Tax Relief - US Citizen Living in Canada

Tax Relief - US Citizen Living in Canada

Taxation in the US is based on either citizenship or residence while Canada imposes income taxes only on residents of Canada. So, U.S. citizens who live or work in Canada may find themselves subject to taxation on their world income in the U.S. as well as in Canada.

Who Qualifies as a Resident of Canada?

The issue of residency has vital consequences for taxes in the eyes of the Canadian Revenue Agency.

And they need to take a few factors into account- If a person has a home within Canada, If a person owns personal property within Canada, If a person has a spouse, partner, or kids in Canada and A person’s economic and social ties to Canada.

Know About Some US Tax Relief The normal penalty for failing to file US taxes is 5% per month, up to a maximum of 25% yearly.

Even if it is very hard to believe, the Internal Revenue System (IRS) has said they will waive this penalty for Americans in Canada while dual citizens filing late returns. This is because it will help

relieve the issue of dual citizens fearing a trip over the border if they were not sure if their US taxes were current.

Tax Rates in Canada The Canada Revenue Agency (CRA) has set tax rates as follows for 2020:     

15% on the first $48,535 of taxable income, Plus 20.5% on the next $48,534 of taxable income Plus 26% on the next $53,404 of taxable income Plus 29% on the next $63,895 of taxable income Plus 33% of taxable income over $214,368

Territories and provinces impose taxes, which range from 4% to 21%! Every province is different, thus must check the Canada Revenue Agency website for detailed information When Are Canadian Taxes Due? The due date for their Canadian return (T1) is April 30 for most people. Self-employed people get until the 15th of June to file, even if payment of taxes must still be made before April 30. Apart from this an extension is granted to non-residents until June 30.

Canadian Social Security The US and Canada have an agreement regarding social security that is beneficial to individuals who have made contributions in both the systems or with spouses and parents who have made contributions in either country. Besides this agreement states that contributing to the system in one country can be used to meet residency requirements in the other country.

Is Foreign Income Taxed in Canada?

If you are a resident of Canada, then you have to file a tax return on your worldwide income. But nonresidents have to report only income earned in Canada.

Canadian Tax Year and Due Date The Canadian tax year is Jan 1 through December 31, which makes filing your US ex-pat taxes easier as you do not need to pro-rate your income. Also, the typical tax due date to file a T1 (Canadian tax form) is April 30 of the following year. Keep in mind that you will have to complete your Canadian taxes so as to complete your US ex-pat taxes!