US tax filers

Possible good news for US tax filers, but bad news on TFSA reporting

David Christianson, BA, CFP, R.F.P., TEP, CIM

“Dollars and Sense”

I’m so excited! My first T-slip arrived yesterday - a beautifully wrapped T5 for interest earned on my bank account, along with one of my last remaining donation receipts.

This means that income tax season has begun in earnest.

I realize that no one else gets as excited about this as I do, but please heed my advice to organize yourself now, with a checklist of information you expect from your employer, pension provider, financial institution and investment firm.

Knowing what to expect, confirming it’s all arrived well before the tax deadline and organizing everything as it comes in will make that annual filing chore much easier.

One thing to note, if you are accessing your CRA account online these days, is an apparent inaccuracy with their reporting of your TFSA limit.

Several of our clients (and I) have accessed the CRA My Account site for our 2019 TFSA limits, and found that CRA incorrectly reported a current allowable contribution amount of $11,500. This had failed to account for the $5,500 contributed in 2018, in spite of the online message saying that “Your financial institution sent the CRA information about TFSA transactions you made on or before Dec 31, 2018.”

In all of these cases, the 2018 contribution had not been counted, and institutions won’t fully report to CRA for several months.

So, make sure you check your own records and those of your advisor before acting on this information. The penalties are severe for over contributing to a TFSA, even if it is the CRA who told you you could do it.

Although we love to complain about filing (and paying!) income taxes, anyone living in Canada who has US citizenship has it even worse. Those people have to file a US tax return as well as a Canadian return. The US chore includes a much more onerous “FATCA” requirement to provide the balance of every bank and investment account throughout the year, plus a conventional tax return.

These US tax filings seldom result in any income taxes owing, but often incur a big amount in professional fees.

As well, Canadian financial institutions have been compelled in the last three years to provide CRA with bank and investment account information to pass on to the IRS regarding any accounts that may be held by “US persons”. Reportedly, this has included as many as 600,000 accounts per year.

Over the last month however, three things have happened to provide a glimmer of hope for US citizens living in Canada.

In December, a US Republican congressman introduced a commonsense bill to eliminate the requirement for US citizens around the world to file US income tax returns each year. My guess is this would save the IRS more money than they collect.

With the current state of polarized politics in the US, we will not hold our breath on this bill passing, but it’s a start.

On January 15, the IRS released its final regulations on the so-called “transition” or “repatriation” tax that was included in the Tax Cuts and Jobs Act 2017. This little gem was passed at the end of 2017, affecting corporations owned by US citizens with year ends throughout 2018, in spite of the fact that the regulations and rules (running 300 pages) were not released in official form until last week.

Clarity is good, even if after the fact. The IRS seemed to acknowledge problems with the delays, as they have provided relief on penalties for entities that underpaid their installments through the year, since that’s an easy mistake to make if you don’t know the rules.

Nevertheless, my understanding is that penalties will still apply if these corporations paid less than 85% of the tax they ended up owing.

Finally, a court case that started this week could also have a big effect on US citizens living in Canada, as this action alleges that CRA reporting Canadians’ bank and investment account information to the IRS is a violation of our privacy rights under the charter. That one will be interesting.

On a related note, the IRS is still processing refunds during the US government partial shutdown, on orders from higher up. Hmmm…

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Dollars and Sense is meant as an introduction to this topic and should not in any way be construed as a replacement for personalized professional advice.

Please consult legal, tax, insurance and investment experts for advice on your unique situation.

David Christianson, BA, CFP, R.F.P., TEP, CIMis recipient of the Fellow ofFPSCTM

Distinction, and repeatedly named a Top 50 Financial Advisor in Canada.  He is a Portfolio Manager and Sr Vice President with Christianson Wealth Advisors at National Bank Financial Wealth Management, and author of the book Managing the Bull, A No-Nonsense Guide to Personal Finance.