How to File US Taxes in Canada as an Expat

Living abroad, U.S. citizens and Green Card Holders are mandated to report their global income annually and file taxes with the IRS. Despite Canada’s proximity to the U.S., individuals must fulfill the obligation of reporting foreign income on their U.S. expat taxes. Apart from filing a U.S. tax return, there may also be a requirement to submit a Canadian return. Fortunately, both countries have implemented provisions to alleviate the burden of double taxation for U.S. expats in Canada. Exploring these provisions becomes crucial to navigating the complexities of cross-border taxation.

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How US Expat Taxes are Affected When You Work in Canada

If you are working and making a regular income, you’ll most likely be required to file and possibly pay taxes to the Canadian Revenue Agency. While you live and work in the country, your Social Security contributions will be altered, which could affect your eligibility for the Canada Pension Plan and Old Age Security.

So it does not matter if you’re already filing and paying taxes to the Canadian government – because if you reach the US tax filing threshold, you’ll also need to file a US tax return.

Tax Rates for Canada

The 2023 tax rates you can expect as an American living abroad in Canada are the following:

Federal Tax Rates 2023:

– 15% on the first $53,359 of taxable income, plus

– 20.5% on the portion of taxable income over $53,359 up to $106,717, plus 

– 26% on the portion of taxable income over $106,717 up to $165,430, plus 

– 29% on the portion of taxable income over $165,430 up to $235,675, plus

– 33% of taxable income over $235,675

Canada Revenue Agency

Important Tax Points

When it comes to sales tax, there are three types:

• Good Sales Tax (GST): 5% federal tax paid on most goods and services purchased
• Provincial Sales Tax (PST): Varying from province to province, some items are taxed at a certain rate for purchases made
• Harmonized Sales Tax (HST): A combination of provincial and federal taxes on goods and services in certain provinces

Depending on which province you live in, federal and provincial tax rates can be charged together under HST. Whereas in other provinces, PST is charged separately.

Plus, if you’re been a province resident since December 31, 2022, you’ll need to report this on your Canadian Tax Return for the CRA to calculate your taxes correctly.

If you live in Quebec, you’ll need to file an additional tax return to Revenue Quebec.

Who Becomes a Resident of Canada?

According to the Canada Revenue Agency, an individual’s residency status is considered “significant” or has other residential connections to the country.

What do significant ties mean?

• Having a spouse or partner living in Canada
• Owning a home in Canada
• Having children or dependents who have Canadian citizenship or residency

What does having other residential connections mean?

• Having an economic or social tie to Canada
• Owning personal property in Canada
• Having maintaining a Canadian or Canadian province/territory passport, driver’s license, or health insurance

183 Days Threshold

If you, as a US expat, lived in Canada for 183 days or more, you may be qualified as a resident for tax purposes.

Foreign Income Taxes

If you are a US citizen and a resident living in Canada, you will be taxed on worldwide income. However, if you are a non-resident, you only need to report the income earned in Canada.

Canada’s Tax Year

Canada’s tax year runs from January 1 to December 31. This makes filing US expat taxes easy since you don’t need to owe the amount of your salary proportionate to the number of days you worked. This is also known as pro-rating your income.

Canada’s Tax Deadline

The deadline to file a Canadian tax form, called T1, is due April 30 every year. If you are self-employed or own a business, you must file by June 15 but pay any owed tax by April 30.

Non-residents of Canada will be granted an extension to file by June 30.

Filing US taxes as an expat goes hand in hand with filing Canadian taxes. You need to do both to be considered fully tax compliant. Ensure your US taxes and Canadian taxes are on time to avoid penalties!

Social Security

The US-Canada Totalization Agreement prevents expatriates from paying social security taxes to both countries on the same earnings, safeguarding individuals’ retirement, survivor, or disability benefits. Without this agreement, the financial impact could be severe. It serves as a vital protective measure, allowing expats to navigate social security contributions efficiently and secure their future benefits without undue financial strain.

