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For U.S. citizens living in Canada.
Any U.S. citizen who lives in Canada (regardless of when he or she moved here and regardless of how long he or she has stayed) needs to file a U.S. tax return with the Internal Revenue Agency (IRS) under the Voluntary Disclosure Initiative (VDI).
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Key points relating to the VDI for Canadian residents.
- The IRS program formerly known as the Offshore Voluntary Disclosure Initiative (OVDI) is now closed. The final application deadline was August 31, 2011. This was not an amnesty program and as such venalities and interest were still imposed by the Internal Revenue Service where applicable. Therefore, the sooner a taxpayer files, the easier it will be to mitigate any penalties and the smaller any interest assessment for balances owed will be.
- The need for U.S. citizens living in Canada to file under the VDI does not negate their obligation to file Foreign Bank and Financial Accounts (FBAR) forms and tax returns with the IRS. See below for more information.
- While there is generally a three year time limit to receive funds in return, there is no time limit when you owe taxes to the Internal Revenue Service. Furthermore, the statute of limitation does not start running until the tax return has been filed. Filing an incorrect or incomplete tax return will also prevent the statute clock from beginning to run.
What U.S. citizens in Canada should know about FBAR.
- FBAR is not part of a regular tax return sent to the IRS and it does not fall under Title 26 (Income Taxes) of the U.S. Code but under Title 31 (Money & Finance).
- It is extremely important to file all delinquent returns ASAP in order to additional processing delays or complications. We have no idea how vigorously the IRS will pursue U.S. persons not in compliance with the tax code and we have no idea how harshly the monetary penalties will be assessed but we can reiterate that filing as soon as possible is the best strategy. The Internal Revenue Service is continuing to ramp up measures to bring everyone into compliance including Canadian residents.
- FBAR does not cause a tax liability but is for information reporting only.
Reasons to come in to H&R Block now.
- The U.S. taxpayer living in Canada may be surprised by actually receiving money back from a refundable credit for the past three years - i.e. Making Work Pay Credit, Refundable American Opportunity Credit, Additional Child Tax Credit.
- Refunds can only be received for three open tax years; returns can be amended to receive the credits if there is a more advantageous way to file. Foreign tax credits can be created 10 years back and brought forward to offset tax balances for open years if the person has always excluded earned income and now needs foreign tax credits.
- The tax offices are extremely busy with the influx of new clients and have more time and capacity now to prepare all delinquent filings – during tax season there will likely be a wait.
U.S. tax preparation assistance from H&R Block.
If you're a Canadian resident seeking assistance with your U.S. tax preparation, drop in or give us a call. Use our online Office Locator to help you find the office nearest you for experienced U.S. tax advice. We also assist Canadians living in the United States.
H&R Block has been serving Canadians for more than 40 years. As the country's leading tax preparation service provider, we strive to help our clients build a better financial future. From providing fast, reliable tax prep services, to offering dependable bookkeeping and accounting support, our tax experts are committed to delivering assistance and solutions that are second to none. Contact us today to find out how we can help.
Visit H&R Block's Tax Talk for articles on US citizens living in Canada, as well as other related tax, business and finance topics.