Information for Canadian citizens that are subject to American tax laws

Did you know that some Canadian citizens are subject to the tax laws of the United States?

Most countries collect taxes based on residency. Canada is such a country. If you live within the country, you are subject to taxation by the Canadian government. Generally, if you were to move permanently to another country and sever your ties with Canada, you would become subject to the tax laws of your new country of residence and Canada would no longer seek to tax you.

The United States of America (US) has a different approach. In the US, taxation authority is based on citizenship rather than residency. This means that if you are an American citizen, you are likely under an obligation to report your income and assets to the Internal Revenue Service (IRS), regardless of whether you reside outside the US.

Moreover, the US government may consider you to be an American citizen even though you have not lived in the country for an extended period of time and you subsequently consider your ties with the country to have been severed.

If you were born in the US, immigrated to the US, or even worked in the US for a period of time, you are likely subject to American tax laws and reporting obligations, even if you have ceased to reside within the country.

This may come as a surprise to many people. There are scores of Canadians citizens who do not consider themselves to be American citizens because they have not lived in the US, let alone filed American tax returns, for decades. Yet, the US has laws in place that require them to disclose their revenue and assets to the IRS for tax purposes under the Foreign Account Tax Compliance Act (FACTA) and the Bank Secrecy Act (BSA).

What is FATCA?

The FATCA was enacted in 2010 by the United States Congress to target non-compliance by US taxpayers using foreign accounts. FATCA requires foreign financial institutions to report information to the IRS about financial accounts held by American taxpayers, or by foreign entities in which taxpayers hold a substantial ownership interest. 

To read the regulations and administrative guidance related to FATCA or to learn more about taxpayer obligations as a Canadian citizen, having previously lived or worked in the US, please visit the IRS FATCA Web page.

What is the BSA?

The BSA requires that American citizens, residents, or entities who have offshore banks, mutual funds, trusts or brokerage accounts disclose those amounts annually to the IRS through the use of a Report of Foreign Bank and Financial Accounts (FBAR).

What is a FBAR?

A FBAR is a form that must be completed and filed by an American citizen, resident, or entity that has a financial interest in, or signature authority over, foreign financial accounts where the aggregate value of those accounts exceeds $10,000 at any time during the calendar year.

The use of a FBAR assists the United States government in identifying individuals who may be using foreign financial institutions to bypass United States tax laws. FBARs help identify or trace funds used for illicit purposes or to identify unreported income maintained or generated abroad.

To learn more about the requirements for filing a FBAR, please visit the IRS FBAR Web page.

For additional information

The United States Taxpayer Advocate Service (TAS) is an independent organization within the IRS. It helps American citizens resolve problems with the IRS and recommends changes that prevent issues. The TAS makes information regarding FATCA and FBAR available on its Web site.

You can also refer to the following departments and associations for further details relating to FATCA and FBAR:

Department of Finance Canada
United States Department of Treasury
Taxpayer Advocate Service