For US citizens exploring US taxes for the first time, or Canadians doing business south of the border, there are several key differences between our tax regimes to be aware of. Here are the most important 10 for individuals.
- The US taxes its CITIZENS, no matter where in the world they live. (Canada taxes its RESIDENTS).
- US citizen spouses can file a joint spousal return for significant benefits.
- US citizens living abroad can earn employment and self-employment income tax free (up to $101,300 in 2016).
- By treaty, you neither have to contribute to US social security, nor be taxed on CPP/OAS (but find out how).
- If you’ve changed your name in Canada other than by marriage, show your UNCHANGED name on your tax return (as shown on your SSN card), or risk losing your personal exemption ($4,050 per person for 2016).
- US capital gains tax is calculated on the full gain, but at a lower rate if held for longer than one year.
- Starting in 2014, US citizens in Canada have to file form 8965 for an exemption to mandatory US health care coverage.
- If a US citizen holds Canadian mutual funds or ETF’s, the reporting and taxation on them can be genuinely egregious! (Find out if this applies to yours).
- If a US citizen gifts more than $14,000 in a single year to a single person, she must file a gift tax return ($148,000 for a non-US citizen spouse).
- If you hold sufficient cash and/or investments outside either country, that country requires you to report those holdings. The Canadian threshold is $100,000 of COST BASIS (the amounts you put IN). The US threshold is $10,000 fair market value (the amount you could get out), after adding up the maximum values each account or investment attained at any time in the year.
NOTE The US form is called the FBAR, and the penalties for late filing are many times those of the Canadian form. Do NOT file “delinquent” returns, especially FBARs, without learning how to avoid penalties!