December 2014


Of interest to US taxpayers living in Canada are the increased penalties for not filing or late-filing tax returns and foreign account reporting. The IRS introduced new rules for Streamlined Filing Compliance Procedures, Offshore Voluntary Disclosure Program and delinquent return and FBAR submission procedures.


Effective July 1, 2014 there will be a separate procedure for non-US residents. However, the definition of residency for these procedures may mean that some Canadian taxpayers do not qualify as non-US residents. It is not the same definition as that for taxation under US tax law.
Under these new rules green card holders will not automatically qualify for the resident taxpayer rules. In order for US citizens or green card holders to qualify for the Streamlined Foreign Offshore Procedures they must have been absent from the US during the 3 years under review for at least 330 days during one calendar year and had a regular abode in a foreign country. They also must have failed to report income from a non-US financial asset and the failure was not willful.
If they do not meet this qualification they may fall under the Streamlined Domestic Offshore Procedures which are significantly more onerous. They must also have filed the tax returns for the 3 years under the procedure in order to qualify.
Essentially this means that any snowbird or non-resident US citizen who has spent more than 35 days in the US and has not filed US returns will not qualify for either of the streamlined procedures and will therefore have to file under the Offshore Voluntary Disclosure Program. It should be noted that voluntary disclosures will avoid civil penalties and criminal prosecutions but will not avoid late-filing penalties and interest.


The IRS has announced that for 8891 reporting RRSP and RRIF accounts will no longer be required. However these accounts must still be reported on form 114 and form 8938, both of which are foreign account reporting forms. The new requirement will be that the election to defer taxation will take place once there is a distribution from these accounts. As yet the IRS has not announced the format of the election.
However, in order to qualify for this election a taxpayer must be fully compliant with US tax filings for ALL taxation years. This appears to mean that taxpayers who have filed under a voluntary disclosure program but have not been required to file all past years will not qualify for this new reporting and will likely be subject to the old filing requirements and subject to the accompanying penalties.


Please note that the filing deadline for T4, T5, T5018 and NR4 is March 2.
The deadline for RRSP contributions is March 2.
The filing deadline for most trust returns is March 31.
The filing deadline for US returns for non-US citizen or green card holders is April 15.
The filing deadline Canadian tax returns is April 30.
The filing deadline for Canadian self-employed tax returns and U.S returns for non-residents-US citizens and green card holders is June 15.