Foreign Account Tax Compliance Act
There are Many Americans in Canada who do not file their income tax returns with the IRS despite clear rules requiring it. If you are in such a position, you are not alone, but you cannot ignore this problem.
In March 2010, Congress passed sweeping laws known as FACTA (Foreign Account Tax Compliance) specifically to target non-compliant U.S. taxpayers who commit tax evasion with foreign accounts. The intent of FACTA is to target wealthy U.S. citizens who are committing U.S. tax evasion with keeping assets offshore.
FACTA requires foreign banks, investment firms, insurance companies, and other financial institutions to register with the IRS, and in doing so, agree to report to the IRS details of financial account information whose owners are U.S. citizens or Green cards holders.
If the account holders are not in compliance with FACTA may be subject to a 30% of withholding tax.
Under the intergovernmental with Canada, any client with aggregated accounts in excess of USD50,000 will have the following information provided to CRA and subsequently to the IRS by their financial institution.
1 – The name, address and U.S. tax identification number of each specified U.S. person that is an Account Holder of such account.
2 – the account number.
3 – the name and identifying number of the reporting Canadian Financial Institution.
4 – the account balance at the end of the calendar year or other appropriate reporting period.
5 – in the case of custodial account, the total gross amount of interest, the total gross mount of dividends and the total gross amount of other income generated with respect to the assets held in the account, the total gross proceeds from the sale or redemption of property paid or credited to the account during the calendar year or other appropriate reporting period.
6 – in case of any Depository Account, the total gross amount of interest paid or credited to the account during the calendar year or other appropriate reporting period.
FACTA requires virtually all U.S. tax filers to form Form 8938 – Statement of Specified Foreign Financial Assets with their tax returns if the total value of “spedified foreign financial assets” is above USD 50,000 at the end of the year (USD100,000 for married couples) or exceeds USD75,000 at any time during the tax year (USD100,000 for married couples).
If you are living abroad, the threshold for filing Form 8938 is USD200,000 (USD400,000) for married couples) and USD 300,000 during the tax year (USD600,000 for married couples). Specified foreign assets include foreign accounts at foreign financial institutions, foreign partnership interests, foreign securities, foreign trusts in which you are a grantor, foreign-issued life insurance and annuities, foreign real estate, foreign currency, foreign personal property like art, antiques, jewellery, cars collectibles etc.
The IRS continues to put systems in place to catch non-filers. The following situations can lead to a notice from the IRS asking you to file a return:
- Crossing the border into the U.S.
- Becoming a beneficiary of a U.S. estate or trust.
- Receiving American-source investment income.
- Selling U.S real estate you own.
- Returning to U.S. as a snowbird.
- Receiving a U.S. employment that requires a move from Canada.
- Becoming eligible for and American-source pension such as social security.
- Sponsoring a family member for a green card.
If you are a U.S. citizen or Green card holder and have not filed your U.S. taxes we can help.
Mansoor Suhail (Mani)
Accountant
MS TAX – BSBA – EA – ICIA – RA
1804 – 1360 York Mills Road
North York, ON, M3A 2A3
TAX for CANADA AND U.S.A
Web: www.theaccountingandtax.com
Email: taxservicesguru@gmail.com
416 – 283 – 8774
