1. Cross -border tax planning
U.S. PERSONS living in Canada
Reduce the risk of unexpected tax
Are you at risk?
If you’re a U.S. person living in Canada, it’s essential to understand your
previous, current and future tax obligations to the United States. A
qualified cross-border tax specialist can work with you and your advisor
to identify any prior taxes owing, calculate your current obligations and
help you plan for the future.
Life’s brighter under the sun

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This commentary is brought to you by
Jennifer Poon, cpa, ca, cfp
Director, Advanced Planning - Wealth,
Wealth Distribution
Sun Life Financial
Who has to file a U.S. tax return?
The Internal Revenue Service (IRS) requires all U.S. persons to file a U.S. tax return.
The most common definitions of a U.S. person are listed below.
U.S. citizens
✓✓ Born in the U.S.
✓✓ Born outside of the U.S. to a parent or parents who are, or were, U.S. citizens and who have satisfied any U.S.
residency requirements in force when their child was born
✓✓ Naturalized U.S. citizens
Resident Alien
✓✓ Green card holder
✓✓ Meet the substantial presence test (see page 7 for more information)
Are you a dual-filer?
You can be a Canadian resident and a U.S. person (as defined by U.S. law) at the same
time. If so, you may be subject to both countries’ tax laws. While the Canada-U.S. Tax
Treaty (the “Treaty”) provides some relief, and both jurisdictions provide foreign tax
credits where applicable, some areas may still lead to double taxation. A cross-border tax
specialist can clarify how the rules apply to you.

