U.S. Foreign Reporting Requirement for U.S. Persons Living in Canada
If you are a U.S. person (U.S. citizen or green-card holder), you must file annual U.S. income tax returns regardless of where you live or how long you have been away from U.S. and you are taxed on your income from all sources, both within and outside of U.S. In addition to being subject to U.S. income tax on worldwide income, as U.S. person, you are also required to file various U.S. foreign information returns as discussed below. Non-compliance may result in penalties.
Report of Foreign Bank and Financial Accounts (“FBAR”)
- You have a financial interest in or signature authority over any financial account in a foreign country including Canada; and,
- The aggregate value of those foreign financial accounts is more than US$10,000 at any time during the calendar year.
The due date of filing FBAR is April 15 of the following year. But a permanent automatic extension of the filing deadline to October 15 is granted without submitting an actual request for extension
Foreign Financial Asset ReportingForeign Financial Asset Reporting is required in addition to the FBAR reporting. Some examples of the foreign financial assets subject to the reporting include:
- Stocks or securities issued by a foreign corporation
- Notes, bonds, or debentures issued by a foreign corporation
- Partnership interest in a foreign partnership
- Interest in a foreign retirement plan or deferred compensation plan
- Interest in a foreign estate
- Interest in a foreign-issued insurance contract or annuity with a cash-surrender value
As U.S. person living outside of the U.S., you are required to report the specified foreign financial assets on Form 8938 if the total value of these assets exceeds the following amount:
- $200,000 at the end of the year or $300,000 at any time during the year
- $400,000 at the end of the year or $600,000 at any time during the year if you and your spouse file the U.S. tax joint return
Foreign TrustsYou (U.S. person) may be subject to U.S. foreign reporting requirements regarding foreign trust if you are grantor, beneficiary, or lender of a non-U.S. trust.
For U.S. tax purposes, RESP is generally considered to be a foreign trust. Thus, if you invest in RESP for your child, you are required to report the foreign trust by filing the following two forms annually:
- Form 3520-A Annual Information Return of Foreign Trust With a U.S. Owner
- Form 3520 Annual Return to Report Transactions with Foreign Trusts and Receipts of Certain Foreign Gifts
The filing deadline for Form 3520-A is March 15. Form 3500 is due the same day as your US individual income tax return. If your children have U.S. citizenship, they are required file Form 3520 in any year they receive a distribution from a RESP account.
If you invest in a TFSA and the account is structured as a trust arrangement, you are required to file Form 3520 and 3520-A for the TFSA account.
If you are a U.S. person and own 10% or more of a foreign corporation such as a Canadian private corporation, you are annually required to file Form 5471 Information Return of U.S. Persons with Respect to Certain Foreign Corporation. The form is due the same day as your US individual income tax return.
A non-U.S. corporation is considered to be a Passive Foreign Investment Company (“PFIC”) if more than 75% of its income is passive income (such as interest, dividends, capital gain, and rent) or 50% or more of its assets generate passive income. If you have an interest in a PFIC, you are required to file Form 8621 Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Election Fund. For U.S. tax purposes, Canadian mutual fund trust may be considered to be corporation. Thus, if you own an interest in a Canadian mutual fund trust, you may be subject to the PFIC rules.
- You own 10% or more of a non-U.S. partnership controlled by U.S. person or you; or
- You invest more than $100,000 in a non-U.S. partnership
Form 8865 is due when the U.S. person’s income tax return is due.