# canada resident filing 1040 for first time via streamlined



## hb_expat

Hello all, 1st-time poster. I've browsed a bit and am very grateful for all the readable info here.

My situation:
US citizen, have lived & worked in Canada a long time, always do CD filing on-time myself (no preparer) but only just learned US is like the only country taxing on citizenship so I need to catch up. Found out about "streamlined foreign offshore" process for 3 years of tax & 6 years of fincen and am burning up weekends trying to get it figured & done.

I'm pretty sure I've got the 6 years of fincen forms ready to go! So now the taxes.

I'm wondering: is there any guide or samples or examples anywhere online of how a "simple" CD tax situation (spouse joint-filing, employment income barely above the "foreign income exclusion", RRSP contributions, some bank/investment interest) would translate into a 1040/3520/5471/8938?

I guess I'm sort of hoping for something like "If your Notice Of Assessment looked like THIS, then your 1040 would look like THIS" as a starting point, and I can't for the life of me find anything like it. I can't even find a straight answer on where I put my salary.

Thank you in advance for any recommendations, and apologies if this was something obvious or covered already and I missed it in an earlier thread.


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## BBCWatcher

hb_expat said:


> ...US is like the only country taxing on citizenship so I need to catch up.


The United States doesn't tax citizenship. That would be a form of "poll tax." (Now that'd be awful, wouldn't it?) It does sometimes require its citizens (and residents) to file tax and/or financial reports, and, less often, to pay some U.S. tax. It isn't the only country with this characteristic, no. Hungary and Eritrea also have this characteristic, and some other countries apply citizenship-based (and/or "sticky residence-based") characteristics within certain parts of their tax codes. (Japan is an example of that I'm familiar with, with their gift and inheritance taxes.)



> I'm wondering: is there any guide or samples or examples anywhere online of how a "simple" CD tax situation (spouse joint-filing, employment income barely above the "foreign income exclusion", RRSP contributions, some bank/investment interest) would translate into a 1040/3520/5471/8938?


It doesn't really _translate_. That sort of approach tends to get you headed off in the wrong direction, really, just as it would if you tried to reverse things and use U.S. forms as the basis for filing a Canadian tax return. (Ever seen a _literal_ translation of some other language into English? It doesn't work so well, does it? Same idea here.) So "not a good idea" as such. It's much better to apply the facts of your income situation, not a particular foreign/alien representation of those facts.

However, have you tried using the free edition of TaxAct.com or TaxSlayer.com, the one that asks you interview-style questions? At this writing, tax year 2014 should still be available in that form, free. If you're not using one of those free options, try it. If you don't like the first one, try the other one. That should spit out a respectable 2014 U.S. tax return, whereupon you can either use the 2014 return as the basis for figuring out how to fill out prior years' tax returns or you can spend the $15 or so per tax year to get access to the prior years' software.

Another possible approach is to pay someone to prepare your 2014 return (for example) then do the same thing, take the (hopefully competent) experience you paid for and apply it to prior years' tax returns.

With respect to RRSPs, there are some threads on that subject. To summarize, the U.S.-Canada tax treaty appears to protect contributions to and pre-withdrawal earnings within such accounts, even if they'd ordinarily be treated as PFICs. So, it would appear, you just fill out IRS Form 8833, briefly explaining why you're reporting zero income on your RRSPs. The withdrawals are not treaty-protected, though, but a Foreign Tax Credit applies for any Canadian income tax you pay, so that all should work well for you, assuming future Canadian and U.S. income tax rates are broadly similar or that the Canadian rate is higher. (A safe assumption, I'd say.) Be sure to keep good records of your RRSPs, as with your other financial records.

By the way, take a look at NOT taking the Foreign Earned Income Exclusion and, instead, taking only the Foreign Tax Credit. That may or may not work out better for you. "It depends." The tax preparation software I mentioned is extremely useful for running such tax simulations very easily.


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## ersterhernd

If you have a TFSA or RESP, there's a pile more paperwork required. I just completed the required filing for Streamlined Foreign Offshore, hired a Canadian CGA that specializes in US filings. Owed no tax to the USA, but the mountain of paperwork cost several thousand dollars to complete. Other tax preparers quoted me almost double what I paid. 

