Do you have U.S. tax risk? Part 1

by in Tax Advice Information and Updates

Being a dual citizen of Canada and the United States poses a lot of complications especially because of recent tax changes in the United States.

According to Terry Ritchie, author of the article, “Does your client have U.S. tax risk?” clients and advisors alike have to be aware of the issues related to being dual citizens – “American citizens are deemed to be residents of the U.S. for income, gift and estate tax purposes.  A U.S. citizen who is also a resident of Canada would be deemed to be a Canadian tax resident and also subject to tax on their worldwide income.”

It is important to note that not all of the American citizen’s worldwide income is subjected to tax in both Canada and the U.S.  The foreign-earned income exclusion exempts US$95,900 of Canadian-source employment income.  After application of this exclusion and the application of foreign tax credits, most U.S. citizens in Canada do not pay additional U.S. income tax.  But do remember that the U.S. citizens are still required to file their U.S. income tax and other required filings.

U.S. citizens residing in Canada are required to file IRS Form 1040 annually on their worldwide income.  The deadline to file this is April 15th if the American owes U.S. tax.  If the American does not owe any U.S. tax, they can file their income tax return on or before June 15th.

It is recommended that dual citizens coordinate their Canadian tax return with their U.S. tax return.  It is always best to have an experienced tax preparer familiar with both Canadian and American tax rules to prepare the tax returns.  This will ensure that all tax compliance requirements are fulfilled on both sides.

Unfortunately, according to the article mentioned, “you can’t escape the clutches of the IRS by renouncing your U.S. citizenship, as this causes further complications. (see article, "Americans in Canada").”

Reference:  "Does your client have U.S. tax risk?" by Terry F. Ritchie, January 27, 2012,

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