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Are you a Canadian resident who also has an obligation to file in the US? Before you send in your US taxes to meet the April 15th filing deadline, make sure to remember there is still one more tax slip on its way.
If you are set to receive a T3 for a Canadian trust, you have a little more time that your dual-filing counterparts.
T3 slips, otherwise known as the Statement of Trust Allocation and Designations (RL16 for Quebec residents), are being prepared and mailed – copies to the CRA – by the end of March.
A T3 slip reports how much income you received from investment in mutual funds in non-registered accounts, from business income trusts or income from an estate for a given tax year.
If you have not received your T3 tax slip – get in touch with the relevant financial administrator or trustee but make sure to file your income tax return by the deadline anyway to avoid late filing penalties.
You can find more information from the CRA website, here.
Happy New Year, from the IRS.If you have an US passport and you have not yet filed your US taxes up-to-date there may be a surprise waiting for you as you try to enter the US… Have you heard about FATCA?
Beginning January 1st, 2016. IRC 7345 kicked in which allows the IRS the ability to share information on delinquent tax accounts with the State Department and the State Department gains the authority to deny or revoke the passports of US citizens who owe more than $50,000 in taxes to the US government, or, if there is no Social Security Number (SSN) associated with their passport.
As with much of the recent IRS global tax grab legislation, this addition to the Internal Revenue Code has a lack of clarity on how the statute will be enforced and ambiguities in use of the term “seriously delinquent tax debt.”
Does the vagueness of that term mean this legislation is aimed at current US Persons who know they owe taxes and have known for many, many years, or was that language intended to be so vague that it could also apply to dual-citizen Canadian snowbirds, forcing them to file and pay or risk losing their US passports.
As well, if the IRS was really concerned about the delinquent tax filers, why set the threshold at $50,000, which is a relatively low monetary threshold if that amount includes both penalties and interest.
Unlike Canada, there are filling requirements for US Persons of not only their annual tax returns, but also a requirement to provide annually to the IRS a Foreign Bank Account Report (wow called FinCEN 114) and penalties for failing to provide those can add up VERY quickly!
Getting filed up-to-date with the IRS and remaining up-to-date is now even more important for US Persons because of the passport denial and revocation provision. Even though not part of FATCA, SSN’s are required for US citizens to file their tax returns, so by making the SSN a requirement to hold or renew an US passport the US government has found a tool to get chronic non-filers into the IRS system.
Even more interesting is that there exists a requirement that US citizens use only US passports for travel to and from the US, so any US person who enters or leaves the US without using their US passport do so illegally. This is particularly important for Canadian residents, not only because many travel frequently to the US, but because of the large number of US persons with permanent residence in Canada.
So it is likely that any US person would be warned first about travelling to and from the US without a valid US passport, and after providing their address, would then receive their official notice of your tax debt letter from the IRS, and then be subjected to passport seizure the following trip, but the SSN requirement does not provide such leniency, and in fact, poses a larger problem for US persons who need to get a SSN because of the lengthy requirements needed to do so.
For example, US persons who were born outside the US, or who left the US at a very young age and do not / no longer have proof of US birth (like a birth certificate) will need a passport in order to apply for a SSN. Unfortunately, without a SSN, they cannot apply for an US passport.
Additionally, for US persons living in Canada, it’s not so easy to pick up and head across the border to a SSN office in order to get your SSN because of the potential trouble at the border whereby a passport might be seized for failure to have a SSN…
Nonetheless, the IRS wishes you a Happy New Year and hope that you have everything filed by April 15th, 2016… Or else!
If you need US tax returns completed, please contact us at firstname.lastname@example.org and we can put you in touch with our recommended US tax preparers.
