Of all the areas to consider in your move (or living in Canada as a US citizen or Green Card holder), taxes are by far the most complex yet potentially beneficial area. Nothing seems to be as confusing a the taxation of Americans moving to Canada. Let’s dispel one myth right off the bat . . . US citizens and Green Card holders are required to file US tax returns annually and declare their worldwide income. Since they live in Canada, they are considered tax residents of Canada as well which requires you to declare your worldwide income on a Canadian return. This leads you to the mine field of double taxation and without competent help, you could end up paying more than your fair share. The typical situation we see is someone moves to Canada and gets their Canadian return done by their local CA and their US return done by their “good ole CPA” in the US and then take comfort in the fact they have made it through another tax season. Unfortunately, it’s a false sense of security because the truth of the matter is very few people know how to properly prepare these returns and more importantly, coordinate the two returns, properly apply the Canada/US Tax Treaty and ensure the necessary compliance issues are fulfilled to your benefit. Besides paying more tax than you should, it is only a matter of time before one of the taxing authorities catches a compliance issue and the “hate mail” starts filling your mailbox.

Given this requirement to continue filing US tax returns, some folks think they will simply renounce their US citizenship to get out of this requirement. Unfortunately, Congress is one step ahead of you and in 2004, brought in the new “expatriation rules.” Basically, if your net worth is in excess of $2M or your average tax bill over the past 5 years has averaged $139k or more, you fall under the alternative tax regime. This means you file Form 8854 – Initial and Annual Expatriation Information Statement annually for a period of 10 years. Further, you are barred from staying in the US for more than 30 days and if Senator Reed gets his way, you will not be allowed to spend anytime in the US at all, no matter what the reason. As a result, it is usually best to get right with the world and file the required returns and remain in compliance from this point forward.

There are several tax differences between Canada and the US. One significant one you will notice is you file a joint return in the US but in Canada, you file separate returns. Canada acknowledges heterosexual and same-sex common-law relationships and marriages as a filing and immigration status in Canada. Further, your provincial tax return is filed with your federal tax return unless you live in Quebec where you file a separate return. You will find that the combined federal and provincial tax rates are higher than in the US and you have fewer deductions/credits. However, payroll taxes are lower so if you are working in Canada, you may have some offset there.

Interesting Links

Canada

Canada Revenue Agency - Forms and information on Canadian federal taxes

Provincial Tax Links - Links to all the Provincial Revenue websites

US

Internal Revenue Service - For all the forms and information on US federal taxes

State Tax Links - Links to all the State Revenue websites

State Sales Taxes -the local sales tax of each State

For expert Canada/US tax help in your local area, consider the following:

Transition Financial Advisors - Brian Wruk & Terry Ritchie in Arizona & Alberta

Brunton - McCarthy Tax Accountants - Dick Brunton in Florida

Blatt Kleinbaum Summerfield & Kelner - Arnie Blatt in Minnesota

Meyers North Penny - Lyle Moline

SF Group - Kevyn Nightingale in Ontario

Vacovec, Mayotte & Singer - Paula Singer in Massachusetts