American taxpayers must report all income from every source worldwide, including interest and dividends earned in Canadian bank accounts. “U.S. citizens and residents with a financial interest in or authority over foreign bank accounts or ‘foreign financial accounts’ with an aggregate value of $10,000 or more are required to file a Foreign Bank Account Report (FBAR) with the U.S. Treasury by October 15 every year.” Report of Foreign Bank and Financial Accounts (FBAR) – Wikipedia
Need the full process for Americans to open Canadian accounts? Check out our step-by-step guide.
FBAR Reporting Requirements
- File FinCEN Form 114 if the aggregate value of all foreign financial accounts exceeds USD 10,000 at any time during the calendar year.
- Include Canadian chequing, savings and term deposit (GIC) accounts under this threshold.
- FBAR is filed electronically through FinCEN’s BSA E-Filing System, separate from your federal tax return.
- Non-willful failure to file can incur penalties up to USD 10,000 per violation; willful violations carry fines of up to the greater of USD 100,000 or 50 percent of the account balance.
FATCA and IRS Form 8938
In addition to the FBAR, certain U.S. taxpayers must report specified foreign financial assets on Form 8938 under FATCA. “Certain U.S. taxpayers holding specified foreign financial assets with an aggregate value exceeding $50,000 will report information about those assets on new Form 8938, which must be attached to the taxpayer’s annual income tax return. Higher asset thresholds apply to U.S. taxpayers who file a joint tax return or who reside abroad.” Do I need to file Form 8938? – IRS
- Unmarried taxpayers living in the U.S.: report if assets exceed USD 50,000 at year-end or USD 75,000 at any time.
- Married filing jointly: thresholds double (USD 100,000/150,000).
- Form 8938 is filed with Form 1040; failure to report can trigger penalties up to USD 10,000 and extended statutes of limitations.
U.S. Taxation of Canadian-Source Interest
Interest earned in Canadian accounts is taxed as ordinary income on your U.S. return. The United States imposes tax on citizens and residents based on worldwide income and permits a credit for foreign income taxes paid. “Citizens and residents are taxed on worldwide income and allowed a credit for foreign taxes.” Taxation in the United States – Wikipedia
- Report Canadian interest on Schedule B (Form 1040) and include in total taxable income.
- Foreign tax credit (FTC) may offset Canadian withholding tax under Part XIII of the Canadian Income Tax Act.
- FTC is limited to the amount of U.S. tax attributable to the foreign-source income.
Canadian Withholding Taxes and Treaty Benefits
- Canada’s Part XIII withholding tax is generally 25 percent on interest, dividends and other passive income paid to non-residents. “Canadian financial institutions and other payers have to withhold non-resident tax at a rate of 25% on certain types of Canadian-source income they pay or credit to you as a non-resident of Canada.” T4058: Non-Residents and Income Tax – CRA
- Under the Canada–U.S. Income Tax Convention, “Interest arising in a Contracting State and beneficially owned by a resident of the other Contracting State may be taxed only in that other State.” Protocol Amending the Convention (2007) – U.S. Treasury
- Arm’s-length interest paid by Canadian payers is exempt from withholding: “Generally, the interest that you receive or that is credited to you is exempt from Canadian withholding tax if the payer is unrelated (arm’s length) to you.” Non-residents of Canada – CRA
Currency Translation and Exchange Gains/Losses
- All foreign-currency amounts must be converted to U.S. dollars using the exchange rate on the transaction date (or average annual rate for recurring items).
- Realized gains or losses on currency conversion of principal or interest are reportable on Form 8949 and Schedule D if gains exceed USD 200.
- IRS Publication 54 provides guidance on currency translation for U.S. taxpayers abroad.
Penalties for Non-Compliance
- Failure to file FBAR can trigger civil penalties up to USD 10,000 per non-willful violation and up to USD 100,000 or 50 percent of the account balance for willful violations.
- Failure to file Form 8938 may incur a USD 10,000 penalty plus USD 10,000 for each 30 days of non-compliance, capped at USD 50,000.
- Under-reporting foreign income can extend the statute of limitations from three to six years.
Actionable Steps for Compliance
- Maintain detailed records of all Canadian account statements, interest notices and FX conversions.
- File FBAR (FinCEN Form 114) by October 15 each year; request extension if needed.
- Attach Form 8938 to your Form 1040 if assets exceed reporting thresholds.
- Claim foreign tax credits on Form 1116 to offset Canadian withholding taxes.
- Consult a cross-border tax professional to optimize treaty benefits and minimize double taxation.
With a clear grasp of reporting obligations, withholding rules and treaty advantages, U.S. residents holding Canadian bank accounts can meet all requirements, minimize tax leakage and avoid costly penalties on both sides of the border.