Ever since I caught wind of the Foreign Account Tax Compliance Act, back in 2010, FATCA has been near the top of my radar. For those of you who are unaware what FATCA is, The Foreign Account Tax Compliance Act (FATCA) requires citizens of the United States (present, past, those with citizenship who do not live there, those who worked there a specific number of day, and those who received “accidental” citizenship through birth), to report their financial assets held outside of the United States to the Internal Revenue Service (IRS). If providing that information means that the IRS would be taxing you and you have been trying to hide these assets, FATCA requires foreign financial institutions to report your information to the IRS. The intent of FATCA was to combat offshore tax evasion and to recoup federal tax revenues. FATCA is a portion of the 2010 Hiring Incentives to Restore Employment (HIRE) Act.
As the tax manager at Computershare Investor Services and the Assistant Vice President of Tax for CitiGroup (CitiFund Services) I got to know FATCA very intimately and at one point or another became the Canadian lead on information dissemination and compliance. After almost 11-years of interpreting legislation at the Canada Revenue Agency (CRA) deciphering this text came second nature and thus taking the FATCA regulations and translating them into English was not a difficult task, but more something that I had to do in order to teach myself the requirements so I could pass along that knowledge to my employers and to my clients.
The interesting thing about FATCA from a Canadian side was that with over a million “US Persons” here in Canada (probably much more now) I don’t believe the IRS understood that the majority of them were paying taxes in Canada and since the Canadian tax rate is higher than the US rate, there was some hesitation on the Canadian side to provide all this data to the IRS for no net gain. Other countries rushed to sign intergovernmental agreements with the IRS to meet deadlines which have now been pushed out again as a result of the July 2014 start date for FATCA, but Canada did not.
The Canadian government was hesitant to force Canadian financial institutions to provide the very detailed information on Canadian citizens for fear that they would be double taxed, something the Canada-US Treaty strove to avoid. In addition, the Canadian side wanted the Canada Revenue Agency included so that information could pass through secure channels and potential breaches of security and privacy could be avoided. There was even talk that Canada refused to sign an agreement with the IRS, instead forcing the IRS to seek their own tax cheats from their own side of the border.
Then something changed.
The IRS began ramping up their search for US Persons via every mean possible – whether it was checking Facebook accounts to see where people are born, cross-checking it with school records – or by allowing people who had no previous knowledge of FATCA some amnesty when catching up on their delinquent tax returns, but then hammering them on their filing of the Report of Foreign and Financial Assets to the tune of $10,000 per late return – with no maximum.
People became scared, and when scared you have two choices to make. Either flee or fight. In this case it’s either comply or pray.
Those who chose to file had to wade through unclear rules and regulations and a lot of unclear information floating around on the Internet. Is there penalty, is there not? Will I be charges criminally, or will the IRS understand that I was not aware of my obligations. Do I have to file 3-years of past-due returns or 10 years? When are FBAR’s due? Should this cost me $10,000 or $100,000?
Many questioned the over-reach on the US side while others commented that as an US citizen, the requirements were there and you should have known.
But with all that being said, on February 5th, 2014, Canada and United States announced that they have reach an agreement on Foreign Account Tax Compliance Act (FATCA).
The intergovernmental agreement lays out the details of how the US will be using FATCA to track down the Canadian financial activities of US persons to make sure they are paying required taxes to the IRS.
Under the terms of the agreement Canadian financial institutions will send some of the information they collect on their US clientele to the Canada Revenue Agency and the CRA will transmit the information to the IRS.
My take from reading the release is that the Canadian government realized their hands were tied, however they were not going to allow the IRS to demand information which violates Canadian privacy laws and thus allowed the IRS to pursue their legitimate tax-base with the assistance of the CRA much in the same way the CRA and IRS work together to collect tax debts – through information sharing and not the actual collecting of debts for the other country.
Kerry-Lynne D. Findlay, the Minister of National Revenue said; “This is strictly a tax information-sharing agreement. This agreement will not impose any U.S. taxes or penalties on U.S. citizens or U.S. residents holding accounts in Canada. The CRA does not collect the U.S. tax liability of a Canadian citizen if the individual was a Canadian citizen at the time the liability arose. This includes dual Canada-U.S. citizens. That will not change under this agreement.”