As a US citizen living abroad, if you pay Canadian social security – known as the Canada Pension Plan (CPP) – you won’t need to pay US Social Security. Why? It mostly comes down to the type of circumstance you’re in with your employment.

It’s similar whether you’re a Canadian living in the United States. The Canadians will have income limits and won’t access their pension plans until 65 years of age.

Pension Plan

US expats who want to access their Canadian pension plans, like Old Age Security and Canada Pension Plan, can do so at age 65 and be subject to income limits.

• The Old Age Security system provides monthly payments to Canadian residents 65 and older
• The Canadian Pension Plan (CPP) is similar to the US Social Security System in that both the employer and employee contributes to the plan. As of 2023, in Canada, employees pay 5.95% to at least $68,500 in wages. Additionally, the CPP and QPP (Quebec Pension Plan) payments should NOT include total Foreign Taxes paid on a US tax return

RRSPs and RRIFs

What are Canadian RRSPs and RRIFs?

RRIFs = Registered Retirement Income Funds

RRSPs = Registered Retirement Savings Plans

RRIFs and RRSPS are similar to the US 401(k) plans and IRAS. Expats with one or both of these accounts qualify for automatic tax deferral, meaning you don’t need to pay any taxes on these plans until you get actual distributions from them. Form 8891 is no longer a requirement that needs to included in your US tax return annually.

Ensure compliance with FBAR and FATCA requirements by reporting all foreign financial assets to FinCEN or our app. When receiving investment income from these plans, accurately disclose it on your U.S. Tax Return as normal interest, dividends, or capital gains for the year earned.

Reporting Your Interest in your RRSP

US taxpayers do not have to report their interest in the RRSP on Form 8891, Form 3520, or Form 3520-A. However, they will need to report their interest in FBAR and FATCA.

Ending Canadian Residency

If you plan to end your Canadian residency, it will be a taxable event – just like ending residency in the US.

As an American living in Canada, you have to pay capital gains tax on any assets you liquidate within fair market value if you leave the country.

US Expat Tax Filing Requirements

As many of you know, the US tax year runs from January 1 to December 31. Filing is only a must if American expats reach the filing threshold, which we explain in our expat tax guide.

The most important tax deadlines for Americans abroad are the following:

• April 15: Tax payment deadline if expats owe taxes
• June 15: Filing deadline for tax returns and automatic extension for expats
• October 15: Filing deadline if expats requested an extension, and is also the FBAR deadline (automatic extension)
• December 15: The very last day of the tax season to submit your tax returns before the new year

Remember that if your tax return deadline falls on a weekend or public holiday, it will transfer to the next business day. This is also the same situation for the June 15 extension. In 2024, you have until June 17, 2024 to file the FBAR and request an extension.

US Expat Tax Benefits

While filing US taxes is a serious responsibility to uphold, the good that comes with it is the expat tax benefits one could take advantage of. Each benefit helps save money and helps avoid double taxation.

For instance, The Foreign Tax Credit (FTC) allows US citizens abroad to offset any Canadian taxes paid against US income taxes.

The Foreign Earned Income Exclusion helps you to exclude up to $120,000 of foreign-sourced income from 2023 taxes.

Whilst, The Foreign Housing Exclusion allows you to exclude specific household expenses that come from living abroad.

Not to mention, if you have children, there is the Child Tax Credit:

American families can receive $1,600 per qualifying child under the age of 17 of refundable credit. These amounts apply to married couples who earn $150,000 or less; those couples who jointly make more than $150,000 but less than $400,000 can still qualify for $1,600 of refundable credit.

Support for Filing US Expat Taxes in Canada

Need more help filing US expat taxes in Canada as an expat? Please get in touch with our friendly, professional tax team with any questions you have. You can find our chat button in the left-hand corner. We’ll be happy to help!

Otherwise, start on your US expat taxes today through our best-selling MyExpatTaxes expat tax software!