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Should You be Concerned About U.S. Tax?

01/01/2015


Take this quick quiz to find out:

1. Are you a U.S. citizen or were you born in the U.S.?

2. Have you ever held a Green Card or U.S. permanent resident visa?

3. Do you own shares or property in the U.S.?

4. Do you spend several months a year in the U.S.?

5. Do you travel for work to the U.S.?

If you answered yes to any of these questions, you could be subject to U.S. tax and will find it helpful to keep reading. This article provides answers to the main questions you may have in regards to U.S. taxes

1. YES – ​​I am an U.S. citizen or I was born in the U.S.

Unlike most countries, the United States taxes citizens even if they do not live or earn income in the U.S. American citizens living in Canada should obtain advice from a tax specialist familiar with both U.S. and Canadian tax matters.

2. YES – I have a U.S. permanent resident visa or Green Card

Green Card holders are generally subject to the same income, estate and information filing requirements as U.S. citizens. It is important your U.S. tax reporting is current and consistent with your U.S. immigration status.

3. YES – I own private or publicly traded U.S. shares or a U.S. property

These assets are considered to be U.S. situs assets and are subject to U.S. estate tax on death. Unlike Canada, where only gains are taxed, the U.S. levies estate taxes based on the fair value of assets. This can result in unexpected and potentially significant estate tax. There is a minimum asset value before any estate tax occurs, making it important to be aware of these rules and plan ahead.

4. YES – I spend my winters in the U.S.

In the U.S., taxes are imposed on citizens and residents. The residency rules differ from Canadian rules in that the U.S. has a rule called the “Substantial Presence Test”. This rule calculates the number of days an individual has spent in the U.S. in the preceding three years to determine whether that individual would be considered a U.S. resident and subject to U.S. tax. To avoid adverse U.S. tax implications, file a U.S. tax return and elect to be deemed “non-resident” by declaring a closer connection to Canada.

5. YES – I work in the U.S. throughout the year, but I am paid by my Canadian employer

Generally, employment income may be subject to tax in whichever country your feet were planted in when the income was earned. Thus, if you work 25 days in the U.S. and 175 days in Canada in a given year, 12.5% of your employment income for that year is U.S.-sourced and should be reported to the IRS. Because of the Canada-U.S. tax treaty, there will generally be no additional taxes to the individual. However, failure to report employment income in the U.S. could lead to non-filing penalties and potentially deny your entry to the U.S. for a work assignment. Employers also run the risk of payroll tax and penalties in the U.S.

U.S. tax rules are very complex. If you need assistance to determine if you have U.S. tax obligations, your MNP advisor is here to help.

With 16 locations throughout B.C., MNP has been offering our clients a full suite of accounting, consulting and tax services to meet their needs in every aspect of their business for over 65 years. Visit mnp.ca/bcdoctors

To learn more, contact Don Murdoch at 250.763.8919 or [email protected], or your local MNP Advisor