Each year I help over 500 clients file their Canadian and US tax returns as well as plan for both their Canadian and US investment accounts. I also regularly help new US clients plan for their move to Canada.
Here you’ll find updates on cross border tax issues for 2021. Please check back often for updates as this page will be revised for new cross border tax news items from month to month.
Update January 23, 2021
Updates on 3520 and 3520-A filings for TFSA accounts – Our colleague at Polaris tax, Max Reed has posted an update on an IRS appeals resolution regarding TFSA accounts and 3520 and 3520-A filings. The report outlines that the IRS agreed with the view that TFSAs held by US tax residents should not be considered “foreign trusts” for purposes of these filings, and therefore penalties assessed could be abated. This is great news for those that are currently filing 3520 and 3520-A disclosures for their TFSAs.
Note, however, although this does confirm that 3520 and 3520-A are not required for TFSA holdings, the income earned within the TFSA is still taxable for US purposes. Therefore if you don’t have enough “passive foreign tax credits” from other Canadian source investment income you’ll likely end up paying some additional US tax on your TFSA income going forward.
Increase in stimulus payments to Americans to $2,000 – Under the new President Biden administration, US stimulus payments will be increased to $2,000 and include $600 per dependent. Stimulus payments are subject to income thresholds that start at $87,000 for single taxpayers and $124,500 for married couples.
New proposed Biden tax plan – President Biden’s tax plan is currently being rolled out and we’ve outlined some of the main changes in the linked article above. Some notable changes include:
- tax increases on income above $400,000
- payroll tax increases on high-income earners
- repeal of high-income earner 2017 Tax Cuts and Jobs Act components
- increase the highest marginal tax rate to 39.6%
- increase the capital gains tax rate to 39.6% for income above $1,000,000
- increase in the dependent child tax credit to $3,000
- new clean energy tax provisions
- re-established first-time homebuyers tax credit
- revise estate and gift tax exemptions back to 2009 levels
Update November 28, 2020
New Medical mileage rates announced
The IRS recently released new instructions related to the Itemized deductions schedule A. Other than some changes the qualified contributions the only other change was related to IRS mileage rates. For 2020 the mileage deduction rate for medical related travel is reduced to 17 cents per mile. The mileage rate for volunteer services remain at 14 cents per mile.
New Podcast episode released
I’ve released a new podcast episode outlining the issues around and how to complete form T1135 – Foreign income verification reporting for Canadian tax residents. For those that are interested I’ve also written a comprehensive guide to T1135 reporting here.
New Canadian Wealth Tax Vote
I recently wrote on the potential for the Canadian government to establish a new wealth, estate or inheritance tax to help fund the current and future spending deficits.
On November 16th the Conservatives, Quebec Bloc and the Liberals voted down the NDP’s proposal to apply a 1% wealth tax on those with a new worth in excess of $20,000,000. We expect further revised proposals to come forward in the coming months including estate and inheritance tax proposals.
Where’s the second stimulus cheque payments?
We’ve updated the blog on the progress of the second US stimulus package and prospective stimulus payments. Not surprisingly the Republicans and Democrats are having a tough time agreeing on a relief bill that will satisfy both sides. We’re staying tuned for any new news on a possible stimulus bill.
For some great 2020 year-end tax planning tips please see here.
Update November 21, 2020
I have a few interesting things to report for November, so let’s get started…
Once again, big thanks to everyone on the Americans in Canada Facebook group for their support and engagement. We are now over 5,700 members strong and growing fast.
I’ve just started a dedicated Facebook group for American Doctors in Canada. If you’re an American Doctor living in Canada or thinking of moving to Canada please join our private group for more information on tax and financial planning updates.
The IRS has begun their enforcement of section 965 transfer tax for those that were affected by the 2017 tax legislation. The IRS will be targeting those that they believe have not properly complied with section 965 filing obligations or those that have incorrectly calculated 965 inclusions. You can read more about the initiative here. Note that only Americans living in Canada that are owners of Canadian corporations may be affected by section 965 transition tax.
New IRS audit program has been announced to review compliance requirements by Americans that have control or beneficial interest in foreign trusts. In many cases Americans with an interest in a foreign trust are required to report the trust activities on form 3520 and 3520-A. Penalties for none reporting can be significant for those that have not properly disclosed. You can view an example of a 3520-A penalty notice here. A $35,000 is nothing to take lightly.
