US Expat Tax In Canada – Practical Info You Need To Know

Expat Living In Canada

Living overseas in Canada will be an interesting experience and is a popular living location for Americans, given its proximity to and similarity to the United States. It is a country of great natural beauty and is also one of the world’s strongest economies.

Below is a list of our top 15 most attractive Canadian cities for foreigners to reside in (in no particular order):

• Calgary, Alberta
• Edmonton, Alberta
• Vancouver, British Columbia
• Victoria, British Columbia
• Whistler, British Columbia: I admit to being biased on this one as an avid skier…
• Winnipeg, Manitoba
• New Brunswick, New Brunswick
• St. John’s, Newfoundland
• Halifax, Nova Scotia
• Ottawa, Ontario
• Toronto, Ontario
• Montreal, Quebec
• Quebec City, Quebec
• Regina, Saskatchewan
• Saskatoon, Saskatchewan

Guide To US Expat Tax In Canada

The Tax Samaritan country guide to US expat tax in Canada is intended to provide a general review of the tax environment of Canada and how that will impact your U.S. expatriate tax return as a U.S. expatriate in Canada.

As a U.S. taxpayer, all worldwide income is subject to taxation and reporting, and for most expatriates, you are required to file a U.S. tax return on an annual basis due on April 15 each year (June 15 if you are residing overseas on the April 15 deadline). The tax treatment for different classes of income can vary greatly between Canada and the U.S. For example, certain benefits may be tax-free or excluded from taxable income in Canada, but in the U.S., these benefits are likely to be non-qualified benefits that are subject to being included as taxable income in the U.S. As such, there are a number of considerations related to US expat tax in Canada, and this brief article will address a few of those considerations.

Canada Expat Income Taxes

Who Is Liable For Income Taxes In Canada

In Canada, an individual resident is taxed on worldwide income. However, non-residents are taxed on Canadian-source income only.

Who Is A Canadian Tax Resident

The Canadian tax code defines who is considered a tax resident. However, residency is determined by such factors as the location of dwelling places, spouse, dependents, personal property, economic interests, and social ties. However, a nonresident individual who stays temporarily in Canada for 183 days or longer in a calendar year is assumed to be a resident of Canada for the entire year, unless he or she is determined to have nonresident status under a tax treaty.

Tax Year In Canada And Tax Filing And Payment Rules

The tax year in Canada is the calendar year. Annual income tax returns must generally be filed on or before April 30 of the year following the tax year. The filing due date is extended to June 15 for individuals earning self-employment or business income. This extended due date also applies to these individuals’ spouses. No other extension to file income tax returns is available in Canada.

In Canada, married persons are taxed separately, rather than jointly like on a US tax return, on all types of income. Therefore, spouses must file separate tax returns.

What You Need To Know About Living And Working In Canada For Your U.S. Expat Tax Return

When dealing with US expat tax in Canada, there are a number of preferential expat tax treatments that may benefit your U.S. expatriate tax return. In fact, for many U.S. expats, it will reduce their U.S. taxes to zero.

Some of these preferential tax treatments or benefits for US expat tax in Canada include the:

• If you are a U.S. citizen or a resident alien of the United States and you live in Canada, US expat tax in Canada is based on your worldwide income and, as such, you must file a U.S. return for all the years that you are residing in Canada. However, as a U.S. expat, you may qualify to reduce your U.S. taxable income up to an amount of your foreign earnings that is adjusted annually for inflation ($99,200 for 2014). In addition, you can exclude or deduct certain foreign housing amounts. This is known as the Foreign Earned Income Exclusion and the foreign housing exclusion.
• When it comes to US expat tax in Canada, most US expatriates worry about “double taxation” – paying taxes to two different countries – the U.S. and Canada. A U.S. taxpayer working overseas in Canada may be able to reduce U.S. taxable income and “double taxation” by claiming the Foreign Tax Credit on Form 1116. Should any foreign income not be fully offset by the foreign earned income exclusion, housing exclusion, or housing deduction, the foreign tax credit paid or accrued may be used as a deduction or credit on the U.S. tax return. Taxpayers can elect to either deduct the taxes as an itemized deduction on Schedule A or claim a credit against tax. In most cases, it is to your advantage to take foreign income taxes as a tax credit.

A common but dangerous mistake is the assumption that if there are zero taxes owed with these tax benefits that a return for US expat tax in Canada does not need to be filed. That is not true. If you are working overseas, it is likely that you meet the filing requirements to file a tax return and must do so. It is important to note that the preferential tax treatments, such as the foreign earned income exclusion and foreign tax credit, are not applicable to the outcome of your tax liability until they are claimed on a filed tax return.

When faced with US expat tax in Canada, there are many tax items to consider, but the above are by far the most common preferential tax benefits. With top-notch, experienced, and knowledgeable expat tax preparation from Tax Samaritan, you can be assured that you are paying the minimal amount of U.S. taxes that you are legally obligated to.

Canada Foreign Bank Account Reporting – The FBAR (FinCen Form 114)

Another important tax deadline that frequently applies to US expat tax in Canada is in regards to the disclosure of foreign assets on the FBAR (Foreign Bank Account Report – Form 114 – formerly known as TD F 90-22.1).

