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. Canadian spouses file separately, but disclose their spouse’s net income to receive any benefits.
- US citizens living abroad can earn employment and self-employment income tax free (up to $126,500 in 2024).
- As a Canadian resident, 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 old UNCHANGED name (as shown on your SSN card) on your US tax return, or risk having your US tax return rejected by the IRS, with resulting delays.
- US capital gains tax is calculated on the full gain, but at a lower rate if held for longer than one year. Canadian capital gains tax is calculated on 1/2 the gain, at your full marginal rate (but 2/3 of the gain over $250,000).
- 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, and ways to circumvent this problem).
- If a US citizen gifts more than $18,000 in a single year to a single person ($148,000 for a non-US citizen spouse), s/he must file a gift tax return. This is different than an “income” tax return.
- While Canada recognizes Roth IRA’s and does not tax residents on income earned inside the Roth IRA if a special election is made in a timely manner, the US does not recognize TFSA’s or FHSA’s, and always taxes the income in these accounts. (There is also controversy whether these accounts constitute a “foreign trust” for US tax purposes. Contact us to learn more).
- 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 can be many times those of the Canadian form. There is yet another similar form on the US tax return itself, form 8938, that must also be filed if higher thresholds are met. Do NOT file “delinquent” returns, especially FBARs or 8938’s, without learning how to avoid penalties!