Changes to the FATCA legislation under this agreement include, but are not limited to;
Certain accounts are exempt from FATCA and will not be reportable, including Registered Retirement Savings Plans (RRSP), Registered Retirement Income Funds (RRIF), Registered Disability Savings Plans (RDSP), Tax-Free Savings Accounts (TFSA), and others yet to be released.
Smaller deposit-taking institutions, such as credit unions, with assets of less than $175 million will be exempt from FATCA compliance.
The 30 percent FATCA withholding tax will not apply to clients of Canadian financial institutions, and can apply to a Canadian financial institution only if the financial institution is in significant and long-term non-compliance with its obligations under the agreement.
This intergovernmental agreement is only the beginning. Recent G-8 and G-20 commitments agreed upon in September 2013, intended to fight tax evasion globally and to improve tax fairness, provide for an automatic exchange of tax information as the new global standard. This agreement signaled an intention to begin exchanging information automatically on tax matters among G-20 members by the end of 2015.
So like it or not, FATCA is just the beginning of a world-wide crack down on tax evasion.
Still on the fence?
inTAXicating Tax Services works with several Canadian tax-preparation firms who specialize in US taxes, and FATCA compliance. If you wish to get caught up, please feel free to reach out to us at email@example.com. If, you have further questions and wish to discuss your requirements, you can email, or call us at 416.833.1581. If you wish to comment, you may do so below.
I’m sure you have heard that the Canada Revenue Agency (CRA)is tightening the ship and cracking down on tax evasion, tax shelters and finding new ways to collect more tax dollars. Well you can thank the IRS for that. With the IRS predicting that there are billions and billions of dollars of offshore tax revenue that they expect to bring in through FATCA it’s no wonder revenue agencies throughout the world are looking at better ways to collect tax revenues from their citizens here and abroad.
Riding the wave of FATCA, the CRA has been making public information on ways they can collect tax revenues and highlight some techniques they have been using as far back as when I worked in the CRA but may not have been so widely known to the general public. The point is that if you know all the powers the CRA has, and know they are cracking down, then you can conclude pretty quickly that you will get caught doing whatever you may be doing that is illegal; not remitting or reporting GST/HST, accepting cash for work and not reporting it, paying an employee under the table, not declaring all your income or just not filing and hoping to stay under the radar.
The CRA’s Snitch line / Informant Leads line has been a fantastic resource for the CRA and has brought in more leads than they ever could have anticipated when creating this line.
So what is the CRA doing that you might not know about?
The CRA can, and have been data mining publicly available property tax information to confirm that sales or transfers of real property have been properly reported by taxpayers and they are using this information to identify taxpayers who are incorrectly reporting property sales at the preferential capital gains tax rate, or who have been flipping properties for quick gain and should be reporting them as sale of inventory, or they have been aggressively claiming properties as their principal residences and avoiding paying taxes altogether.
Tax slip matching
Advances in technology now allow the CRA to quickly determine whether a taxpayer has reported all income listed on all tax slips. Every entity, whether it as a corporation, trust, financial institution or employer is required to issue a tax information slip to all its income recipients. Typically, the area where the CRA reassesses a tax return is on unreported employment income and interest and dividends. The CRA also focuses on sales of marketable securities reported to them on the T5008 information slip. If you’ve mis-reported income multiple times, you are subject to penalties which in some cases are as high as 20% of the omitted amount. For low income earners, this can add up to more than the tax itself.
The Construction Industry
The CRA has always been concerned about construction workers not reporting all of their income which is why they piloted and maintain “Construction Teams” in the Tax Services Offices. The new information reporting requirement on form T5018, provides the CRA the ability to ensure the proper amount of tax is being paid by construction workers and frequent audits ensure payments to workers and amounts they reported fall in line as well.