The IRS continues to focus on US expats all over the world with respect to section 877 and 8854 income tax filings. You can read a great report here on what they’ve uncovered so far.
The IRS has removed a previous version of the delinquent international reporting form program from their website. Now they seem to be suggesting that taxpayers with late 5471, 3520, 3520-A and other international compliance forms file the forms and include a reasonable cause statement to help in the abatement of a potential penalty. We are awaiting additional information on these procedures from the department.
It’s been a long time since the first episode of the podcast, but I’m working on the second episode of our Expat Tax and Financial planning podcast. To subscribe and be updated when it’s live please visit the podcast here on our site or at Apple Podcasts here.
Update September 20, 2020
Over 2,500 leaked documents from the ICIJ have raised concerns over how global big banks have helped criminals move and launder money throughout the financial system.
FinCEN (the US financial crimes investigation network) collects information on transactions made not only in the US but also abroad.
Similar to the findings a few years ago related to Panama Papers, many are skeptical that anyone material will come of this investigation. Time will tell, however it’s about time we take the billions of dollars of criminally earned money seriously. The incentives for banks to help with these transactions is too great and we cannot rely on banks to make proper ethical decisions when faced with these types of clients.
Update September 18, 2020
Yesterday, Expat advocate lawyer Monte Silver showcased the US government’s reply (transition brief and GILTI brief) to his final brief in support of changes to the transition and GILTI tax legislation passed a few years ago (see original submission here).
On our Expat Facebook page Monte stated:
Update September 12, 2020
Canadian and US tax deadline extensions
CRA has further extended the Canadian tax filing deadlines to September 30th, 2020. However note that CRA has confirmed that:
“Penalties and interest will not be charged if payments are made by the extended deadlines of September 30, 2020. This includes the late-filing penalty as long as the return is filed by September 30, 2020 (related to the 2019 tax return for individuals and the tax returns for trusts and corporations that would otherwise be due on or after March 18, 2020, and before September 30, 2020).”
Also note that we continue to experience delays in tax filings at both CRA and the IRS as a result of the Covid lock down.
We strongly suggest that if you have yet to file your 1040 US income tax return and/or FBAR filings you do so as soon as possible. The October 15th filing date will come quicker than most anticipate. And although there may be some relief beyond October 15th, 2020 for those that have not filed, it’s never worth the hassle to have to fight with the IRS over penalty abatement.
US Expats continue to receive US stimulus payments
US expats that have filed a US tax return and meet the income thresholds were eligible for the $1,200 US stimulus payment. Most of our clients who were eligible have now received their stimulus cheques. If you were eligible and have not yet received your payment please review the eligibility requirements here.
Update January 23, 2019
CRA has shared over $1.6 million documents with the IRS to date
CRA continues to supply information to the IRS on US Citizen owned investment and bank accounts. According to CBC CRA has already shared over $1.6 million Canadian banking records with the IRS. Even with the significant sharing of documentation we are still not seeing an increased level of new clients being contacted by the IRS. You would think that if the IRS has such a large of amount of banking information from US citizens abroad they would be enforcing compliance by reaching out to these Americans. This might be something that has yet to happen and may be on the horizon. Another good reason to get caught up with the streamlined tax program before it disappears.
New GILTI (section 951A) and 5471 forms released
As anticipated, the new GILTI tax forms and related 5471 schedules have been released in draft. As part of the new 951A rules related to CFC business income taxation, the IRS released the following new forms:
- Form 8992 (draft) – U.S. Shareholder Calculation of Global Intangible Low-Taxed Income (GILTI) – This form reports the taxpayer’s GILTI net CFC tested income under section 951A. Included in this form is schedule A which helps reconcile a taxpayer’s tested income.
- Form 5471 new schedules – as part of the new 951A rules the IRS has also released a new schedule I-1 – Information for Global Intangible Low-Taxed Income. This form calculates a taxpayers tested income inclusion under GILTI.
Update January 17, 2019:
We were pleasantly surprised, even as the US government shutdown continues, that the year end exchange rates were released yesterday by the US Treasury Department. For 2018 the year end FBAR and 8938 US-Canadian exchange rate is as follows:
1 USD = 1.3620 CAD
FBAR reporting and form 114 information can be found here. Form 114 can be completed via PDF or completed online through the BSA online filing portal. For more information on how to complete the FBAR please click here.
