Expats and Cross-Border Filings
Expert Tax Guidance for a Seamless U.S.-Canada Transition.
Residency & tax obligations?
Navigating the complexities of cross-border taxes can be challenging for Canadians living, investing, or moving to the U.S. Whether you’re a non-resident, planning a move, or managing tax obligations back home, our team provides expert guidance to help you stay compliant and minimize your tax burden. From cross-border reporting requirements to U.S. and Canadian tax obligations, we simplify the process so you can focus on the transition.
What is the substantial presence test?
The substantial presence test determines if a Canadian residing or spending time in the U.S. should be classified as a U.S. tax resident. This classification impacts how their income is taxed. To meet the test, the individual must:
- 31 days during the current year
- 183 days during the 3-year period that includes the current year and the 2 years immediately before that, counting
- All the days of being present in the current year
- 1/3 of the days of being present in the first year before the current year
- 1/6 of the days of being present in the second year before the current year
A substantial presence resident is required to file U.S. income tax returns to report worldwide income. With proper planning, a dual-resident Canadian can mitigate or avoid double taxation.
Foreign Financial Account Reporting
-
U.S. FBAR (FinCen Form 114)
For Canadian U.S. residents who hold foreign financial accounts with a balance exceeding US$10,000 during the year -
U.S. Form 8938 (FATCA)
For Canadian U.S. residents who hold foreign financial accounts and certain other foreign non-account investment assets exceeding certain thresholds -
Canadian T1135
For Canadians residents who hold specified foreign property costing more than Cdn$100,000
Cross-border real estate
The Foreign Investment in Real Property Tax Act (FIRPTA) of 1980 requires income tax withholding when a non-resident alien (transferor) disposes of real property situated in the U.S., which can apply to Canadian investors.
What is the process when a
non-resident sells a U.S. real property?
The buyer (transferee) withholds 15% of the sales proceeds.
The buyer reports and pays the withholding tax to the IRS using Form 8288 and Form 8288-A within 20 days following the date of the disposition.
Wait for the IRS to process the Form 8288 submission.
The IRS provide a stamped copy of Form 8288-A to the non-resident seller.
A non-resident must file Form 1040-NR and attach the stamped Form 8288-A to report the disposition and claim credit for withheld tax.
The buyer may reduce or eliminate withholding tax with an IRS-issued withholding certificate. Either party can apply using Form 8288-B.
Tax Treaties
Residents of the United States and Canada can often claim entitlements under the Canada-U.S. Tax Convention to mitigate income taxes and simplify tax reporting. Common tax planning areas offered by the treaty include
Services TMP can assist you with
Analysis of residency and tie-breaker rules
Preparation of foreign asset information returns (FBAR, Form 8938, T1135
Analysis of treaty-protected income and disclosure requirements
Preparation of Form 1040-NR and dual-status returns
Application for FIRPTA withholding certificates
Preparation of W-8BEN form
Section 216 filings if you are renting property in Canada
Deemed disposition and exit tax filing
Assist in Avoiding double taxation
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Frequently Asked Questions (FAQs)
Find answers to common questions about Democracy
Yes, you must still withhold the statutory tax. However, you do not have to immediately
file Form 8288 and remit the withholding tax. You will wait until the IRS issues the
withholding certificate of notice of denial. Then you will adjust the withholding tax when applicable and remit the tax within 20 days following the IRS response
Yes, deductions are allowed for ECI. You can deduct the cost of the property and
expenses incurred to sell the property. The net gain is taxed at graduated rates.
The IRS can issue a withholding certificate that reduces or even eliminates the 15%
statutory withholding tax. Therefore, it eases the cash flow strain imposed on the seller.
There are various categories applications for withholding certificates can be lodged
under. Please consult with your tax advisor to choose the appropriate stream
It can take up to 90 days for the IRS to act on the request.
