What You Need to Know About Foreign Assets

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Foreign assets, if done right, can be a very practical way to manage your finances. If you have or are considering, foreign investments it pays to chat with an accounting professional to make sure you know how to properly manage your new assets. Read on for a few of the many things to keep in mind if you own foreign assets.

What Counts as a Foreign Investment?

The following are considered foreign investments, and therefore need to be reported to the Canada Revenue Agency appropriately:

  • Funds and bank accounts held abroad
  • Real estate
  • Shares of Canadian corporations
  • Debt securities issued by a non-resident
  • Other tangible and intangible properties located outside of Canada

Offshore Bank Accounts Are Legal – So Long as You Follow The Rules.

There are actually some scenarios in which you might be advised by your planner to consider an offshore bank account. As long as you follow the appropriate reporting rules, you’ll have nothing to worry about! Consider the following examples:

Example of the RIGHT way to use an offshore bank account: You own a vacation property in Florida, so you set up a U.S. bank account to make purchases easier.

Example of the WRONG way to use an offshore bank account: You earn money in the U.S. from renting out your vacation home when you’re not using it and keep those earnings in a U.S. account to avoid declaring the rental income on your next Canadian tax return.

Countries Are Starting to Share More Tax Information.

Canada has signed a number of “tax information exchange agreements”, which increases the amount of tax information flowing between countries such as the U.S, Switzerland and the British Virgin Islands. So if you were looking for ways to evade the taxman (your options are dwindling).

A Failure to Properly Report Foreign Investments Comes Along With a Penalty

If you have more than $100,000 in foreign investments, there is a specific form you’ll need to complete your next tax return (form T1135 if you’re curious). Failure to properly report your investments can subject you to a penalty of $25 a day, with a maximum of $2500 a year, plus interest.

Questions about foreign assets? Contact the team at Liu & Associates to book an appointment with a member of our expert team.

RRSPs & U.S. Tax Returns

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It’s a safe move and it makes sense: put a little money away each year for a comfortable retirement. Many Canadians are and have been taking advantage of Registered Retirement Savings Plans (RRSPs) to plan for their golden years. In most plans, annual contributions are deductible and growth of your RRSP is not taxed like regular income.

There are some exceptions though, especially if you are a citizen or dual citizen of the United States. Americans living in Canada must become aware of the appropriate rules with regards to RRSPs and filing a U.S. tax return. The following is a list of essential information:

  • An RRSP is not a qualified plan for U.S. taxes and therefore, no deductions are allowed when contributing to a plan.
  • U.S. law does not allow income deductions for RRSP contributions, so maximizing contributions to your RRSP could result in higher taxable income for U.S. purposes than Canadian.
  • Thanks to the Canada-US Tax Treaty, both countries recognize the importance of retirement saving. Under this treaty, a U.S. taxpayer can defer tax on the growth from an RRSP, if the proper form is completed.
  • Typically the higher rate of Canadian taxes provides enough tax credits to offset the payable U.S. tax; but there could be times when U.S. tax is payable because of different taxable income levels.

It may seem overwhelming, but if you are a U.S. Citizen living in Canada you can turn to Liu & Associates for help. Our advisors are expertly trained and familiar with all of the ins and outs of the Canadian and American tax systems. Visit or contact us for a consultation and we will be happy to simplify the process and solve any problem.

Tax Returns For U.S. Citizens In Canada

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Americans who live in Canada have more than one tax deadline to worry about: they must file both a Canadian and U.S. tax returns.

While there are an estimated 1 million Americans living in Canada, many of those people do not realize they need to file taxes in the US, how to do it or what happens if they don’t.

A 2014 U.S. law (the Foreign Account Tax Compliance Act) is now requiring Canadian financial institutions to flag Americans with Canadian accounts so it is best to familiarize yourself with the rules.

WHO DOES THIS INCLUDE?

This rule applies to American citizens, dual American-Canadian citizens, and US green-card holders. If you have not formally renounced your US citizenship, you must report your income and assets to the Internal Revenue Service (IRS).

WHAT IF I DON’T COMPLY?

If you do not claim your income with the IRS, you face large fines and penalties. You may also be questioned at the border.

HOW DO I GET STARTED?

The streamlined process, a voluntary disclosure program, allows eligible Americans in Canada to meet their IRS tax obligations without any penalties. The requirements of the American tax system are quite complicated, largely because the system does not always align with the Canadian system.

For example, the IRS may not view the Canadian tax-free savings accounts as truly tax-free.

DO OTHER CITIZENSHIPS REQUIRE TAX RETURNS?

The U.S. is largely the only country in the world that taxes its citizens even if they do not currently live on American soil.

If you are a dual citizen, it’s best to comply with these rules. And while it may end up costing hundreds of dollars to comply, the penalties for not complying can be much worse.

Tackling one set of taxes can be confusing, two sets of taxes can be downright intimidating.

Visit or contact Liu and Associates for a consultation and we can guide you through the nuances of the American tax system.