I cannot offer advice, but must say that there's no hope I could've accomplished this task without professional help, despite having filed my own Canadian returns for decades. The stack of US tax paperwork was simply overwhelming. My tax situation in Canada is VERY basic.

One thing is for certain, I didn't want any chance of errors and potential problems as a result. That's why I bit the bullet on this and paid a pro to take care of it. 

Good Luck.


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## BBCWatcher

Different people are different. "Basic" tax situations in the United States can be exceedingly complex in Canada, and vice versa. Or they can be simple in both countries.

To be precise, the structure/holdings within the TFSA, RESP, or other "non-treaty" account determine whether "a pile more paperwork" is required. For example, I happen to hold an analogous Singapore SRS account which is a locally tax-advantaged account that isn't mentioned in any tax treaty with the U.S. (Singapore doesn't even have a tax treaty with the U.S. that has any bearing on individuals. You U.S. persons in Canada are much luckier in that respect at least.) However, my SRS account _as structured_ has absolutely no special U.S. tax implications. It's a perfectly "plain vanilla" financial account in U.S. tax terms primarily because of the holdings within it, so I get to treat it identically to any/every ordinary, non-tax advantaged U.S. financial account -- interest as interest, dividends as dividends, capital gains as capital gains, etc. (Whether I should have bothered opening an SRS account is a separate question. I'd say no, in hindsight, but "no harm.")

Your mileage may vary, of course, but take it slowly, read and interpret typically high school-level English instructions and questions -- yes, it's been a while since many of us attended high school, and a few of us didn't (or did but don't remember)  -- and see how well you do. The online tax preparation software, even the free stuff, really is quite good for most people, so give that a try first.


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## Bevdeforges

The two publications you should take a look at are the following:

Publication 54 for Overseas filers - explains all the peculiarities of filing from outside the US. Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad

Publication 17 - the basic "everything you want to know" about personal income taxes in the US. There is way more here than you need to know, but make use of the index and references to other publications to handle the various forms. Publication 17, Your Federal Income Tax

Both pubs have a number of examples of filled out forms you can use for guidance.

Cheers,
Bev


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## Rosepetal

hb_expat said:


> My situation:
> US citizen, have lived & worked in Canada a long time, always do CD filing on-time myself (no preparer) but only just learned US is like the only country taxing on citizenship so I need to catch up. Found out about "streamlined foreign offshore" process for 3 years of tax & 6 years of fincen and am burning up weekends trying to get it figured & done.
> 
> I'm pretty sure I've got the 6 years of fincen forms ready to go! So now the taxes.
> 
> I'm wondering: is there any guide or samples or examples anywhere online of how a "simple" CD tax situation (spouse joint-filing, employment income barely above the "foreign income exclusion", RRSP contributions, some bank/investment interest) would translate into a 1040/3520/5471/8938?
> 
> I guess I'm sort of hoping for something like "If your Notice Of Assessment looked like THIS, then your 1040 would look like THIS" as a starting point, and I can't for the life of me find anything like it. I can't even find a straight answer on where I put my salary.
> 
> Thank you in advance for any recommendations, and apologies if this was something obvious or covered already and I missed it in an earlier thread.


Okay, I am in your same situation with the exception that I've been preparing and filing both my U.S. and Canadian taxes for many years.

What's been working for me:

1. Foreign earned income exclusion: You say your employment income is "a bit above" the exclusion. If this is true, you'd probably do better (for your sanity) not taking the exclusion at all, and just using the Foreign Tax Credit (IRS info here: Foreign Tax Credit )
The reason is that, if you have income above the exclusion, you will need to take the Foreign Tax Credit to avoid double taxation.... but you will need to figure out what proportion of your Canadian taxes was due to the unexcluded income only. You'll end up filing more forms (both 2555 and 1116) and spending way more time on the math for 1116.

2. RRSPs: they're covered under the tax treaty. You don't have to report or pay taxes on the money accumulating in your RRSP until you withdraw it. Then, it's all taxable as income in the year withdrawn.
Up until last year, we Canucks were supposed to file a special form, Form 8891, every year reporting on our RRSPs. Useless annoying paperwork! Luckily, last year they got rid of that requirement. See IRS Simplifies Procedures for Favorable Tax Treatment on Canadian Retirement Plans and Annual Reporting Requirements
Be careful, though... your RRSP accounts have to be reported on Form 8938 Statement of Specified Foreign Assets if you have enough socked away to require filing that form.