The FBAR filing deadline is June 30th (or the preceding business day if June 30th falls on a weekend). Unfortunately, requesting an extension on your individual return does not extend the FBAR due date – there is no extension available for the FBAR deadline. Any reports filed after this date are considered a delinquent FBAR. In addition, the FBAR is different than many other tax forms in that it must be received by the deadline date (and not postmarked by the deadline date).

The FBAR must be filed with the Treasury Department (it is not filed with your federal income tax return) whenever you meet the FBAR filing requirements, which in a nutshell is whenever a U.S. person has a financial interest in, or signature authority over a foreign financial account, including a bank account, brokerage account, mutual fund, trust or other type of foreign financial account (including an insurance policy with a cash value such as a whole life insurance policy) maintained with a financial institution, with an aggregate value of over $10,000 at any time during the calendar year based on the highest value of each foreign account during the tax year.

If you have bank accounts at Royal Bank of Canada (RBC Royal Bank), Toronto-Dominion Bank (TD Canada Trust), Bank of Nova Scotia (Scotiabank), Bank of Montreal (BMO Bank of Montreal), Canadian Imperial Bank of Commerce (CIBC) or at another bank in Canada or any other foreign country, you may meet the filing requirement to disclosure your foreign accounts on the FBAR. Please don’t hesitate to contact Tax Samaritan to learn more about your filing requirements.

U.S. – Canada Social Security Totalization Agreement

Individuals employed in Canada and their employers must each make government pension plan contributions at a rate of 4.95% on salaries. They must also pay employment insurance premiums.

The United States has entered into agreements, called Totalization Agreements, with several nations to avoid double taxation of income with respect to social security taxes. These agreements must be taken into account when determining whether any alien is subject to the U.S. Social Security/Medicare tax, or whether any U.S. citizen or resident alien is subject to the social security taxes of a foreign country. As of this time, Canada has not entered into a Totalization Agreement with the United States thus there is opportunity to avoid double taxation of social security income for US expat tax in Canada.

Click here to read more on the US–Canada Totalization Agreement.

U.S.- Canada Tax Treaty And Tax Relief For US Expat Tax In Canada

The U.S. currently has a tax treaty with Canada. Please click on the link to the U.S. – Canada Tax Treaty.

Qualified Dividends In Canada For Your Foreign Corporation or Investment

Since 2003, dividends paid to individual shareholders from either a domestic corporation or a “qualified foreign corporation” are subject to tax at the reduced rates applicable to certain capital gains. A qualified foreign corporation includes certain foreign corporations that are eligible for the benefits of a comprehensive income tax treaty with the United States. Canadian foreign corporations are unfortunately not eligible for this lower “qualified” dividend rate.

Our goal at Tax Samaritan is to provide the best counsel, advocacy and personal service for our US expat tax in Canada. We are not only tax preparation and representation experts, but strive to become valued business partners to American expatriates in Canada. Tax Samaritan is committed to understanding our client’s unique needs; every tax situation is different and requires a personal approach in providing realistic and effective solutions.

Click the button below to request a Tax Preparation Quote today to get started with the preparation of your return for US expat tax in Canada or to request a free 30-minute tax consultation.

Frequently Asked Questions (FAQs)

1. Do I need to file a U.S. tax return if I owe no U.S. taxes?

Yes, as a U.S. citizen living in Canada, you must file a U.S. tax return annually to report worldwide income, even if tax benefits like the Foreign Tax Credit reduce your liability to zero. Failing to file can lead to penalties or loss of benefits, such as the Foreign Earned Income Exclusion. Use Form 1040 and file by June 15 when living abroad.

2. Are Canadian Tax-Free Savings Accounts (TFSAs) tax-free for U.S. taxes?

No, TFSAs are not tax-free under U.S. tax law and are treated as foreign trusts, requiring you to report their income on your U.S. tax return. You may also need to file additional forms, like IRS Form 3520, to disclose the account. Consult an expat tax expert to ensure compliance and minimize your tax burden.

3. Can I defer U.S. taxes on my Canadian RRSP earnings?

Yes, the U.S.-Canada Tax Treaty allows you to defer U.S. taxes on RRSP earnings until withdrawal, if you file IRS Form 8833 to claim treaty benefits. You must still report the RRSP on your U.S. tax return and may need to file Form 8891 (for pre-2015 years). Work with an expat tax professional to ensure proper reporting and avoid penalties.

4. How do Canadian provincial taxes affect my U.S. tax return?

Canadian provincial taxes, which range from 5-16% depending on the province, increase your total Canadian tax bill but can be credited against U.S. taxes via the Foreign Tax Credit. These taxes don’t directly affect your U.S. filing but help eliminate double taxation. Check your province’s rates to understand your total liability.

5. Can I use both the Foreign Earned Income Exclusion and Foreign Tax Credit to reduce my taxes?

You cannot apply both the FEIE and FTC to the same income, but you can use them strategically for different income types. For example, use the FEIE for up to $130,000 of earned income in 2025 and the FTC for investment income. A tax professional can help optimize your strategy.

6. What happens if I’m behind on my U.S. tax filings as an expat in Canada?

The IRS offers Streamlined Filing Compliance Procedures to help expats catch up on missed filings without penalties. You’ll need to file three years of tax returns and six years of FBARs, if applicable. Contact a tax expert to ensure compliance and avoid fines.