCA) filing requirements. Accordingly, you’ll completesubmit FinCEN Form 114Form 8938, respectively.
Tax Dues Are Calculated According to Physical Presence
The amount of taxes payable to the Canadian government will depend on the number of days US expats have a physical presence in the country. For instance, if you have livedworked in Canada for 182 days or lessearned an income of $10,000, you’re not required to pay taxes to the Canadian Revenue Agency (CRA). Of course, this rule applies only if you work for a Canadian employerare not self-employed.
You Need Not Avail of All the Benefits
The USA-Canada Treaty has several benefits for US expats living across the border. However, you need not take advantage of all of them. Rely on the services of an experienced CPA for guidance on the exclusions applicable to your particular situation.
Taxation regulations for US expats can be complicated to understand to the layperson. But, with the advice of a tax consultant, you can lower the tax burdenensure you don’t pay double taxes on the same income.