If you are a US citizen living in Canada, you have two governments that want to hear from you every year. Canada taxes you because you live here. The US taxes you because you are a citizen, no matter where you live.

Two of the most misunderstood obligations are FBAR and FATCA. They are related but separate, and missing either one can cost you serious money.

FBAR: Report of Foreign Bank and Financial Accounts

FBAR (FinCEN Form 114) requires US persons to report foreign financial accounts if the combined value of all accounts exceeds US $10,000 at any point during the calendar year.

What counts as a “foreign financial account” when you live in Canada? Almost everything:

  • Chequing and savings accounts
  • TFSAs
  • RRSPs and RRIFs
  • Investment and brokerage accounts
  • Joint accounts (even if the other holder is not a US person)
  • Accounts you have signature authority over (such as a business account)

The threshold is based on the aggregate balance, meaning you add up all accounts. If you have three accounts with $4,000 each, you are over the limit.

FBAR is filed electronically through the BSA E-Filing System, not with the IRS. The deadline is April 15 with an automatic extension to October 15.

Penalties for not filing: up to US $10,000 per violation for non-willful failures. Willful violations can reach US $100,000 or 50% of the account balance, whichever is greater.

FATCA: Foreign Account Tax Compliance Act

FATCA is a separate reporting requirement filed with your US tax return using Form 8938 (Statement of Specified Foreign Financial Assets).

The filing thresholds are higher than FBAR:

  • Single filer living abroad: total value exceeds US $200,000 on the last day of the year, or US $300,000 at any point during the year.
  • Married filing jointly living abroad: US $400,000 on the last day, or US $600,000 at any point.

FATCA covers the same accounts as FBAR plus additional assets like foreign stock or securities held outside a financial institution, foreign partnership interests, and foreign mutual funds.

How FBAR and FATCA differ

  • FBAR goes to FinCEN. FATCA goes to the IRS with your tax return.
  • FBAR has a lower threshold (US $10,000 aggregate). FATCA thresholds are much higher.
  • You may need to file both for the same accounts.
  • FBAR penalties are per account. FATCA penalties start at US $10,000 and can reach US $50,000 for continued non-filing.

What you actually owe in taxes

Here is the part that confuses people: filing a US return does not always mean paying US taxes. The Foreign Earned Income Exclusion (FEIE) lets you exclude up to approximately US $126,500 (2024, adjusted annually) of earned income. The Foreign Tax Credit lets you offset US tax with Canadian taxes already paid.

Since Canadian tax rates are generally higher than US rates for most income levels, many US citizens in Canada end up owing little or no US tax after credits. But you still must file the return and the information forms.

Common situations that trigger problems

  • Selling a Canadian home and not reporting the gain on the US return
  • Holding Canadian mutual funds (classified as PFICs by the IRS, with punitive tax treatment)
  • Contributing to a TFSA (not recognized as tax-exempt by the IRS)
  • Receiving Canadian employment income without filing Form 2555 or Form 1116

What to do if you are behind on filing

The IRS Streamlined Filing Compliance Procedures allow US citizens abroad who are non-willfully non-compliant to catch up by filing three years of tax returns and six years of FBARs without penalties. This is a real program and it works, but it must be done correctly.

Get it right from the start

L&R Accounting files both Canadian and US returns for dual filers across Ontario. We handle FBAR, FATCA, PFIC reporting, and treaty elections so you stay compliant on both sides.

Geetha Srinivasan, CPA (Ontario), CPA (US)
L&R Accounting Services Ltd.