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Sun Life Financial is here to provide
you and your advisor with valuable
year-round strategies for achieving
your financial goals.Where to begin
Working with a cross-border tax specialist, you and your advisor can review your current
situation and identify any outstanding tax and filing obligations, while you plan for your
current tax liabilities.
Registered accounts
Registered plans commonly include Registered
Retirement Savings Plans (RRSPs), Registered Retirement
Income Funds (RRIFs), Tax-free Savings Accounts (TFSAs)
and Registered Education Savings Plans (RESPs). The
Canadian Income Tax Act (the “Act”) allows for certain
tax-deferrals and RRSP deductions for Canadian
tax purposes, which may not be available under the
Internal Revenue Code (IRC). Under the Treaty, RRSPs
and RRIFs can receive the same tax deferral status
under U.S. tax law as they receive under Canadian
law. Effective October 2014, taxpayers are no longer
required to file IRS Form 8891 to receive tax deferral
on RRSPs and RRIFs, as long as they have never
missed filing a tax return while subject to U.S. filing
requirements. However, dual filers will not receive a
deduction for an RRSP contribution on their U.S. tax
return. TFSAs and RESPs receive no tax deferral under
the IRC or the Treaty.
Non-registered mutual fund accounts
Canadian tax with mutual funds
When a mutual fund distributes income to investors
to reduce its taxable positions, investors pay tax at
their marginal tax rates. Mutual fund corporations
(commonly known as “corporate class”) can potentially
reduce taxable distribution to investors providing tax
deferral benefits. Your advisor can clarify the nature
of your holdings and work with a cross-border tax
specialist to identify tax obligations.
U.S. tax with Canadian mutual funds
Canadian mutual funds don’t receive the same tax
treatment under the IRC as U.S. mutual funds receive,
and investors can expect it to be quite different than
the Canadian basis. Instead, a Canadian mutual fund
is treated as a Passive Foreign Investment Corporation
(PFIC). Investors are required to report PFIC earnings
under one of three tax regimes. Unless you make a
Qualified Elected Fund (QEF) or a Mark-to-Market
(MTM) election, you are automatically subject to
Excess Distribution Taxation. Reporting under the
default scheme can be quite punitive. Contact your
mutual fund provider to see if the QEF election is
available to you, and speak with your tax advisor to
determine which tax reporting regime is appropriate
for you. U.S. taxpayers are required to file IRS Form
8621 to report their holdings in Canadian mutual
funds. See “Key Concepts and Terminology” on page
7 for more information.
How you are taxed
U.S. persons must report all their worldwide income
to the IRS. This includes all sources of income such as
employment, investment income and business income.
If you are a U.S. person, you should file IRS Form
1040 to report all income earned. Depending on your
situation, you may be required to submit other U.S.
filings along with your Form 1040 filing. The following
paragraphs highlight some of the most common tax
situations that you’ll want to discuss with your cross-
border tax specialist.
Bank accounts and financial assets
If you are a U.S. person with financial assets in Canada,
and a Canadian resident, you may need to file IRS Form
8938 if assets that you own or have signing authority
over exceed specified thresholds.
• If you’re not married, and the total value of
your specified foreign assets is $200,000 or less
on the last day of the tax year or $300,000 or
less at any time during the tax year, you are not
required to file IRS Form 8938.
• If you’re married and you and your spouse file
a joint income tax return, and the total value of
your specified foreign assets is $400,000 or less
on the last day of the tax year or $600,000 or
less at any time during the tax year, you are not
required to file IRS Form 8938.
You’ll also be required to file FinCEN Form 114, Report
of Foreign Bank and Foreign Accounts (FBAR).*
*
Although Forms 8938 and 114 require you to report mostly the same information, both forms must be filed. Form 8938 is attached to your tax return,
but Form 114 goes separately to the Treasury Department.
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Key concepts and terminology
in cross -border tax planning
Take some time to familiarize yourself with the concepts and language of U.S. tax
planning so that you can prepare questions for your meeting with a qualified cross-border
tax specialist.
The substantial presence rule
You’ll become subject to the U.S. income tax system if you’re physically present in the U.S. for at least:
• 183 days or more in the current year; or
• 31 days during a year; and
• 183 weighted days during the current and previous two years.
(all the days in the current year + 1/3 of the days in the previous year + 1/6 of the days in the year before that)
If you are caught by this rule you will have to file a U.S. tax return to report all your world-wide income, and will
have to fully comply with all U.S. asset and other filing requirements. This requirement will be in addition to your
Canadian tax obligations. The Treaty may help limit the double taxation you may face.
Excess Distribution System (default method)
• Gains on any disposition (i.e. redemption) of mutual fund units are taxed as ordinary income, and
• Income in the fund that exceeds 125 per cent of shareholder distribution in the previous three years are taxed
as ordinary income.
To the extent that prior years’ distributions have not been taxed, they are subject to interest and penalties.
Annual mark-to-market (MTM) election
Annual increase in the market value of your investment would be taxed as ordinary income.
Qualified Electing Fund (QEF) election
Your share of a mutual fund’s ordinary earnings and net capital gains (reported as long-term capital gains) are
included in your income. This election requires an Annual Information Form (AIF) from the fund manager. AIF
reporting won’t align with the Canadian tax treatment of your mutual fund holdings. You’ll be taxed at the ordinary
rate and long-term capital rates according to the tax characteristics of your earnings and profits from the PFIC.
Contact Sun Life Global Investments for an AIF to make the QEF election.
Planning for long-term success
Decisions you make today have the potential to provide significant financial benefits to
your heirs and estate. Adding a cross-border tax specialist to your team of advisors can
help you achieve your long-term personal and financial goals with greater tax efficiency.
Estate Tax Planning
If you are a U.S. person (as defined by the IRS) your
estate may be subject to U.S. Estate Tax. This is the tax
on your right to transfer property upon your death,
and consists of an account of everything you own or
have certain interests in at the date of your death. The
fair market value of these items constitutes your Gross
Estate. Eligible deductions are subtracted from this
amount to determine your Taxable Estate.
To determine how much tax your estate owes, the
value of all lifetime taxable gifts that you ever reported
on a U.S. Gift Tax return (beginning with gifts made in
1977) is added to your Taxable Estate. Estate tax on this
combined amount is computed using a graduated scale,
with a top rate of 40 per cent applied to that part of
your taxable estate exceeding U.S. $1 million (2015).
Tax is then reduced by the available unified credit. For
U.S. persons who pass away in 2016, the unified credit
eliminates estate tax on the first U.S. $5.45 million of
the taxable estate. Taxable gifts are included to make
sure that the unified credit can only be used to reduce
estate tax to the extent that it hasn’t already been used
to reduce gift tax. A cross-border tax specialist can
help you estimate any potential U.S. estate tax liability
and advise on strategies that can address that liability.
Federal U.S. estate tax may not represent your entire
obligation. Ask your advisor or cross-border tax
specialist about potential inheritance tax in certain
U.S. states and how a death benefit from an insurance
policy could trigger additional taxes.
U.S. Gift Tax and Generation Skipping
Transfer Tax
Gift tax may apply when you give money or property
to another person without expecting anything of
comparable value (or at all) in return. Knowing the
current rules will help you make the most tax-efficient
decisions about sharing your wealth. How you report
financial gifts varies based on your relationship with
the recipient. You can give to a U.S. registered charity
or to your U.S. citizen spouse without limit. Any gifts
to a non-U.S. citizen spouse over U.S. $148,000 (2016)
and gifts over U.S. $14,000 (2016) to anyone other
than a spouse must be reported on a U.S. Gift Tax
Return. Lifetime gifts exceeding U.S. $5.45 million (2016)
will be subject to 40 per cent tax. Gifts to a related
person who is more than 37.5 years younger than you
exceeding U.S. $5.45 million (2016) in your lifetime are
subject to Generation Skipping Transfer Tax and will be
taxed at 40 per cent.
Trusts
If you and your advisor created a trust as part of your
tax and estate planning, it’s important to understand
your status in the eyes of the IRS. If you transfer
property into a trust, but retain certain powers over
the trust assets, as described in the IRC, you may be
treated as the owner of those assets for income tax
purposes. The IRS calls such trusts “grantor trusts”
and attributes all trust income back to the grantor.
A non-grantor trust is one where the grantor has
relinquished sufficient powers over the trust assets
for the trust income to be taxed to the trust, or to the
trust beneficiaries if the income is flowed out to them.
It’s important when you’re structuring a trust to keep in
mind the different types of taxation you, the trust, or
the trust beneficiaries may be subject to.
Canadians owning U.S. domiciled
(U.S. situs) assets
Non U.S. persons who own U.S. domiciled assets will
be subject to U.S. estate tax for the value of their U.S.
assets. Please see your advisor for planning ideas.
✓✓ Hold assets in the U.S. such as but not limited
to U.S. stocks or U.S. real estate
✓✓ Limited to U.S. sourced income and possibly
U.S. Estate Tax
If you have any doubt, obtain the advice of a qualified
cross-border tax specialist. It is also important to
note that there may be differences between tax and
immigration laws; you may still be subject to U.S.
tax even if you do not meet residency status for
immigration purposes.

5. Sun Life Assurance Company of Canada is a member of the Sun Life Financial group of companies.
© Sun Life Assurance Company of Canada, 2016.
810-4243-02-16
The information contained in this document is intended for general informational use only and is compiled from sources believed to be reliable, but no representation
or warranty, express or implied, is made as to its accuracy. All opinions in this document and/or commentaries expressed by any Sun Life Financial entities, its employees,
agents or representatives are subject to change without notice and are provided in good faith without legal responsibility. This document is not intended to provide
specific financial, tax, insurance, investment, legal or accounting advice and should not be relied upon in that regard and does not constitute a specific offer to buy and/or
sell securities.
Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing.
Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.
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