2018 Canadian and U.S. Income Tax Newsletter

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This is a brief summary of some key considerations and due dates for your 2018 personal income tax filings. Please feel free contact our office to schedule a consultation or ask any questions you may have.

• 2018 Individual income tax filing deadline is Monday, April 30, 2019.
              o Canada Revenue Agency (CRA) will charge a penalty of 5% (of the taxes owing) if the tax return is filed after April 30th.
• 2018 Tax slips from employers (T4), and financial institutions (T3/T5) should start to arrive by mid-February 2019.
• The filing deadline for the Foreign Property Disclosure form is April 30, 2019, which is applicable to Canadian residents with U.S. assets costing $100,000 CAD or more.
• 2018 RRSP contribution deadline is March 1, 2019.

• Sole proprietors and their spouses have an automatic filing extension to June 15, 2019 but in order to avoid past due interest, any taxes owed must be paid by April 30, 2019.
• 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 complicated.

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. Please note that our firm can electronically process and e-file all of your U.S. income tax filings, except Form 3520 and 3520-A.

U.S. Citizens living in Canada
• 2018 Form 1040 and supporting schedules are due June 17, 2019 (includes automatic 2-month extension). IRS charges a late filing penalty of 5% if taxes owing. An extension to October 15, 2019 is available if Form 4868 is filed with the IRS no later than April 15th.
• The IRS views Canadian TFSA and RESP as ‘Foreign Trusts’, and as such requires completion of 3520 (due April 15, 2019) and 3520-A (due March 15, 2019). We recommend filing both forms by March 15, 2019. An extension to October 15, 2019 is available if Form 7004 is filed with the IRS no later than March 15th.
• 2018 Form 114 (also known as FBAR) is due April 15, 2019. An extension to October 15, 2019 is automatically granted, but we strongly suggest adhering to the Form 1040 June 17th deadline. Form 114 filing is required if the aggregate value of all foreign financial accounts exceeded $10,000 USD at any time during the 2018 calendar year. Form 114 must be filed electronically. IRS may charge a $10,000 penalty for failure to disclose, or for late filing Form 114.
• 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, 2019.
• 2018 Foreign Earned Income Exclusion is $103,900. 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”.
• Form 8621 PFIC might be required for disclosing foreign mutual funds in some situations.
• 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 but 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.
        o Retained earnings of controlled CCPCs must also be reviewed in conjunction with new 2018 IRS rules pertaining to undistributed earnings. Please contact our office to discuss.
• 2018 Standard deduction = $12,000 for single or married filing separately, $24,000 for married filing jointly, and $18,000 for Head of household.
• 2018 Personal Exemption has been eliminated for 2018. (Previously $4,050 per person).

Canadians with U.S. Properties
• Canadians with U.S. rental properties must file Form 1040NR (due June 15, 2019) and supporting schedules including Schedule E.
• 2018 Personal Exemption has been eliminated for 2018. (Previously $4,050 per person).
• Special deduction of 20% of taxable income might be available. Subject to IRS limitations.
• 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 real property in the U.S. are required to file Form 1040NR.
• 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.