Tax shelters / Off-shore Accounts
What was once considered a safe haven where wealthy investors could put monies out of reach of their governments has now become a bone of contention as investors want to pay as little tax as possible, governments want as much tax as possible – especially from these high net-worth people and the general public want the wealthy to pay more taxes! FATCA got the ball rolling and now the CRA has followed suit, seeking information of the investors before then taxing them back on their offshore accounts.
Tax shelters, while shielding investors from paying tax on current income, likely will have to pay taxes at some point in time down the road as the CRA tightens the regulations on these investment tools to ensure they are not tax evading schemes.
Illegal activity / Informant Leads (Snitch) Line
The CRA has its ears on the ground more than ever and the Canadian Border Services Agency (who used to be part of the Canada Customs and Revenue Agency) are locating and turning up illegal activity and the CRA is following up that criminal activity with assessments and re-assessments. Combine that with the Informant Leads line and you can quickly conclude that to the CRA crime does not pay, but criminals should pay taxes too.
The CRA’s reach extends to the charitable sector as well. Both donors and registered charities are heavily scrutinized for potential fraud especially around those donating non-cash gifts. The CRA is looking to ensure that the amount reported on the donation receipt (and the corresponding credit claimed by the donor) accurately corresponds to the value of the donated item, and that the value is as close to fair market value as possible.
The CRA has been using these techniques for years to ensure taxpayers are paying their fair share on all sources of income and are doing so without increasing the number of employees dramatically which means a few things; First, it may be worthwhile to review your previous filings and – if errors are identified as a result of that review – take advantage of the voluntary disclosure program. Second, in the voluntary tax system we have in Canada, the onus is on you, the taxpayer to prove to the CRA that you are operating in line with CRA regulations which means keeping great records, having professional help and keeping receipts. Thirdly, if you are off-side with CRA regulations and want to know what may happen to you if you get caught, you should give us a call.
The June 30th deadline to file your Report of Foreign Bank and Financial Accounts, also know as FBAR’s with the IRS is rapidly approaching. If you are a US person and have more than $10,000 in any foreign financial account (or are a signatory authority) then you need to file these by the deadline. These accounts include; bank account, brokerage account, mutual fund, trust, or other type of foreign financial account.
The Bank Secrecy Act requires US persons to report annually to the IRS any foreign financial accounts and their dollar amounts, however, under FATCA, those US persons who have not been doing so, will have their information reported for them by Foreign Financial Institutions (FFI’s) to the IRS and the penalties can be quite large.
If you are an US person, then you are required to submit this filing if;
1. You had a financial interest in, or signature authority over, at least one financial account located outside of the US; and
2. The aggregate value of all foreign financial accounts exceeded $10,000 at any time during the calendar year to be reported.
Stepping back for a second, the IRS through FATCA has provided a clear definition of what constitutes an US Person” and you are an US person for taxation purposes if you are;
• US citizen;
• US resident based on the number of days spent in the US during the year;
• US green card holder (even if the green card has expired);
• US created corporations, partnerships, limited liability companies which were created or organized in the US or are owned by US persons;
• US created partnership;
• US estates and trusts – formed under the laws of the US or created by US persons;
• Virtually everyone born in the US;
These rules also catch those with dual nationality, even if such persons are registered taxpayers in a non-US country (the US considers you “foreign” and asks you to complete a Form W8-BEN) These regulations also can include individuals who were born outside the US but who have at least one US parent.
Worried yet? So now you probably want to know more about when the FBAR’s are due.
The FBAR is due by June 30th of the year following the year that the account holder meets the $10,000 threshold. There are no extensions as there are for US personal tax returns. Filers cannot request an extension of the FBAR due date.
If a filer does not have all the available information to file the return by June 30, they should file as complete a return as they can and amend the document when the additional or new information becomes available.