Update January 10, 2019
Section 965 and GILTI Tax Changes
As we start the new year we can’t forget about the recent tax changes enacted by the current US administration. Starting with the 2017 section 965 tax, and leading into the 2018 tax season with the new global intangible low-taxed income (GILTI) tax, the last few years have been nothing if not complex for US citizens in Canada. Especially those that control Canadian corporations.
For those not familiar with these new changes the US administration rolled out new tax rules in 2017 and 2018 that essentially taxed previously earned retained earnings and future active business income for US citizens with ownership in controlled foreign companies. For most of our clients, this included Canadians with a controlling ownership in Canadian corporations. Although there are planning strategies to help mitigate the potential US tax effect to taxpayers, the new changes have been overwhelmingly negative for our cross border clients.
US Government shutdown
The current government shutdown as a result of the President’s insistence on funding a wall between the US and Mexico will likely lead to some slowdown at the IRS. Although the department has assured taxpayers that they will be receiving their refunds on time we expect delays in tax returns processing and general responses from the IRS.
We also expect that the December 31, 2018 year end currency rates for FBAR and 8938 purposes will also be delayed. These figure are often released by mid January, however this year they may be released much later. If pushed too far this could impact the accuracy of FBAR and 8938 filings as these forms require that the year end Treasury currency rate is used for converting foreign funds to US dollars.
The Closing of the IRS Voluntary Disclosure Program
As expected the IRS closed their offshore voluntary disclosure program September 28, 2018. In November of 2018 the IRS provided guidance on future IRS voluntary disclosures. The guidance provided that:
- Pre-clearance will be reviewed by agents for new VDP submissions
- The IRS will expect all disclosures to include full taxes and penalties paid
- They expect 6 years of returns to be submitted and FBAR willful penalties will be potentially assessed
Note however that the streamlined tax filing program available to non-resident US citizens is still in place and available to those that are considering catching up on their late US tax returns.
IRS Compliance Campaigns
In 2018/2019 the IRS is expanding their compliance review in several international areas. We expect that our cross border clients will be receiving some additional review on these items. I have included a list of notable international examples below (see the full list here):
1120-F Delinquent Returns Campaign
Corporate Direct (Section 901) Foreign Tax Credit (“FTC”)
F3520/3520-A Non-Compliance and Campus Assessed Penalties
FATCA Filing Accuracy
Foreign Earned Income Exclusion Campaign
Forms 1042/1042-S Compliance
Form 1120-F Chapter 3 and Chapter 4 Withholding Campaign
Form 1120-F Non-Filer Campaign
Individual Foreign Tax Credit (Form 1116)
Individual Foreign Tax Credit Phase II
Nonresident Alien Schedule A and Other Deductions
Nonresident Alien Tax Treaty Exemptions
NRA Tax Credits
Offshore Service Providers
OVDP Declines-Withdrawals Campaign
Related Party Transactions Campaign
Section 965 Transition Tax
CRA Non-Resident Withholding Tax
We are seeing additional review of non-resident withholding tax from CRAs perspective. For those making payments to non-residents make sure that proper withholdings are paid to CRA on specific amounts. The maximum non-resident withholding rate to non-resident recipients is 25%, however these amounts can be reduced based on tax treaty provisions.
To assess appropriate non-resident withholding tax on payments to non-residents please use this CRA calculator.
Tax Fairness for Americans Abroad Act of 2018
On December 20th, 2018 Congress member George Holding of North Carolina introduced the Tax Fairness for Americans Abroad Act of 2018 bill into the House. This announcement garnered the attention of many US citizen taxpayers abroad for obvious reasons.
The introduced bill outlines an alternative taxation regime for US citizens living abroad. In simple terms the bill introduces the following measures:
- the bill would allow US citizens to be taxed based on a residency established system.
- for those considered “non-resident citizen” current worldwide reporting and taxation to the US government would not be required (assuming proper elections are filed)
- US Citizens would continued to be taxed on certain US source income
- US Citizens would be taxed on any sale of property or capital property during the time they were considered “resident Citizen of the US”
- In order to be considered a qualify “non-resident citizen” the taxpayer would need to be fully compliant for tax purposes during the last 3 years.
As many have pointed out, this is not the first attempt at introducing a bill of this nature into the House and as many professionals have pointed out, this bill is unlikely to become law.