Friday, 6 May 2016

Harmonization of U.S. Taxes in Canada

U.S. Citizens and green card holders living in Canada are still affected by existing taxation laws in the U.S. The law provides that as long as a person is a citizen of the U.S., he or she has the duty to pay taxes to the U.S. regardless of whether they are in the U.S. or not. 
In order to prevent and protect the citizens from double taxation or of being taxed by both Canada and the U.S., both countries have an agreement which is summarized in Article XXIV of the Canada-U.S. Income Tax Convention of 1980. Depending on a particular situation, only either one of the countries can impose tax. IRS, however, still require citizens, exempt or not, to file tax returns declaring their income from Canada and from other sources.

Currently, the existing U.S. Taxes in Canada are independent of a person or a business geographical location and is uniform all throughout Canada. The nature of how U.S. collects taxes is the main reason of harmonization of U.S. taxes not only in Canada but in other countries, as well.

Some citizens fail to comply with the requirements set forth by the IRS. Recently, legislation against non-compliance has been significantly strengthened to give more teeth to the existing laws and to impose tighter and stricter penalties. Moreover, legislation has increased the power of IRS in terms of gathering financial information of U.S. citizens. New laws allow a more efficient partnership and exchange of information between the two countries in order to assist in the collection of taxes.

Currently, U.S. taxes are harmonized across Canada. The existing laws that take effect are based on the above mentioned laws and rules.

For residents, the rules provide that they are exempt from U.S. taxes. They are not exempt from Canadian tax, however, and are required to pay taxes to Canada. While both countries have similar economic systems, Canada and the U.S. compute taxes differently. They impose different income brackets and one may pay a higher or a lower Canadian tax compared to U.S. tax depending on the situation.

For non-residents, the source of income serves as the basis for taxation. If the income comes from a Canadian company, he or she pays Canadian tax. If it comes from a U.S. company based on Canada, he or she pays U.S. Tax.If in doubt or if inexperienced, the best ways, still, is to get the advice or enlist the services of a tax specialist. There are aspects of taxation that need to be addressed with properly with the help of an expert or a professional. Being unable to do it properly or overlooking certain aspects can result in penalties, charges and double taxation.
A good tax specialist can identify issues and problems and can provide solutions immediately. They can also provide you with options designed to minimize the tax that you are paying or to take advantage of existing exemptions. Although tax seems to rob one with hard earned money, with a taxation specialist/expert, you get to make tax work to your advantage and minimize the disadvantages.


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