How does CRA know about my foreign income in the US?

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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.

Feel free to reach out via email at phil@philhogan.com or by phone or text here 250-661-9417.




Question

I have a bunch of investments in the US that I had before I retired to Canada. It’s not much income right now, but once my IRAs and other pensions start paying distributions it will be fairly significant. I also have stocks in the US that I haven’t repatriated to Canada.

How will CRA be able to track this income? How will they even know I have this income?

Answer

If I can give you only one piece of “advice” on the above query it would be this…never, ever try to hide or under-report income to CRA or the IRS. It may be tempting to not report in order to save taxes, however the consequence of not fully disclosing income is not only a terrible idea, it’s also illegal.

CRA and the IRS have entered into an information sharing arrangement that is aimed at uncovering such unreported income and accounts. You can read more about the Foreign Account Tax Compliance Act (FATCA) here.

Also note that the income you’re earning from the US, depending on whether you’re a US citizen or not, will be taxed in the US regardless through tax withholdings. Although you will likely pay more Canadian tax on the US source income you’ll get a credit on your Canadian return once properly reported.

Also don’t forget to file your T1135 if required. The T1135 form reports and discloses foreign assets and related income to CRA. You’ll only have to file this form if the total ACB of your foreign assets are over $100,000 CAD.

Please note that the T1135 will be much more complicated and detailed to prepare if you own US stocks in a non-registered US investment account. In that case case you’ll need to enter in every single stock and security individually, including the maximum cost amount, cost at year end, gross income and any gain/loss on the stock:

It’s certainly much simpler to have the investments moved to Canada into a Canadian investment account. If they are held in a Canadian account you’ll simply need to report them on a country by country basis:

Interestingly enough, certain accounts such as US IRA, ROTH IRAs and 401k accounts do not need to be included on the T1135.

Once again, rather than trying to hide income from CRA you’re much better served by having a professional cross border financial planner review your situation to reveal any tax efficiencies through planning. Please feel free to reach out and we can chat. You can reach me at 250-661-9417 or via email at phil@philhogan.com

 

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