Unfortunately, your average US-based or Canada-based CPA is not well-versed in the nuances of cross-border taxation. They don’t understand the lingo, the tax treaty, or prepare their clients for the many surprises of how the IRS operates.
This lack of expertise often leads to costly mistakes on both Canadian and US tax returns for those making the move. We often end up with clients who have horrible experiences with a CPA who doesn’t specialize in cross-border tax.
Here are the three most common errors to watch out for:
Deemed Dispositions: A Canadian Taxing Point Often Missed
When you leave Canada, the CRA treats you as if you’ve sold all your assets, even if you haven’t. This is known as deemed disposition and can trigger capital gains taxes on assets like your primary residence (if it’s converted to a rental or not moved to the US), investments, and even personal property exceeding $10,000 CAD in value. Many Canadian tax preparers overlook these rules or miscalculate the capital gains, leading to inaccurate tax filings and potential penalties.
Why it Matters: Correctly handling deemed dispositions is crucial not only for accurate Canadian tax filing but also for your US tax return. The fair market value of your assets on your departure date from Canada becomes your cost basis for US tax purposes, directly impacting your future US capital gains taxes.
Tax Treaty Benefits: Unclaimed Opportunities on the US Side
The US-Canada tax treaty offers several benefits to Canadians relocating to the US. These benefits can include tax exemptions or credits for certain types of income and specific elections that can reduce your tax burden in both countries. However, many US tax professionals are unaware of these specific provisions and fail to claim them on your behalf.
Why it Matters: Missing out on tax treaty benefits can lead to overpaying taxes in the US, costing you thousands of dollars. Ensuring your tax preparer understands and applies the treaty provisions is crucial to optimize your cross-border tax situation.
Foreign Asset Reporting: A Major Compliance Pitfall in the US
The US requires detailed reporting of foreign assets owned by its residents. This includes Canadian assets like bank accounts, investments, and real estate. Many US tax preparers are unfamiliar with the required forms and disclosures for foreign asset reporting, leading to errors and omissions.
Why it Matters: Failure to properly report foreign assets can lead to hefty penalties, including fines that can reach 50% of the account value. Non-compliance can also trigger IRS audits and investigations, causing significant stress and financial hardship.
Protect Your Finances: Choose a Cross-Border Tax Specialist
The intricacies of cross-border taxation demand specialized knowledge and expertise. Don’t leave your financial well-being to chance. Partner with a tax professional who specializes in US-Canada tax matters and understands the unique challenges you face as a Canadian relocating to the US. By doing so, you can rest assured that your tax returns will be filed accurately, and you’ll take full advantage of available tax benefits and avoid costly penalties.