Good luck and may your tax bill in the U.S. be zero!


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## Rosepetal

hb_expat said:


> I guess I'm sort of hoping for something like "If your Notice Of Assessment looked like THIS, then your 1040 would look like THIS" as a starting point, and I can't for the life of me find anything like it. I can't even find a straight answer on where I put my salary.


One more bit of advice:

Your Notice of Assessment is not useful except for determining how much Canadian tax you paid (for Foreign Tax Credit Form 1116)

To prepare your U.S. 1040, you need to go back to the same information slips you used to prepare your Canadian taxes: T4 for your earned income, T3 and T5 for your bank and investment income.

I convert all amounts into U.S. dollars using the year-average exchange rate posted by the US treasury (available on the IRS site), then fill in the 1040 with gross salary on Line 7 (ignoring "attach W2" because you don't have a W2), and any investment income on Schedule B, following the instructions about which line to transfer amounts from Schedule B to your 1040.

Dividends, if you have any, are tricky because the U.S. and Canada give favorable treatment but differently. For my U.S. return, I use the "actual amount" of dividends from my T5 slip. The "taxable amount" on the T5 that is reported on your Canadian T1 is bumped up because the CRA uses some weird math to give you favorable tax treatment on the higher amount (I don't get this, but just put the numbers in on my Canadian return where they tell me to).


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## hb_expat

This is a ton of useful information, thank you everybody!

And I apologize yes I didn't mean they literally tax citizenship rather that they tax based on citizenship and/or residency. Long story short, I am filing! And I appreciate the recommendation not to go down the road of a direct-translation, and I will definitely look into the tax software recommended.

I spent most of yesterday evening banging on getting one set of forms right and feel like I have a somewhat better grasp on things. It looks like I will use only the Foreign Tax Credit, and NOT the Foreign Earned Income Exclusion like you have suggested- the amount it looks like I would have owed in US tax is a LOT lower than what I paid in CD, which seems to suggest I'll owe 0$, so why even bother with 2555?

I do have a few more questions as I stumble through here.

- Thank you for pointing out 8833 BBCWatcher, we could not find how to defer our RRSP contributions ANYWHERE! That having been said, we actually will likely NOT file this because for this year because, as mentioned above, when we did the paperwork without these contributions accounted for, our Foreign Tax Credit was still way more than the US wants, so it seems like it's of value to just not-defer the principal so that it's paid-up at time of withdrawal?

- So the Form 8938 instructions says that it should be used if our accounts "exceed the appropriate reporting threshold". For filing-jointly-residence-abroad, it says that threshold is $400,000 at end of year, or $600,000 at any time during the year, and we are nowhere NEAR either of those numbers. Is there a reason we should still file this? (We found an IRS bulletin from Oct 2014 that seems to suggest that RRSPs from this point forward will be treated correctly even if not reported, or am I reading that wrong? (Rev Proc 2014-55? I don't think I'm supposed to post links yet) )

I do have a small TFSA (gonna close THAT out so I only have to deal with this stuff for 1 more year), gonna dig into what I have to do for that next!


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## BBCWatcher

hb_expat said:


> Thank you for pointing out 8833 BBCWatcher, we could not find how to defer our RRSP contributions ANYWHERE! That having been said, we actually will likely NOT file this because for this year because, as mentioned above, when we did the paperwork without these contributions accounted for, our Foreign Tax Credit was still way more than the US wants, so it seems like it's of value to just not-defer the principal so that it's paid-up at time of withdrawal?


I don't know if the treaty lets you do that, but if it does it sounds like a good idea to me. You'll still likely want to file an 8833 to defer tax on any passive income that the RRSP generates (inside the account) and (if nothing else) to declare it exempt from PFIC complications, so I think you're still going to have an 8833 of some sort.

You can play both sides of the border, by the way -- and there's a lot of merit in that. You (and your spouse) could contribute to a U.S. IRA that Canada respects in the treaty. The deadline for a 2015 contribution is April 15, 2016, so you have several months to consider that option. (Though I wouldn't wait until the last minute given that account opening itself takes a bit of time.) It's at least a lot easier to make a U.S. IRA contribution when you don't take the FEIE. If you earn "too much" then take a look at the so-called "backdoor Roth IRA."

