Every day I receive calls from people asking the same question: “As a United States (U.S.) citizen earning Canadian income, am I required to file a U.S. tax return?”

The answer is Yes.

U.S. citizens living in Canada are required to file a tax return on worldwide income. Even if a U.S. citizen/Canadian resident owes no tax to the U.S., he or she is still subject to U.S. tax laws.

Canada, like most foreign countries, taxes based on residency; but the U.S. taxes both citizens and resident aliens on their worldwide income. For U.S. citizens, taxation occurs even if an individual lives outside the United States. The Canada-U.S. Tax Treaty provides relief in the form of foreign-earned income exclusion and deductions for the taxes paid to Canada. The due date for filing a U.S. tax return is generally April 15th, however, U.S. citizens whose tax home is outside the U.S. have an automatic extension to June 15th.

In addition, the Department of the Treasury requires every U.S. citizen to disclose ownership of Canadian bank accounts, securities, or other financial accounts that exceed $10,000 in aggregate value at any time during the calendar year.  Financial account includes a bank account, savings account, money market fund, or securities account.  The disclosure is made on Form FinCEN Report 114 (known as a “Report of Foreign Bank and Financial Accounts”) and is due no later than June 15th.

It is believed that many U.S. citizens residing in Canada are not filing tax returns, and do not report their ownership of accounts. Severe penalties could arise from not filing, even if no tax is due. Now is the time to file under the Streamlined Foreign Offshore program as the IRS will eventually close this program that allows US citizens to file without penalty.