Yes, a U.S. resident with Canadian bank accounts may need to file both FBAR and
Form 8938 if meeting the respective filing thresholds. FBAR is required if the aggregate
value of all your foreign financial accounts exceeds US$10,000 during the calendar year. Form 8938 is required if the value is more than US$50,000 on the last day of the tax year or $75,000 at any time during the year (for single filers residing in the U.S.)
● Canadian Tax Residents: Yes, you must file a Canadian tax return and report
worldwide income, even if you live in the U.S.
● Non-Residents: You only need to file a Canadian tax return if you have certain
Canadian-source income that requires reporting, such as Canadian employment income.
● Consult with a tax professional to determine your Canadian residency status and filing
obligations.
Penalties for non-compliance with FBAR can lead to $10,000 per non-willful violation. For willful violations, penalties of up to 50% of the account balance or $100,000 can be imposed, whichever is greater.
No, being a U.S. resident does not automatically make you a non-resident for Canadian tax purposes. Your residency status for Canadian tax purposes depends on your residential ties to Canada. Therefore, if you still maintain sufficient residential ties to Canada while living in the U.S., you can be considered a Canadian tax resident in the meantime. However, if you are considered a resident for both Canada and the U.S. for tax purposes, the Canada-U.S. Tax Treaty contains tie-breaker rules to determine which country you are a tax resident of.
Primary residential ties are dwelling place, spouse/common-law partner and dependents in Canada. Secondary residential ties include personal property, bank accounts, driver’s license, health insurance in Canada. Canada uses a facts-and-circumstances test to assess your overall residential ties.
The tie-breaker rules under the Canada-U.S. Tax Treaty can help determine your tax
residency and prevent dual taxation by assigning residency to one country. It is a set of
cascading rules to determine which country you have the closer connection with. You
will be first determined to be a tax resident of the country in which you have a permanent home available to you (whether owned or rented). If you have a permanent home in both countries, subsequent test criteria will follow, such as centre of vital interests, until your residency is resolved.
U.S. wages. You will figure the tax payable on your U.S. wages and reconcile with taxes
deducted on your W-2. The Canada-U.S. tax treaty exempts the U.S. wages from U.S.
taxation if you are in the U.S. for 183 days or less in a 12-month period and you are paid
by a Canadian employer who does not have a permanent establishment in the U.S. If you work in a state that collects personal income taxes, you need to file a non-resident
not apply to state taxation.
When moving from Canada to the U.S.:
1. Canadian Departure Tax: You may be subject to a deemed disposition of your assets
(excluding Canadian real estate or certain retirement accounts) and taxed on any
unrealized gains at the time of departure.
2. Establishing U.S. Tax Residency: Once in the U.S., you’ll be taxed on your worldwide
income as a U.S. tax resident.
3. Dual Filings: In the year of the move, you may need to file both a Canadian tax return
(for income earned before leaving) and a U.S. tax return (for income earned after
establishing residency).
4. Tax Treaty Relief: The Canada-U.S. tax treaty helps avoid double taxation through
credits or exemptions.
Gains or losses from the disposition of U.S. real property are considered income
effectively connected with a U.S. trade or business (ECI). Therefore, a U.S. income tax return (Form 1040-NR) must be filed. You would reconcile your tax liability with any tax
withheld by the U.S. buyer.
Non-resident aliens earning U.S.-source income are typically requested by their U.S.
payers to fill out a W-8BEN form. The purposes of this form are to certify foreign status
of the beneficial owner and claim treaty benefits (if the beneficial owner is eligible for a
reduction or exemption of U.S. withholding taxes).
How much will it cost for TMP to
handle our accounting and bookkeeping?
Basic Package
Preparation of Canadian departure tax return
U.S. dual-status tax return (part-year resident/non-resident)
Expert Package
Analysis of U.S.-Canada tax treaty tie-breaker rules
Preparation of U.S. resident tax return
Canadian deemed non-resident tax return
Reporting for 1-3 foreign financial accounts (e.g., FBAR)
Premium Package
FIRPTA withholding certificate application (Form 8288-B) to reduce or eliminate U.S. tax withholding on property sales
Next Steps
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