A small caveat: there are some potential restrictions on trying to take the FEIE if you've skipped it in the past, so just make sure you understand those restrictions and can live with them.



> I do have a small TFSA (gonna close THAT out so I only have to deal with this stuff for 1 more year), gonna dig into what I have to do for that next!


You could move those funds to a treaty-respected U.S. IRA as one possibility. Another option is just to restructure the holdings within the TFSA, if possible, to avoid at least future PFIC complications if they exist today. The TFSA would then be treated as a "plain vanilla" taxable account on the U.S. side, but that might be OK if it slides under your U.S. exemptions, deductions, credits, etc. Before you incur any costs, though, just do a little homework. You've got until the end of this calendar year to take any action to avoid something (such as further PFIC complications) in tax year 2016.


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## hb_expat

Thanks again to all for your recommendations, and in general for this forum- several of my questions have been answered by research & leads found here.

I believe I'll be able to wrap this up this weekend- so close I can taste it! I have just a couple more questions if you could indulge me!

--- Due to my Tax-Free Savings Account, I owe a small- but positive- amount for all three years. (Less than 50$ owed each year.) Per the Streamlined Procedure, fines & penalties are waived for these, but interest does apply:
_
"Submit payment of all tax due as reflected on the tax returns and all applicable statutory interest with respect to each of the late payment amounts._"

Is there a site or formula for calculating this interest amount? (It's going to be a trivial amount so I'm not concerned about savings, I just want to be accurate! I wish I could zero it for simplicity, and my Foreign Tax Credits from wages in the general-category is WELL above what is owed to the US, but sadly it looks like I can't apply to that passive-category income where the TFSA was the ONLY thing I had that actually earned interest in the past 3 years (meaning no foreign tax paid, meaning no passive-category credit). Like I said, trivial cost, just inconvenient.)

--- I have RRSPs as mentioned earlier, but my total investments are well below the 'reporting threshold' of 400,000$ listed for joint filers on form 8938. Internal Revenue Bulletin 2014-44 (located here, minus the spaces: htt p://ww w.irs.go v/irb/2014-44_IRB/ar10.html) revised the reporting requirements for RRSPs and. Am I interpreting it correctly to believe the following:

----- For Tax Years 2012 & 2013 I must still file form 8891 for my RRSPs
----- For Tax Year 2014 I do NOT need to file form 8891
----- For all of the above, I do NOT need to file 8938 due to being below the reporting threshold

(The example in Section 7 listed on the Bulletin seems to suggest that it is retro-active and I would not need to file 8891 at ALL, even for '12 & '13... however the effective date & suggestions regarding a 'valid extension' listed in Section 5 suggest that I should)

--- Last really "simple" question: confirming what I've read here and elsewhere; the IRS has not yet clarified whether a Tax Free Savings Account == A Foreign Trust == Form 3520, correct? Leaving it as dependent on the nature of the holding in the TFSA rather than the TFSA designation itself?


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## BBCWatcher

hb_expat said:


> Is there a site or formula for calculating this interest amount?


There are at least unofficial ones such as this one. I have no affiliation with this site, and I don't have any opinion on it.

As far back as all of 2010, and as I write this, the IRS's interest rate -- not including penalties -- has alternated between 3% and 4%. So no, you're not going to owe very much interest.



> ----- For Tax Years 2012 & 2013 I must still file form 8891 for my RRSPs


I think somewhere in the regulatory instruction/letter the IRS says not to bother with Form 8891 even for past tax years. Check me on that, though. You'd still do IRS Form 8833 if applicable (and I think it would be).



> Last really "simple" question: confirming what I've read here and elsewhere; the IRS has not yet clarified whether a Tax Free Savings Account == A Foreign Trust == Form 3520, correct? Leaving it as dependent on the nature of the holding in the TFSA rather than the TFSA designation itself?


Yes, that's correct (in my view, and in the view of many others). You'd look to the construction/holdings of the TFSA. "TFSA" has no IRS definition, so you look to the facts and circumstances.


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