Welcome to Canada! We’re happy to have you here. But there’s a catch.
Expat Tax Exclusions / Deductions
These exclusions and deductions can reduce or eliminate any U.S. tax liability. To qualify you must:
- Have foreign earned income in the form of salaries or wages, commissions, bonuses, professional fees, or tips.
- Have worked in Canada for at least an entire calendar year or have been physically present in Canada for at least 330 days during any 12 consecutive months.
Foreign Earned Income Exclusion (FEIE)
If you meet the above conditions, and you are not an employee of the U.S. government, you are allowed to deduct up to $108,700 (for 2021) of your Canadian earned income from your U.S. taxes. If you are married and filing your taxes jointly, you can deduct double that amount.
Foreign Housing Exclusion for Employees
The foreign housing exclusion is only available if you meet the requirements for, and claim, the foreign earned income exclusion.
You must have qualified housing expenses that are paid for from funds provided by your employer. These expenses include:
- Utilities (other than TV and internet)
- Personal property insurance
- Leasing fees
- Furniture rental
- Parking rental
The total qualified housing expenses must not be greater than your total foreign earned income, but must be greater than the ‘base amount’ as determined by the IRS, which is 16% of the amount of your foreign income exclusion.
The amount of your foreign housing exclusion is your total housing expenses, not exceeding 30% of the FEIE deduction.
Foreign Housing Deduction for the Self-employed
Expats who are self-employed do not qualify for the foreign housing exclusion, but instead can claim a foreign housing deduction.
If you were both employed and self-employed, you are eligible for both the foreign housing deduction and foreign housing exclusion.
The foreign housing deduction cannot exceed your total foreign earned income, less the total of your:
- Foreign earned income exclusion, and
- Housing exclusion
The foreign housing exclusion and/or deduction will reduce your personal tax, but they will not reduce the tax on self-employment.
Foreign Tax Credits for U.S. Expats
As a U.S. expat, you are also eligible to claim the Foreign Tax Credit up to the amount of Canadian taxes, providing the Canadian taxes have already been paid.
If you are a resident of Canada but your income is paid from a U.S. company, you must claim this income on your Canadian tax return since you pay taxes on your worldwide income. In this case, you may have to claim foreign tax credits on your Canadian return.
In situations where you have both Canadian and U.S. income, you may be able to claim foreign tax credits in both countries, but the process for doing so is fairly complex.
Foreign Bank & Financial Accounts Reporting (FBAR)
As a U.S. expat, and under the law known as the Bank Secrecy Act, you are required to report certain financial accounts such as brokerage accounts, bank accounts, and mutual funds with FinCEN, the U.S. Treasury Department’s Financial Crimes and Enforcement Network, and keep records of those accounts.
United States persons, including citizens, residents, corporations, partnerships, LLCs (limited liability company), and trusts and estates, are required to file an FBAR on FinCEN Form 114 to report a financial interest or signatory or other authority over at least one financial account located outside of the U.S. if the total value of all the foreign accounts exceeded $10,000 at any time in the calendar year based on the highest balance of each account during the year.
Foreign Account Tax Compliance Act (FATCA)
The Foreign Account Tax Compliance Act requires U.S. expats to report their foreign bank accounts, investments, business interests, and other financial assets. The reporting requirement is based on certain thresholds:
- If you are single, the value of your financial assets exceeds either $200,000 on the last day of the tax year, or $300,000 at any point during the year.
- If you are filing joint returns with your spouse, the values above are doubled.