Tax requirement: US citizens applying for Canadian citizenship

[Nrkulus]

Hi there, I'm curious to hear from some other US citizens who may have gone through this.

I applied for Canadian citizenship back in November, and I indicated on my application that I had filed taxes for the previous three years. This is because I filed all my required Canadian taxes with the CRA... but as a US citizen, I still need to file my US taxes as well, and I recently realized I didn't do this for, at very least, 2017. (I wouldn't owe any US taxes because of a tax treaty between the US and Canada, but I think the CRA can still, in theory, check in with the IRS under the same treaty.)

So my questions are:
1) Does IRCC care about this? Or are they only concerned with Canadian taxes?
2) If it is of concern, what is the best course of action? Is it worth writing to IRCC to explain the situation?

It may be worth pointing out that I'm still waiting for a certificate of exemption (from US taxes) from the Canadian government, so I can't just file my late US taxes right away, as much as I'd like to.

Thanks!

 

[dpenabill]

Hi there, I'm curious to hear from some other US citizens who may have gone through this.

I applied for Canadian citizenship back in November, and I indicated on my application that I had filed taxes for the previous three years. This is because I filed all my required Canadian taxes with the CRA... but as a US citizen, I still need to file my US taxes as well, and I recently realized I didn't do this for, at very least, 2017. (I wouldn't owe any US taxes because of a tax treaty between the US and Canada, but I think the CRA can still, in theory, check in with the IRS under the same treaty.)

So my questions are:
1) Does IRCC care about this? Or are they only concerned with Canadian taxes?
2) If it is of concern, what is the best course of action? Is it worth writing to IRCC to explain the situation?

It may be worth pointing out that I'm still waiting for a certificate of exemption (from US taxes) from the Canadian government, so I can't just file my late US taxes right away, as much as I'd like to.

Thanks!

Tax filing requirement for Canadian grant citizenship is explicitly about meeting CRA filing obligations. Has NOTHING to do with tax filing requirements elsewhere in the world. U.S. included. That is, no, IRCC is not in the least concerned whether an applicant met tax filing obligations in another country, treaty or no treaty.

CRA may have information sharing arrangements with treaty countries, like the U.S., but that does NOT implicate IRCC or grant citizenship requirements in any way.

Otherwise, yeah, the U.S. filing obligations can be, let's just say inconvenient. Especially for those of us self-employed or otherwise running a business. When you refer to the "certificate of exemption (from US taxes)" my guess is you mean the certificate of coverage which verifies you are covered by CRA for the collection of social security related taxes (self-employment tax in U.S. forms) . . . there is no certificate of exemption from U.S. income tax generally. The certificate of coverage is a bigger deal for those self-employed or running their own business.

Exemption from U.S. income tax (apart from the special, social security related taxes) is based on either qualifying for the Foreign Earned Income deduction (a little more than a hundred grand, U.S. $, this year) or for a credit based on payment of Canadian tax or a combination, all of which is simply part of what the U.S. citizen must file, with the U.S. IRS, each year (such as Form 2555 "Foreign Earned Income" in order to get the 100k+ deduction, for example). Basically there is no risk of owing U.S. income tax unless one has an income over . . . not sure, over a 150k Canadian annually, maybe . . . and even then only if the individual has some deductions from Canadian taxes which leaves a balance due to the U.S. (for those with income over a 125k Canadian, or so, above the U.S. deduction anyway, but for the craft of a wily accountant the U.S. citizen may have to pay the difference between the U.S. tax and Canadian tax if the Canadian tax is less than the U.S. tax . . . gets complicated). The treaty largely (but NOT completely) protects respective U.S. citizens and Canadians from double taxation, not from taxation by the other country altogether.

Where it can get rather complicated is if you have substantial investment or rental income. The basic deduction for living abroad, the Foreign Earned Income deduction, is ONLY for EARNED income. And it can be difficult to find reliable accounting services which will handle these matters competently for a reasonable cost.

