My husband and I are US citizens, and have lived in Ontario since 2007 when he got a job here. We are permanent residents. We have filed our US taxes every year. I am not nor have I been employed in Canada. We own a home here, and no property in the US or elsewhere. We meet the bona fide resident and the physical presence tests. My husband is taking a sabbatical at a California university from Jan 1 to May 31, 2015, and we plan on being in the US fewer than 180 days. He will be paid his full salary from his Canadian job, plus a salary for teaching a course while on sabbatical. We are not renting our Canadian home, and are renting a California home from friends.
Questions: What kind of tax complications can we expect with the US/California income? Is limiting our US visit to <180 days helpful, other than with OHIP and our PR status? Will there be ACA complications as well? (We are both covered by a worldwide travel policy through my husbands job.) We don't expect any, but are there any write-offs available to us? Any nightmare scenarios?
These forums are so great, thanks for all of your work.
USC working in Canada, upcoming sabbatical in California
Moderator: Mark T Serbinski CA CPA
His income form Cali will be taxable in US of course, just as all his income always ahas been. he will NOT however be able to claim FEIE, since the income would not be considered foreign. Nor will he be able to claim the Cdn tax as a crdit against that income, so he will be paying US tax on that income.
And his Cali income will be taxable in cali as well.
Now, as to what will be considered US/Cali-sourced: of course the amount paid by the Cali University is no question sourced there. I would also say that the pro-rated amount of his University salary for the working days he is in US vs. the working days in a year, would also be US-based.
canada will grant a tax credit for the portion of US taxes related to the above mentionned income. The IRS will grant you credit for Cdn tax paid on your other income and/or FEIE on the portion of salary that is Cdn-based (under the bona fide test -- IF you maintain Cdn residency). The mechanics can be explained later. YourUS retunr will be much as it is now ecxept that your 2555-eleigible income will be less, and you will need to rely on 1116.
All in all, this will probably reslt in a higher than normal taxrate due to the split year, and will be a more complicated return for you both in US and Canada.
And, yes, it wiould be best if you are in US les than 183 days, especially if you intend on using FEIE. if you are going to use credits, it probably doesn't matter. My guess is using credits won't completely reduce double tax in either direction.
And his Cali income will be taxable in cali as well.
Now, as to what will be considered US/Cali-sourced: of course the amount paid by the Cali University is no question sourced there. I would also say that the pro-rated amount of his University salary for the working days he is in US vs. the working days in a year, would also be US-based.
canada will grant a tax credit for the portion of US taxes related to the above mentionned income. The IRS will grant you credit for Cdn tax paid on your other income and/or FEIE on the portion of salary that is Cdn-based (under the bona fide test -- IF you maintain Cdn residency). The mechanics can be explained later. YourUS retunr will be much as it is now ecxept that your 2555-eleigible income will be less, and you will need to rely on 1116.
All in all, this will probably reslt in a higher than normal taxrate due to the split year, and will be a more complicated return for you both in US and Canada.
And, yes, it wiould be best if you are in US les than 183 days, especially if you intend on using FEIE. if you are going to use credits, it probably doesn't matter. My guess is using credits won't completely reduce double tax in either direction.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing 
Thank-you, nelsona, for confirming what we had hoped -- nothing surprising.
We have been preparing our taxes in recent years, after using an overpriced tax preparation service for our first few years here in Canada. We have kept our lives fairly simple, no RRSPs etc, just bank accts and RPP (dbp) through husband's employer. We have retirement funds in US, plus a bank account. Last year, we did better with just form 1116. But, as I said, that might be because we prepare our forms ourselves!
We are, however, planning on moving back to the US within the next 5 years, and will look to your firm for advice on exit strategies.
I should mention that I contacted another cross-border CPA, who wanted us to amend our returns with all sorts of forms (3520,8891,8833). After poring over your forum for nearly a week, I terminated the relationship. CPA said: I've always filed those forms for my clients, and the IRS has never told me not to. I replied: that doesn't mean they are required. (I suppose I should check with you all to make sure, but from your advice to other USCs in Canada, I felt confident in saying that.)
Thanks again.
We have been preparing our taxes in recent years, after using an overpriced tax preparation service for our first few years here in Canada. We have kept our lives fairly simple, no RRSPs etc, just bank accts and RPP (dbp) through husband's employer. We have retirement funds in US, plus a bank account. Last year, we did better with just form 1116. But, as I said, that might be because we prepare our forms ourselves!
We are, however, planning on moving back to the US within the next 5 years, and will look to your firm for advice on exit strategies.
I should mention that I contacted another cross-border CPA, who wanted us to amend our returns with all sorts of forms (3520,8891,8833). After poring over your forum for nearly a week, I terminated the relationship. CPA said: I've always filed those forms for my clients, and the IRS has never told me not to. I replied: that doesn't mean they are required. (I suppose I should check with you all to make sure, but from your advice to other USCs in Canada, I felt confident in saying that.)
Thanks again.
If you have little no income in US, then 1116 results are the same as 2555: no tax owing in US . If you have owed tax in US, you are probbaly not doing things correctly.
RPPs do not wrequire 3520. 8891 is ONLY for RRSP (you probably should have had an RRSP, even just a spousal one).
There is nothing from what you mention that would require a treaty explanation.
You would have foreign account reporting to take care of.
RPPs do not wrequire 3520. 8891 is ONLY for RRSP (you probably should have had an RRSP, even just a spousal one).
There is nothing from what you mention that would require a treaty explanation.
You would have foreign account reporting to take care of.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing
You're right, no US income to speak of -- some bank interest, a mutual fund we raided 20 ago and didn't dispose of the rest. But all reported, when there was something to report, that is!
Thanks for confirming that the forms are not needed -- I was relying on your posts for my education! And will continue to do so. It's much easier to read about these issues in a real-world conversation on this forum than to read a book.
And we'll look into the RRSP, we appreciate the advice.
Thanks for confirming that the forms are not needed -- I was relying on your posts for my education! And will continue to do so. It's much easier to read about these issues in a real-world conversation on this forum than to read a book.
And we'll look into the RRSP, we appreciate the advice.