Personal Income tax (Form 1040 and schedules)
U.S. citizens who have permanently departed the U.S.A. and have become full-time permanent residents of Canada are still required to file U.S. income taxes on an annual basis with the Internal Revenue Service (IRS). Why? Because the U.S. tax laws are based on citizenship, and not residency. Form 1040 is the standard documentation for filing U.S. income tax returns to the Internal Revenue Service (IRS). Most likely there are many other forms required to be filed, including Form 2555, Form 1116, Form 3520 and Form 3520-A (for TFSA and RESP).
Canadian and U.S. income tax rules are very complex in of themselves, and add to this the unique rules pertaining to cross border rules, it is often a very daunting task to accurately complete the U.S. income tax return.
We have years of combined experience preparing and filing U.S. income tax filings. Edelkoort Smethurst Schein CPA’s LLP, is an Internal Revenue Service (IRS) Registered U.S. Paid income Tax Preparer.
Buying & Selling U.S. Property
Canadian individuals and corporations are often involved with buying or selling real property such as vacation homes, parcels of land, and rental properties located in the United States. These types of transactions have tax implications in both Canada and the U.S. As an example, Canadian citizens and permanent residents, are taxable on their worldwide income which would include income, or loss from the sale of a property located in the U.S. This income or loss would be reported on their Canadian individual tax return. In addition, since the property is located in the U.S., there is an obligation to report this transaction with the U.S. tax authorities – federally with the Internal Revenue Service, and possibly with the state the property is located in. Filing a U.S. income tax return begins with obtaining a U.S. Individual Tax Identification Number (ITIN), and then completing a filing the appropriate U.S. tax filings to properly report the transaction. The same transaction must then be reported in Canada. These transactions can be very complex, and often involve ‘foreign tax credits’ to avoid duplicate taxation. Our Firm has the expertise, experience and credentials to provide tax guidance, and prepare your filings in Canada, and the U.S. to ensure compliance and minimize taxes.
Certifying Acceptance Agent
Individuals in Canada required to file U.S. income tax returns, must begin with obtaining a U.S. Individual Tax Identification Number (ITIN). An Individual Taxpayer Identification Number (ITIN) is an identification number assigned by the IRS to people who are not eligible for a Social Security Number. Common reasons for needing an ITIN include: filing a U.S. tax return, being claimed as a spouse or dependent on a U.S. tax return; or opening a U.S. interest bearing bank account subject to withholding or Internal Revenue Service (IRS) reporting. In order to obtain an ITIN, a person must complete Form W-7 and submit this form along with their original valid passport to the IRS, who in turn will assign the ITIN and return the passport via regular mail. The forms and process is fairly complicated, and in addition, many individuals are either reluctant or cannot do without their passports for any length of time. Edelkoort Smethurst Schein CPA’s LLP of our Firm, is a Certifying Acceptance Agent for the IRS and has entered into a formal agreement with the IRS authorizing him to assist with the ITIN application process and verify an applicant’s identity and foreign status. Passports are certified at our office, and returned immediately to the owner. We also complete and submit the application and all supporting documents to the IRS. You can expect about 4-8 weeks for the IRS to review and assign the ITIN. We have years of experience, expertise and success with ITIN applications, along with other U.S. tax filings.
IRS Streamline Program
Many U.S. citizens permanently living in Canada were not aware of their requirements to file annual income tax returns and FBAR forms. For instance, a U.S. citizen might have moved to Canada as a child with their family and never returned to the U.S. The person is now an adult and permanently residing in Canada on a full-time basis. The IRS introduced the “Streamlined” program to enable taxpayers, who meet the qualifications of the program, to become current with their U.S. filings. This program requires latest 3 years of U.S. income taxes, and 6 years of FBAR disclosures. Please contact Edelkoort Smethurst Schein CPA’s LLP to arrange for an appointment to discuss this program, and get you caught up with any U.S. income tax filings.
U.S. Foreign Non-Resident Personal Income tax (Form 1040NR and schedules)
For Canadian citizens owning property rentals in Florida, and other locations in the U.S.A, and Canadians employed in the U.S.A., they may have a U.S. income tax filing obligation with the IRS. Form 1040NR is used for this purpose. State income tax filings may also be required. Form 1040NR is for foreign non-residents. (Dual citizens of Canada and the USA are required to file Form 1040). Once again, the rules are complex. Keep in mind that Canadian who are considered full-time permanent residents in these situations, must include U.S. source income, in their Canadian income tax return – part of their “worldwide income”. The tax treaty between Canada and the U.S.A. offers “foreign tax credits” to address duplicate taxation implications. IRS tax identification numbers (ITIN) are required in order to file Form 1040NR. Edelkoort Smethurst Schein CPA’s LLP can assist with the application and processing of the required documentation.
U.S. Foreign Corporate Tax
Under U.S. domestic tax law, a non-resident – whether an individual or corporation – is subject to U.S. federal tax if they have income that is “effectively connected with the conduct of a trade or business within the United States”. This depends on the facts of the situation. If you have income that is effectively connected with a U.S. trade or business, you may be able to seek relief from U.S. federal tax, due to relief provided under the Canada – U.S. tax treaty (“the treaty”). However, you will still have U.S. filing requirements. Under the treaty, Canadian residents are only taxable in the U.S. on their U.S. business profits if they carry on their business in the U.S. through a U.S. permanent establishment (PE) as defined in the treaty. If it is determined that you have a U.S. PE, the income that is attributable to the U.S. PE is subject to U.S. tax and therefore no treaty exemption is available. Corporations with a U.S. PE must file Form 1120-F, and individuals with a PE in the U.S. must file Form 1040NR.