Assuming you are aware, but just in case, REMEMBER to make FBAR reports on time if the total amount of funds you have in bank and security accounts outside the U.S., including joint accounts, all combined, PLUS the amounts in any such accounts over which you have signing authority (such as business accounts even if that money is NOT yours), total 10k U.S. This is a rather low threshold. The penalties for failing to file the FBAR are severe EVEN IF you otherwise owe ZERO taxes to the U.S.

In the latter regard, the more ominous information sharing arrangement with the U.S. is their access to banking information for any U.S. citizen . . . Canada fought this for a long while but Canadian banks are now subject to U.S. reporting requirements for U.S. citizens.

 

[Nrkulus]

Tax filing requirement for Canadian grant citizenship is explicitly about meeting CRA filing obligations. Has NOTHING to do with tax filing requirements elsewhere in the world. U.S. included. That is, no, IRCC is not in the least concerned whether an applicant met tax filing obligations in another country, treaty or no treaty.

CRA may have information sharing arrangements with treaty countries, like the U.S., but that does NOT implicate IRCC or grant citizenship requirements in any way.

Otherwise, yeah, the U.S. filing obligations can be, let's just say inconvenient. Especially for those of us self-employed or otherwise running a business. When you refer to the "certificate of exemption (from US taxes)" my guess is you mean the certificate of coverage which verifies you are covered by CRA for the collection of social security related taxes (self-employment tax in U.S. forms) . . . there is no certificate of exemption from U.S. income tax generally. The certificate of coverage is a bigger deal for those self-employed or running their own business.

Exemption from U.S. income tax (apart from the special, social security related taxes) is based on either qualifying for the Foreign Earned Income deduction (a little more than a hundred grand, U.S. $, this year) or for a credit based on payment of Canadian tax or a combination, all of which is simply part of what the U.S. citizen must file, with the U.S. IRS, each year (such as Form 2555 "Foreign Earned Income" in order to get the 100k+ deduction, for example). Basically there is no risk of owing U.S. income tax unless one has an income over . . . not sure, over a 150k Canadian annually, maybe . . . and even then only if the individual has some deductions from Canadian taxes which leaves a balance due to the U.S. (for those with income over a 125k Canadian, or so, above the U.S. deduction anyway, but for the craft of a wily accountant the U.S. citizen may have to pay the difference between the U.S. tax and Canadian tax if the Canadian tax is less than the U.S. tax . . . gets complicated). The treaty largely (but NOT completely) protects respective U.S. citizens and Canadians from double taxation, not from taxation by the other country altogether.

Where it can get rather complicated is if you have substantial investment or rental income. The basic deduction for living abroad, the Foreign Earned Income deduction, is ONLY for EARNED income. And it can be difficult to find reliable accounting services which will handle these matters competently for a reasonable cost.

Assuming you are aware, but just in case, REMEMBER to make FBAR reports on time if the total amount of funds you have in bank and security accounts outside the U.S., including joint accounts, all combined, PLUS the amounts in any such accounts over which you have signing authority (such as business accounts even if that money is NOT yours), total 10k U.S. This is a rather low threshold. The penalties for failing to file the FBAR are severe EVEN IF you otherwise owe ZERO taxes to the U.S.

In the latter regard, the more ominous information sharing arrangement with the U.S. is their access to banking information for any U.S. citizen . . . Canada fought this for a long while but Canadian banks are now subject to U.S. reporting requirements for U.S. citizens.

Thanks very much for the detailed reply! Yes, the US tax filing requirements are inconvenient, but I appreciate the extra info you provided on them. You're correct that the certificate I referred to is just the one to certify I'm covered for social social security taxes (and thus, I hope, not required to pay US Social Security taxes). It's a bit of a pain because I derive a portion of my income from self-employment. Fortunately FBAR is relatively easy to fill out oneself, so I'm all up to date on that!