This fact sheet is intended for information purposes only and should not be construed as tax advice. It was not intended or written to be used and cannot be used by any taxpayer for the purpose of avoiding any tax or penalties that may be imposed on such taxpayer by the U.S. Internal Revenue Service or the Canada Revenue Agency. Taxpayers who think they may be affected by any of the measures discussed herein should seek advice based on their particular circumstances from an independent tax advisor with appropriate experience.
- U.S. citizens in Canada have to file U.S. tax returns: The U.S. government requires its citizens living abroad, including in Canada, to file income tax returns and associated tax forms - even if those U.S. citizens do not have to pay any U.S. income tax because they already pay Canadian income tax, and even if they have dual citizenship with Canada. This requirement has been in place since 1913.
- They may also have to file another U.S. form – the FBAR: Under the U.S. Bank Secrecy Act, U.S. citizens must file a particular form if they have a total of more than $10,000 in accounts at non-U.S. financial institutions. This form is the Report of Foreign Bank and Financial Accounts, commonly known as the “Foreign Bank Account Report”, or “FBAR”. The FBAR filing requirements have been in place since 1972.
- Failure to file FBARs can lead to large penalties: The U.S. can levy significant financial penalties for failure to file an FBAR.* There are potential criminal sanctions as well.
- The U.S. offers voluntary disclosure, but time is running out: U.S. citizens who have not been meeting their filing requirements for tax returns and FBARs can take advantage of the U.S. Offshore Voluntary Disclosure Initiative, and face reduced penalties. Please be advised that the IRS has extended the August 31st, 2011 deadline to September 9th, 2011. For more information, please visit http://www.irs.gov/newsroom/article/0,,id=234900,00.html
- For more information (including penalties and consequences of non-compliance), please visit the IRS website: The U.S. Internal Revenue Service has information on its website concerning the FBAR and the Offshore Voluntary Disclosure Initiative. Visit www.irs.gov/businesses/small/article/0,,id=159757,00.html for information on the FBAR and www.irs.gov/newsroom/article/0,,id=234900,00.html?portlet=7 for information on the Offshore Voluntary Disclosure Initiative.
- For more information regarding U.S. citizenship, please visit http://travel.state.gov/law/citizenship/citizenship_782.html
- For advice, please contact a tax advisor: Canadians who think they may be affected by the U.S. filing requirements for tax returns or FBARs, or who may want to take advantage of the Offshore Voluntary Disclosure Initiative, should contact a tax advisor with experience in U.S. taxation issues.
- Please note FBAR is not related to the Foreign Account Tax Compliance Act (FATCA). FATCA is proposed to come into force in January 1, 2014. The Canadian government has and will continue to express its strong concerns relating to FATCA with the U.S. government. We are actively seeking a solution both countries will find agreeable.
* Penalties imposed under FBAR will not be collected by the Canada Revenue Agency (CRA): The Canada-United States Income Tax Convention contains a provision which allows for the collection by a country of taxes imposed by the other country, including civil penalties. This provision does not apply to penalties imposed under laws, such as the U.S. Bank Secrecy Act, that impose only a reporting requirement (as opposed to those that impose taxation along with reporting requirements). Also, CRA does not and will not collect the U.S. tax liability of a Canadian citizen if the individual was a Canadian citizen at the time the liability arose (whether or not the individual was also a U.S. citizen at that time).