Canadian – American Dual Citizens and Taxation
It is likely that the majority of Canadian-American dual citizens became
conscious of a shift in IRS policy and practice concerning US taxation
during 2011. The practical application of this change by the IRS is that
many citizens who had not been filing US income tax returns for many years,
perhaps decades, for a multiplicity of reasons is that all Americans living
and residing in Canada must now file annual US income tax returns in addition
to their Canadian income tax forms. Filing a US tax return is required
of each American1 even though there is no American
tax payable, given that Canada has a higher taxation rate.
The reporting requirements for US taxes also include a secondary reporting
obligation, i.e. the Foreign Bank Account Report (FBAR), and for the 2011
taxation year, a Form 8938, a part of the newly passed Foreign Account
Tax Compliance Act (FATCA).
Minister of Finance James Flaherty made the following points in documents
mailed to many individual Canadian-American citizens during the fall of
The penalty for not filing the FBAR is significant. Robert R. Wood, a contributor
to Forbes online, in an April
2011 contribution states:
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 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.
“As consumers we may be bombarded with how much fiber we need.
Yet FBARS may be more important than fiber! The Report of Foreign
Bank and Financial Accounts, also known as an FBAR or as Treasury Form
TD F 90-22.1, has come out of the dusty stacks of federal form oblivion
and into the front and center consciousness of thousands with bank accounts
in foreign countries." Wood lists, among others,
the following points:
Canadian Minister of Finance Flaherty makes these points about the FBAR:
Annual Filing Required. Unless you fall within the “at no
time exceeding $10,000 category”–meaning all your foreign accounts in the
aggregate did not exceed $10,000–you generally must file every year.
Separate June 30 Filing. FBARs are filed separate from tax
returns. They are due each June 30 for the preceding year.
Receipt by Due Date. Oddly, FBARs aren’t
governed by the usual “mailing is filing” rule applicable to tax returns.
They aren’t technically tax returns, and are Treasury forms rather than
being handled by the IRS. Make sure your FBAR is received by June
No E-Filing. Plus, despite the government’s
obsession with e-filing of tax returns, FBARs can’t be e-filed. Go
Who Must File? U.S. taxpayers including citizens, residents,
and entities that have foreign financial accounts totaling more than $10,000
at any point during the year.
What’s an Account? Foreign bank and brokerage accounts are
generally included, as are offshore mutual funds or pooled investments.
However, hedge and private equity funds generally don’t count2.
Account Exclusions. Some types
of accounts are not treated as foreign–an account with a financial institution
in the U.S. isn’t “foreign.” Likewise, an account with a U.S. institution
that holds foreign assets doesn’t require a filing as long as you can’t
directly access foreign assets maintained in a foreign institution.
Many Entities Must File. Many entities
must file FBARs. However, individual officers or employees who have
signature authority over their employer’s foreign accounts need not personally
maintain records of the accounts. See Federal Register Feb. 24, 2011.
FBAR Penalties. The penalties for failure to file are considerably
worse than tax penalties. Failing to file an FBAR can carry a civil
penalty of $10,000 for each non-willful violation. But if your violation
is found to be willful, the penalty is the greater of $100,000 or 50% of
the amount in the account for each violation–and each year you didn’t file
is a separate violation.
Waiting for the Statute of Limitations. Hoping you’re not
caught -- or that if you are discovered you can plead innocence -- could
require an awfully long wait (forever actually) before you’re truly in
the clear. If a tax return or FBAR is never filed, the statute of
limitations never runs -- you can’t run out the clock. …
The organization American
Citizens Abroad is actively lobbying the American government for a
repeal of the FATCA reporting requirement.
Some Canadian NDP MPs from British Columbia are also actively calling on
the Canadian government to take a proactive role by negotiating a true
amnesty with respect to the FBAR reporting requirement along with exemptions
for filing US tax returns for those who do not owe American taxes and have
no American assets.
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).
Currently there is no single organization or “voice” in Canada to represent
law-abiding Canadian-American dual citizens caught in the US dragnet attempt
to identify and prosecute tax evaders. On the surface, it appears that
all dual citizens, whether tax evaders or not, are being “painted with
the same brush.”
Canadian-American dual citizens, perhaps up to a million people in Canada,
who are law-abiding citizens in Canada, require:
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A true amnesty with respect to the FBAR penalties.
Freedom to enter the United States, our home country, without fear
of prosecution for “taxation without representation.”
Assurance from the Canadian government that Canadian banks and financial
institutions will not provide details of personal finances of Canadian-American
A national organization that speaks for Canadian-American dual citizens
and represents them to both the American and Canadian politicians.
A cessation of collection of detailed personal financial and banking information
for those Americans who are in full compliance with Canada Revenue Agency
1It is important to note that American citizenship
must be clear and unequivocal in affected individuals. If
you are not a US citizen, the requirements would not apply. For
further clarification on the issue of citizenship, please see information
at the following sites:
2For a more comprehensive and official description
of what constitutes an account, e.g. mutual funds, RRSP’s, Registered Tax
Savings Accounts, whole life insurance, see the
IRS definition of Financial Accounts.