If you need help filing the FBAR’s you can reach the IRS Monday – Friday, 8 a.m. to 4:30 p.m. Eastern time, at 313-234-6146 for callers outside the US, or send an email to the IRS at FBARquestions@irs.gov. The email system does not accept actual FBAR reports.
Once completed, the FBAR’s are sent to;
U.S. Department of the Treasury
P.O. Box 32621
Detroit, MI 48232-0621
If an express delivery service is used, send completed forms to:
IRS Enterprise Computing Center
ATTN: CTR Operations Mailroom, 4th Floor
985 Michigan Avenue
Detroit, MI 48226
The contact phone number for the delivery messenger service is 313-234-1062. The number cannot be used to confirm that your FBAR was received.
The FBAR is not to be filed with the filer’s Federal tax return.
Alternatively, a FBAR filing verification request may be made in writing and must include the filer’s name, taxpayer identification number (TIN) and the filing period. There is a $5 fee for verifying five or fewer FBARs and a $1 fee for each additional FBAR. A copy of the filed FBAR can be obtained at a cost of $0.15 per page. Check or money order should be made payable to the United States Treasury.
It is also possible to amend previously filed FBAR’s. It can be done by;
Checking the Amended box in the upper right-hand corner of the first page of the form;
Making the needed additions or corrections;
Stapling it to a copy of the original FBAR; and
Attaching a statement explaining the additions or corrections.
Beginning July 1st, 2013, Mandatory Electronic filing of FBAR forms!
E-filing is a quick and secure way to file FBAR’s and filers receive an acknowledgement of each submission right away.
So if you were required to file FBAR’s and failed to, the consequences can be quite alarming!
Failure to file a FBAR when required to do so may potentially result in civil penalties, criminal penalties or both.
If, as is the case for many Canadians who were not aware of the requirement to file US tax returns, you learned that you were required to file FBARs for earlier years, then you should file the delinquent FBAR reports and attach a statement explaining why the reports are filed late. No penalty will be asserted if the IRS determines that the late filings were due to “reasonable cause”.
Otherwise, cumulative FBAR penalties can actually exceed the amount in a taxpayer’s foreign accounts under the penalty provisions found in 31 U.S.C. 5314(a)(5).
Keep copies of what you have sent to the IRS, and the supporting documentation, for a period of five years. Failure to maintain required records may result in civil penalties, criminal penalties or both.
The IRS allows filing of FBAR’s back to 2008 on their current form (revised October 2008), and anything older than 2008 can be reported on the FBAR form revised in July 2000.
A spouse having a joint financial interest in an account with the filing spouse should be included as a joint account owner in Part III of the FBAR. The filer should write “(spouse)” on line 26 after the last name of the joint spousal owner. If the only reportable accounts of the filer’s spouse are those reported as joint owners, the filer’s spouse need not file a separate report. If the accounts are owned jointly by both spouses, the filer’s spouse should also sign the report. It should be noted that if the filer’s spouse has a financial interest in other accounts that are not jointly owned with the filer or has signature or other authority over other accounts, the filer’s spouse should file a separate report for all accounts including those owned jointly with the other spouse.
If you are a US person with substantial foreign financial assets, you should know that in 2013, the IRS introduced Form 8938 for you to report with your FBAR’s.
Taxpayers with specified foreign financial assets that exceed certain thresholds ($50,000) must report those assets to the IRS on Form 8938, Statement of Specified Foreign Financial Assets. The new Form 8938 filing requirement does not replace or otherwise affect a taxpayers requirement to file FBAR. The IRS has provided a chart comparing Form 8938 and FBAR requirements, here.
If you need helping getting compliant, or trying to determine your IRS / FATCA plan of action, all you need to do is reach out to us at Intaxicating Tax Services. With 17-years of Canadian tax experience and 30-years of US tax filing, our team will ensure you provide only what you are required to provide.
In case you have just starting to catch wind of FATCA and you are wondering if you are going to get caught up in its web, you might find this post very useful. I have gone to the Internal Revenue service (IRS) website and pulled out their passages on American’s living in Canada and the expectations on how they will be handled under FATCA – coming globally January 1st, 2013.
