U.S. citizens and green card holders living outside the U.S. remain a priority for the IRS.
As a result, they’re required to report income and file U.S. returns. They also have to file forms to the U.S. Treasury Department to verify their Canadian and non-U.S. investments, as well as their investment bank account holdings
Those who haven’t kept up with filing their U.S. taxes need to get compliant. To facilitate this, the IRS has made changes to both its offshore voluntary disclosure and streamlined tax filing programs, as of June 18th, 2014.
Amendments to the Streamlined Filing Compliance Program (SFCP) are a welcome change; once eligible, U.S. citizens and green card holders in Canada are able to file:
- three years of U.S. tax returns;
- six years of Foreign Bank Reporting Forms (FBARs); and
- other tax related disclosures.
But to be eligible, the taxpayer must also show her failure to file was non-willful. That’s done by filing a non-willful conduct disclosure certification. She also has to prove she has no U.S. abode by showing she was physically outside the U.S. for at least 330 days in any of the last three years (currently, that’s 2011, 2012 and 2013).
Note also that as part of the recent changes, the $1,500 tax and residency test has been eliminated.
It’s difficult to plan for U.S. tax reporting after clients have established Canadian investment accounts without regard to U.S. requirements. So ask if clients are U.S. citizens or green card holders. If they weren’t aware of their obligations, enlist the help of a cross-border tax professional so you can try to ease potential compliance penalties and extra taxes.
Meeting eligibility requirements of the new program may seem easy, but completing returns and related disclosures can be complex.
Bill’s an advisor who’s learned his new client, Kim, is a U.S. citizen. Kim lives in Vancouver with her Canadian-born husband and her two kids.
Kim was born in the U.S. and moved to Canada in her early 20s, when she met her husband. Kim’s a lawyer with the B.C. government, and her financial situation is as follows:
- annual employment income is $170,000;
- $1 million in non-registered savings;
- a joint investment portfolio with her husband that includes Canadian mutual funds;
- $500,000 in RRSP;
- $40,000 in RESP;
- $1.3 million house with a mortgage of $500,000 (owned jointly with husband);
- $20,000 in TFSA; and
- she’s not the beneficiary or trustee of any trusts.
Bill has other U.S.-citizen clients and understands how important it is for Kim to catch up on her U.S. returns. To learn how he helps her, turn to the next page.