Tag Archives: TII35

Like FBAR, Form 8938, Form 3520 and Form 5471 – Canada has its own foreign asset reporting rules


Last week I received a call from one of the many Americans abroad living (not hiding out) in Canada. He did NOT know about his U.S. tax obligations. Therefore, he has not been filing U.S. taxes. Interestingly, he had a portfolio of U.S. stocks (foreign to Canada) which were providing him with a consistent dividend stream. He (naturally) had been reporting all of the these “U.S. dividends” on his Canadian tax return. He had never heard of Form T1135 and the requirement that he report certain “foreign assets” to the Canada Revenue Agency.

Looks like he may have been headed for “double trouble”.

Form Crimes: They’re not for everybody – but they could be for you!

I’ve been told, but I don’t know, that single citizenship Canadians are sometimes jealous of dual U.S./Canada citizens. Those dual U.S./Canada citizens living in Canada, are sometimes thought to have more opportunities than “pure Canadians”. With all the media attention on the United States imposing worldwide taxation on (U.S. citizen) Canadian residents, many Canadians pay more attention to how the U.S. tax system affects them, than on how Canada’s tax system affects them. “Pure Canadians” are often in awe of the “form related” penalties to which their dual citizen neighbours are subject. Think of it: A U.S. citizen in Canada can be fined hundreds of thousands of dollars for failing to report – to U.S. financial crimes with on the FBAR – his local Canadian bank account. But, Mr. FBAR affords dual citizens living in Canada just one of many opportunities for penalties.

As an example of more …

Q. What if a dual citizen fails to report his ownership interest in a small Canadian corporation?

A. A $10,000 automatic penalty (is the penalty indexed to inflation?) penalty.

(Form 5471 is how Americans effectvely enrolled in the TCJA Section 965 Transition Tax and Section 951A GILTI programs.)

Yes, these penalties are for failing to comply with the extensive battery of U.S. reporting requirements – AKA “Form Crimes”. Although some commentators call these reporting requirements “trivial”, Gary Carter, in a post at Tax Connections, has exposed these penalties as the dangers they are, to those American abroad who attempt the Sysphean task of complying with the U.S. tax system.

Bottom Line: To be an American citizen living outside the United States is to live under constant threat of penalty (and considering the Section 965 Transition tax) asset confiscation. As previously reported at Tax Connections, Americans abroad live life in the penalty box.

Irrational as it may be, many Canadians wonder:

As a Canadian citizen, who is a tax resident of Canada, am I not eligible for penalties too? Why should dual Canada U.S. citizens have all the penalty exposure?

I am happy to report that the Canadian tax system has penalties for you too! (And, lest any dual U.S./Canada citizen living in Canada think that these penalties are ONLY for single citizen Canadians, well you are subject to these penalties too.) Yes, although not as well known or understood, you have NOT been left out. Yes, you can be subjected to significant (but not as significant as what U.S. citizens are eligible for) penalties for failing to report your “foreign” interactions/circumstances.

This is the first of a series of posts to explain how you as a Canadian only, who is a “tax resident of Canada”, can be penalised for reporting violations!

Let’s get started …

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