The IRS has clearly stated that “All persons born in the United States are US citizens. This is the case regardless of the tax or immigration status of a persons parents. Furthermore, a person born outside the United States may also be a US citizen at birth if at least one parent is a US citizen and has lived in the United States for a period of time.”
If you are of the belief that as an American living in Canada that you do not need to file a US tax return because you do not generate any US source income in any way, that is also incorrect; “The IRS reminds you to report your worldwide income on your US tax return and lists the possible consequences of hiding income overseas.”
As a US citizen living in Canada, the rules for filing income, estate and gift tax returns and for paying estimated tax are generally the same whether you are living in the US or not.
Not reporting income from foreign (including Canadian) sources may be a crime. The IRS and its international partners (including the CRA) are pursuing those who hide income or assets offshore to evade taxes. Specially trained IRS examiners focus on aggressive international tax planning, including the abusive use of entities and structures established in foreign jurisdictions. The goal is to ensure US citizens and residents are accurately reporting their income and paying the correct tax.
In addition to reporting your worldwide income, you must also report on your US tax return whether you have any foreign (Canadian or international) bank or investment accounts. The Bank Secrecy Act requires you to file a Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR), if:
You have financial interest in, signature authority, or other authority over one or more accounts in a foreign country, and
The aggregate value of all foreign financial accounts exceeds $10,000 at any time during the calendar year.
“I am a U.S. citizen who moved to Canada to live and work there as a Canadian permanent resident, do I pay both U.S. and Canadian Taxes?
Answer: As a U. S. citizen living in Canada you:
Are required to file annual U.S. income tax returns and may be required to file certain information returns if applicable (e.g. Form 8891, U.S. Information Return for Beneficiaries of Certain Canadian Registered Retirement Plans; Form 3520, Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts; TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR)).
You must report your worldwide income on your US income tax return if you meet the minimum income filing requirements for your filing status and age.
You must contact the Canadian Government to determine whether you must file a Canadian tax return and pay Canadian taxes – unless you are already filing tax returns here in Canada, then this step is obvious.
You may be able to elect to exclude some or all of your foreign earned income, if certain requirements are met, or to claim a foreign tax credit if Canadian income taxes are paid.
Behind on your filing to the IRS, are you?
The IRS began an open-ended offshore voluntary disclosure program (OVDP) in January 2012, on the heels of strong interest in the 2011 and 2009 programs, which may end at any time. The intent of this program is to offer people with undisclosed income from offshore accounts another opportunity to get current with their US tax returns. The 2012 OVDP has a higher penalty rate than the previous program but offers clear benefits to encourage taxpayers to disclose foreign accounts now rather than risk detection by the IRS and possible criminal prosecution.
Rumour has it that in September, the IRS will be releasing some new documents (besides the final regulations) aimed at helping Canadians file their US tax returns up to date – the IRS wants the most recent 3 years and 6 years of FBAR information from Canadians.
My thoughts here are that the IRS thinks all Americans living in Canada are not paying taxes so that anyone with over $1500 owing will still be penalized. Once these US persons provide proof of their filing of Canadian tax returns at a higher rate, then the best the IRS can get from these residents if valid certifications and by adding them to the database, another potential income source to track.
So if after all this you are unsure if you need to file you might want to seek out an accountant or lawyer which a strong US presence to advise you. Remember if you are a US person and you let your bank know, they are required under FATCA to notify the IRS.
At the very least you should preapare your US tax returns for the previous 3 years and include the Canadian taxes paid under “foreign tax paid” to see where you fall under FATCA. Then take them to an accountant with a strong knowledge of US tax in order for them to ensure the US return is correct and have them advise you on where they feel you fall under FATCA. From there… It’s up to you.
There is no hiding from FATCA, so prepare for now and prepare for the future before the IRS gets to you first.