2016 Canadian and U.S. income tax planning

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This is a brief summary of some key considerations and due dates for your 2016 personal income tax filings. Please feel free contact our office to schedule a consultation or ask any questions you may have.

• 2016 Individual income tax filing deadline is Monday, May 1, 2017
–  Canada Revenue Agency (CRA) will charge a penalty of 5% (of the taxes owing) if the tax return is filed after May 1ST.
• 2016 Tax slips from employers (T4), and financial institutions (T3/T5) should start to arrive by mid-February 2017.
• The filing deadline for the Foreign Property Disclosure form is May 1, 2017, which is applicable to Canadian residents with U.S. assets costing $100,000 CAD or more.
• 2016 RRSP contribution deadline is March 1, 2017.
• New federal tax bracket has been added for 2016: 33% of taxable income over $200,000.
• The tax rate on taxable income between $45,282 up to $90,563 has been reduced to 20.5% (previously 22%).
• New Teacher Supplies credit (subject to restrictions) is new for 2016.

• Sole proprietors and their spouses have an automatic filing extension to June 15, 2017 but in order to avoid past due interest, any taxes owed must be paid by May 1st.
• Some home office expenses are deductible depending on your employment/self-employment situation. Employment expenses must be supported by Form T2200 signed by your employer.
• The threshold for collecting HST/GST from sale of goods and services to customers continues to be $30,000 per annum. Registration allows the business to deduct HST / GST paid to suppliers (known as ITCs or Input Tax Credits). Ask us about using the Quick Method for calculating HST owing – it could end up saving you money.

Foreign sourced income
• Full-time, permanent Canadian residents are taxed in Canada on their worldwide income. For some individuals, this might include foreign income such as pensions, employment, or rental income. Canada has entered into Tax Treaties with other countries which allow for the taxpayer to claim a ‘foreign tax credit’ or deduction from Canadian income taxes in regards to the taxes paid to the foreign country.
o CRA rules for calculating and supporting the foreign tax credit are somewhat complicated.

Foreign Property
• CRA requires Canadian taxpayers to disclose foreign property with a cost exceeding $100,000 CAD. Taxpayers who held specified foreign property throughout the year with a total cost amount of less than $250,000 are permitted to report under the simplified reporting method, rather than providing the detail of each such property.

Generally speaking, all U.S. citizens and U.S. Green card holders, along with Canadians earning income in the U.S. must file U.S. income tax returns and other schedules every year.

U.S. Citizens living in Canada
• The IRS views Canadian TFSA and RESP as ‘Foreign Trusts’, and as such requires completion of 3520 and 3520A which are due March 15, 2017.
• 2016 Form 114 (also known as FBAR) is due April 17, 2017. Note – in previous years this was due June 30th, so please plan accordingly. An extension to October 15, 2017 is automatically granted but we strongly suggest adhering to the April 17th deadline. Form 114 filing is required if the ‘United States person’ had a financial interest in (or signature authority over) at least one financial account located outside of the United States, and the aggregate value of all foreign financial accounts exceeded $10,000 USD at any time during the 2016 calendar year. Form 114 must be filed electronically.
• 2016 Form 1040 and supporting schedules are due June 15, 2017 (includes automatic 2-month extension). Supporting schedules may include Form 1116 – Foreign Tax Credit which is used to claim credit for taxes paid to Canada.
• Form 8938 Statement of Specified Foreign Financial Assets is required to report foreign financial assets if the total value is more than $200,000 on the last day of the tax year or more than $300,000 at any time during the tax year, or if you are married and you and your spouse file a joint income tax return, more than $400,000 and $600,000 respectively. Form 8938 is included with Form 1040 and is due June 15, 2017.
• 2016 Foreign Earned Income Exclusion is $101,300. Form 2555 details the exclusion for “earned income” which includes employment and self-employment income, but does not include pension income, interest income and other “passive income”.
• Self-employment Tax (‘SE’ Tax) pertains to sole proprietor businesses and partnerships. SE tax can be a significant dollar amount. U.S. citizens living in Canada can claim an exemption for the SE tax only if certified by the Canada Revenue Agency (or Quebec Pension Plan).
• Disclosure of ownership exceeding 10% of a foreign corporation, such as a Canadian Controlled Private Corporation (CCPC), is required on Form 5471. This information is gathered from the corporation’s financial statements.
• 2016 Standard deduction = $6,300 for single or married filing separately, $12,600 for married filing jointly, and $9,300 for Head of household.
• 2016 Exemptions are $4,050 per person (yourself and each dependent).

Canadians with U.S. Properties
• Canadians with U.S. rental properties must file Form 1040NR (due June 15, 2017) and supporting schedules including Schedule E.
• Personal Exemptions are $4,050 per person for 2016.
• Disclosure of rental properties with Canada Revenue Agency on Form 1135 is required if the cost base exceeds $100,000 Canadian dollars for each owner.
• Canadians who sell personal use property in the U.S. for a gain are required to file Form 1040NR, along with supporting schedules.
• Individual Tax Identification Numbers (ITIN) are required for Canadians filing U.S. Form 1040NR. Taxpayers must apply for an ITIN by submitting Form W-7 along with a certified copy of their passport or the original to the IRS. Our firm can assist with obtaining the ITIN.