US Taxes for American Expats in Vancouver – What You Need to Know
Vancouver is the most popular US expat destination in the world. US expats living in Vancouver find themselves in the unfortunate situation however of being required to file both US taxes as a US citizen, and Canadian taxes as a Canadian resident, in both cases on their worldwide income.
Don’t panic though. Living in Vancouver is an amazing experience The climate, the mountains, the beaches, the social scene, the good, free public services, and the positive mindset all more than compensate for the double tax filing burden. And, in actual fact, the tax filing doesn’t have to be as complicated as many American expats living in Vancouver at first fear, as most end up not owing the IRS anything, although they still have to file.
Canadian taxes in brief
If your only income is from employment in Canada, tax will be deducted at source and you don’t have to file a Canadian tax return.
Otherwise, Canadian returns are due by April 30th, unless you’re self employed in which case they’re due by June 15th.
The Canadian form 1040 is called form T1, and is filed to the Canadian equivalent of the IRS, which is called the Canadian Revenue Agency.
Canadian income tax rates range from 15% to 33%.
US taxes for expats
Regarding US taxes, the first good news is that expats have until June 15th to file, with a further extension available until October 15th.
“Vancouver has the world’s largest population of American citizens living outside of the United States, according to a report recently released by the US government.”
Furthermore, while it’s always obligatory to file, there are several exclusions that you can apply for that reduce almost every expat’s US taxes to zero.
Some expats living and working in Vancouver find that they pay more in Canadian income tax than the US tax they owe. In this scenario, it’s normally more beneficial to claim the Foreign Tax Credit.
The Foreign Tax Credit offers US expats a $1 tax credit for every dollar equivalent of tax that they’ve paid abroad. For expats in Vancouver paying more Canadian tax than they owe to the IRS, this means that they can claim more US tax credits than they owe, eradicating their US tax liability while giving them excess tax credits that they can carry forward and which may come in handy in the future. The Foreign Tax Credit can be claimed by filing form 1116.
For US expats earning under around $100,000 and paying less Canadian tax than the US tax due, the Foreign Earned Income Exclusion could be a better option.
The Foreign Earned Income Exclusion lets expats who can prove that they are either permanent residents in Canada, or that they spend at least 330 days outside the US in the year, exclude the first around $100,000 of their income from US taxes.
Further US filing requirements for expats in Vancouver
As well as filing a federal tax return, US expats in Vancouver who have over $10,000 in total in foreign bank or investment accounts at any time during the tax year are required to file an FBAR (Foreign Bank Account Report). In practice this means filing FinCEN form 114 online before October 15th.
Because FBARs are filed to FinCEN rather than to the IRS, the penalties for not filing are much higher, so it’s important not to neglect FBAR filing, especially as almost all foreign banks and investment firms now provide the IRS with information about their US account holders directly.
Expats living in Vancouver with non-tangible foreign assets (so not including property or cars etc) worth over $200,000 at any time during the tax year also have to report them by filing form 8938 with their federal return.
Need to catch up with your US tax filing?
If you’ve been living in Vancouver for a while but you didn’t know that you had to file US taxes, there’s an IRS amnesty program that will let you catch up on your US filing without facing any penalties.
It’s called the Streamlined Procedure, and to qualify you have to file your last 3 tax returns, your last 6 FBARS (if required), pay any back taxes that you owe (often none, once you’ve claimed the most beneficial exclusions given your circumstances), and self-certify that your previous failure to file was non-willful.
The Streamlined Procedure is a great opportunity for expats living in Vancouver to become US tax compliant before the IRS comes to them.