Tax Implications of Canadian and USA Dual Citizenship

By Remitbee - Jun 14, 2022

Among Canadian citizens by birth, 0.7% have multiple citizenship. Are you one of them? If so, you receive the benefits and privileges offered by each country where you are a citizen. Being a Canadian and US dual citizen has perks and a few disadvantages, which you should seriously consider if you plan to apply for dual citizenship.

If you are interested in knowing about the tax implications of Canadian and USA dual citizens, you’ve come to the right place. The truth is, tax requirements can be more complicated for US/Canada dual citizens.

In this article, you will learn some things you need to know about the taxes of dual citizens.

1. If you are a US/Canada dual citizen, you are required to file US taxes

Dual citizens have more tax concerns that are affected by their salary, investments, pensions, and properties. If you are a dual citizen of Canada and the US, you have US tax obligations wherever you are since US taxes are based on citizenship. And yes, even if you don’t earn income in the US or are a US/Canada commuter, you have US tax obligations.

2. Canadian and US tax years are the same, but the deadline for filing is different

Both US and Canada follow a January to December tax year. However, the deadlines for Canadian tax returns are April 30 for individual taxpayers and June 15 for the self-employed. In the USA, the deadline falls on April 18.

3. The Foreign Earned Income Exclusion and Foreign Tax Credit will help ease your tax burden

Although you have US tax obligations, you may still not owe anything at the end of the tax year since the US provides tools for citizens abroad to lessen their tax responsibilities.

The Foreign Earned Income Exclusion (FEIE) is a common tool to lower one’s US taxes. This tool excludes your foreign earned income from your US income tax. You will qualify for this tool if you live and work outside the USA and have passed either the Bona Fide Residency Test or the Physical Presence Test.

The Foreign Tax Credit, on the other hand, is a tool that gives you a dollar-for-dollar reduction on your US tax liability per Canadian taxes you paid.

Some of the tax-free investment and pension accounts you have in Canada may not be tax-free in the US

Your earnings on your accounts, such as Canadian Tax-Free Savings Account (TFSA), Registered Disability Savings Plan (RDSP), and a Registered Education Savings Plan (RESP), which are tax-free in Canada may be subject to US taxes and should be reported as a foreign grantor trust. However, your Canadian pensions and several retirement accounts may qualify for special treatment because of the US/Canada tax treaty.

You may defer the US tax on undistributed earnings from your Canadian Registered Retirement Savings Plan (RRSP) or Canadian Registered Retirement Income Fund (RRIF). However, these may still be subject to Foreign Bank and Financial Accounts (FBAR) and Foreign Account Tax Compliance Act (FATCA) reporting.

If you are a US/Canada dual citizen who has never filed a US tax return, you can get caught up without getting penalties

You can get caught up with your US tax returns through the IRS’ Streamlined Foreign Offshore Procedures. Here are the qualifications to benefit from this:

  1. You’ve lived in a foreign country for at least 330 days during one of the last three years, and you have not maintained a US home.

  2. You confirm that you have not willfully failed to file US tax returns and FBAR.

    US/Canada dual citizens may have more financial reporting obligations to do

Aside from filing your US taxes, you may also be required to file your FBAR and FATCA Form 8938. The US has enacted these two to increase the transparency of US citizens who own foreign bank accounts.

Get professional help

As you’ve seen, it can be tedious and confusing when you go over the taxes of US/Canada dual citizens. To lessen your headache, it would be best to seek help from experienced tax advisers so that you can file your taxes correctly and save more.

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