I’ve written several posts before on tax planning for Americans in Canada (you can see them here, here and here). The Globe and Mail published this article a couple of weeks ago on what the IRS is now doing to assist Americans living outside of the U.S. who have not been filing their taxes.
As I have mentioned before, the U.S. is one of the few countries in the world that taxes based on citizenship rather than residency. If I moved to Miami, I would stop filing taxes in Canada as I would no longer be a Canadian resident, but if my cousin Jennifer in Miami moved to Barrie, she would still have to file her U.S. taxes unless she renounced her citizenship.
The problem for many Americans is that they have not been filing because they were not told they needed to. For the most part, they are unlikely to owe any taxes to the U.S.; tax treaties between our countries essentially net everything out for most people. However, there are penalties to not filing taxes, and that is the bigger issue for many Americans resident in Canada.
With these new rules, qualified individuals must submit three years of back taxes, six years of bank reporting forms and a signed letter explaining why they haven’t filed. To qualify, they must have “simple” returns (as defined by the IRS) and owe less than $1,500 a year in taxes, based on the past three tax years.
If you have American citizenship and have not been filing your taxes, you should see an accountant to determine whether you can access this amnesty program.