Here are seven vital forms to be aware of that tend to be missed by U.S. tax filers living in Canada:
Form 5471: Information return of U.S. individuals with respect to certain foreign corporations
This form is filed by any U.S. person who is more than a-10% direct or indirect investor in a foreign company or any U.S. shareholder in a controlled foreign company (CFC), which generally is a foreign company, more than 50% that is possessed by U.S. men. A U.S. citizen or resident who is an officer or manager of a foreign corporation might also have a filing requirement if a U.S. man acquired stock in a foreign company. So, for example, if your business or you owns a corporation in Canada, then you'll desire to file this form otherwise the fee for not filing could be as great as $50, 000.
Form 926: Filing requirement for U.S. transferors of property to a foreign corporation
Any U.S. man who transfers property to a foreign company and possesses more than 10% of the inventory, or any quantity of stock if money transferred is more than $100,000, must file this form with his or her U.S. tax-return. This form would employ, for example, if a U.S. person just was to give cash in exchange for inventory to form a wholly owned foreign company.
Form 8858: Information return of U.S. persons with respect to foreign disregarded entities
A U.S. individual that directly, indirectly or constructively possesses a foreign disregarded entity (FDE) must file this form. A FDE is an entity that is not created or organized in the USA and that is disregarded as an entity separate from its owner for U.S. tax functions. For example, one member Endless Liability Business in Canada owned by a U.S. man would activate filing this type.
Form 8865: Return of U.S. persons with respect to certain foreign partnerships
This type should be filed with a U.S. man who owned more than a 50% interest in a foreign partnership during the year or possessed at least a-10% interest if the venture was controlled by U.S. men owning a 10% or higher curiosity. A U.S. man also has a filing requirement if if they given property in exchange for a partnership interest if that person directly, indirectly or constructively possesses at least a 10% interest, or the worth of the property contributed exceeds $100,000.
Form 3520-A/3520: Annual information return of foreign trust with a U.S. owner
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Form 8621: Information return by a stockholder of qualified electing fund or a passive foreign investment company.
A foreign trust with a U.S. owner, which can sometimes comprise foreign pension plans, Registered Education Savings Plans (RESPs) and depending on how you might interpret the IRS Rules, Tax-Free Savings Accounts (TFSAs), should file this type alone with the IRS by March 15 following the year to which it links. Also, if your distribution or alternative payment is received from the trust, Form 3520 could be required (and should be submitted with the citizen's tax-return). Failure to file these forms topics the U.S. operator to an initial penalty equivalent to the higher of $10,000 or 5% of the gross value of the trust assets considered possessed by the U.S. person at the close of the tax year.
Any interest in a foreign "passive" business organization (50% or more of its assets produce passive income or 75% of its income is passive) must be reported on this particular form. This kind of investment comes with other issues such as whether to make a mark to market or qualified electing fund election, and afterwards how earnings and gains are taxed. As we mentioned in an earlier article, even owning shares in a Canadian mutual-fund or Exchange Traded Fund (ETF) could trip filing this form.
Form 8938: Assertion of foreign financial assets
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As a U.S. tax filer, it's very important that you fully reveal all of your worldwide monetary interests to your U.S. tax preparer, so that they have a complete understanding of your financial affairs and can properly address all of your U.S. tax filing obligations. Failure to file the above mentioned U.S. tax types can lead to considerable non-compliance fees. Additionally, be sure to always work with an experienced preparer such as a U.S. Certified Public Accountant (CPA) or an Enrolled Agent with the Internal Revenue Service who has a complete understanding of Canadian and U.S. tax regulations and has expertise servicing U.S. citizens living in Canada. At Cardinal Stage, we specialize in assisting U.S. citizens residing in Canada with their complex cross-border tax filings and fiscal planning challenges.
A U.S. man must file Kind 8938 if they're a specified individual who has an interest in specified foreign monetary assets and the value of those assets is more than the applicable reporting threshold. Some assets usually are not needed to be separately recorded if they have been reported on among the forms listed previously, like the 8891, 3520 or 5471. Beginning with 2013, U.S. things will be required to file this type as well as people.
