U.S. Tax filing requirements, deadlines, and penalties for U.S. citizens (and green card holders) living in Canada and Canadian’s with US tax filing requirements

by margento | July 29, 2020

U.S. Citizens and green card holders living in Canada

Tax filing deadlines and payment deadlines

For U.S. citizens (and green card holders that have not expatriated) that are living in Canada, the personal tax payment deadline is April 15th. The actual filing deadline is automatically extended to June 15th. This means if you anticipate you will owe any taxes to the IRS, a payment is due before the actual return is due.

If the return cannot be filed for any reason by June 15th, an application to extend the deadline to October 15th can be filed before the June 15th deadline.

If the return still cannot be filed by October 15th for a good reason, a letter can be sent to the IRS before the October 15th deadline to extend the deadline to December 15th. The letter must explain the reasons why you need the extra two months and the extension is granted at the discretion of the IRS.

Required tax forms

U.S. citizens and green card holders are required to file an annual Form 1040 “U.S. Individual Income Tax Return” to report their worldwide income for the year. There are additional forms that could be required depending on the individual’s situation, common examples are as follows:

  1. FBAR “Foreign Bank Account Report”, this form is required when a US citizen or green card holder has an aggregate of US$10,000 in all non-US financial accounts. This includes but is not limited to, chequing, savings, investment accounts, RRSP, TFSA, etc.
  2. Form 8938 “Statement of Specified Foreign Financial Assets”, this form is similar to the FBAR however, the threshold is US$200,000 for a single individual and US$400,000 for a married individual filing jointly
  3. Form 5471 “Information Return of U.S. Persons with Respect to Certain Foreign Corporations”, this form is required if a shareholder owned 10% or greater in the shares of a non-U.S. corporation. This threshold can be met if related individuals collectively own 10% or more shares the same non-U.S. corporation
  4. Form 8865 “Return of U.S. Persons with Respect to Certain Foreign Partnerships”, this form is required if a partner owned 10% or greater interest in the partnership while the partnership was controlled (greater than 50%) by U.S. persons each owning at least a 10% interest. 

Penalties deadline

Individual Tax return: Failure to file penalty is 5% of unpaid tax charged each month the return is late or if filed later than 60 days after the return is due, the penalty is the lesser of (1) 100% of the tax that is owing or (2) a specific dollar amount set by the IRS, which is $435 for returns due on or after 1/1/2020. If the failure to file is fraudulent the maximum penalty is 75% of the tax due.

Failure to pay penalty is usually 0.5% of unpaid tax, charged monthly, however, it can be as much as 25% of the unpaid amount.

Required tax forms: Failure to file penalties for not filing completed and correct forms (ie FBAR, 8938, 5471, 8865) may be subject to a penalty of US$10,000 per form per each tax year it is required to be filed.

Canadian residents with U.S. sourced income

Tax filing deadlines and payment deadlines

Canadian residents that have U.S. sourced income (including employment or self-employment income earned while physically present in the U.S., rental income earned from a U.S. real property, investment income (dividends and capital gains) earned within a U.S. based financial account, may be required to file a form 1040NR “U.S. Nonresident Alien Income Tax Return”.

The deadline for filing this return is April 15th for employees who received wages subject to U.S. income tax withholding, for all other individual filers the deadline is June 15th.

If the return cannot be filed for any reason by April 15th or June 15th (depending on your deadline), an application to extend the deadline to October 15th can be filed before the April 15th or June 15th deadline.

If a taxpayer filing deadline is April 15th, then the payment deadline is the same date, if a taxpayer filing deadline is June 15th then the payment deadline is also June 15th. The extensions to file do not extend the payment deadlines.

Closer connection tax form

If a Canadian resident meets the U.S. substantial presence test for a calendar year, they may be deemed a resident of the U.S. for tax purposes and may be required to report their worldwide income on a U.S. return. This could also create reporting requirements for the tax forms listed in the “Required Tax Forms” section of this article. The following are the criteria for meeting the substantial presence test:

  • The individual must have been physically present in the U.S. for at least 31 days in the year for which the tax return is being filed; and
  • The total of (number of days present in the tax year) + (1/3)(number of days in the year before the tax year) + (1/6)(number of days in the year two years before the tax year) must be at least 183.

If an individual meets this test but has spent less than 183 days in the U.S. in the current calendar year, has a tax home in Canada and is able to establish that he or she has a closer connection to Canada than to the U.S. during the year, they can file form 8840 “Closer Connection Exception Statement for Aliens” to apply for an exemption to not be deemed a resident of the U.S. This form follows the Form 1040NR due date (including extensions) and is filed annually with the Form 1040NR or on its own if no Form 1040NR is required.

Penalties deadline

Non-resident individual tax return: Failure to file penalty is usually 5% of amount due charged each month the return is late. The penalty can be as much as 25% of the tax due and if filed later than 60 days after the return is due, the penalty is the lesser of (1) 100% of the tax that is owing or (2) a specific dollar amount set by the IRS, which is $435 for returns due on or after 1/1/2020. If the failure to file is fraudulent the maximum penalty is 75% of the tax due.

Failure to pay penalty is usually 0.5% of unpaid tax, charged monthly, however, it can be as much as 25% of the unpaid amount.

If Form 8840 is not timely filed, the individual will not be eligible to claim the closer connections exception and may be treated as a U.S. resident, therefore, it is very important to timely file this form each year.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Contact Argento CPA today for a free initial tax consultation!

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