Split couple, retired and in homes

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MD2K
Posts: 2
Joined: Wed Dec 10, 2014 10:02 pm
Location: Canada

Split couple, retired and in homes

Post by MD2K »

Hi. My dad worked for 40 years in Canada with some international travel for sabatticals etc. My stepmother was originally married to an American, has US citizenship; when he retired, they moved to the USA about 1990 and are both citizens. After a recent medical episode, he is in assisted living there and she is now in a Alzheimers care ward. The USA costs are astronomical. (My lucky nephew is stuck with the burden of managing their affairs)

I would like to see my dad return to Canada (still has Canadian citizenship too) and leave stepmother near her daughter and grandchildren (and great-grandchildren) even though she has no clue who anyone is. They have her ex-husband's Social Security, my dad's rather lucrative pension, CPP and OAS. If he came back here, he qualifies for our medicare right away.

What are the tax implications? Even though they are in homes, their original house is still considered their "home" for tax and residency purposes. Due to poor planning, it is far too complex to get power of attorney for step-mom and sell it. In NJ that's a major court odyssey. It will slowly go into foreclosure as they draw down their HELOC to cover care home expenses; moving to Canada would slow the bleed significantly.

Can he file in Canada if he moved here? Does their jointly owned house still count as official residence? Can he split his Canadian pension with his wife under Canadian rules before declaring their income in the USA? (Does it matter for US joint filing?) If she has significant income in Canada from the split, she too can claim a Canadian personal exemption, the pension exemption, etc. to reduce taxable income by twice as much if I understand the treaty rules?

Odds are he is NR and getting deducted 25% at source for his pension. Could he expect to get all that back with this level of medical expenses?

Her Alzheimers care ($7000US/month) is I understand pretty much 100% tax-deductible in Canada, bit not completely in the USA? His residence is a lot less deductible since most is for housing and food.

Plus, the Canadian dollar is going down; it's hard to get details from my nephew, he has his own large family to deal with, an erratic schedule, and his father recently died too so he's looking after his mother as well.

Is this a weird case, or is cross-border old-age taxation something most such tax experts can handle?
nelsona
Posts: 18311
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona »

If he came back to canada he would resume Cdn tax liability.

As a US resident, his CDn pension is taxed 15% by canada. That's it. All his income is taxed in US, and he gets credit for the 15% tax paid to canada on his pension.

If he were to live in canada, all his income would be taxed here at regular rates, his OAS would be clawedback, and while his wife would not have to pay tax in canada, her income would be used to determine various credits and deductions. Yes, her medical expenses could be used on his Cdn return.

If he were allowed to split his pension with her, then she would have to file a Cdn return. This would reduce his Cdn taxes, but increase his US taxes, since IRS would not recognize it. You'd need to look into the pension-splitting rules. I doubt that it can be done wit ha non-resident like your step-mom. (I just checked -- they cannot split the pension).

He would still have to report all his income to US too, with credit given for Cdn taxes paid.

I'm glad your province understands that he is immediately qualified for provincial coverage. a couple of provinces (OHIP, and NB, for example) incorrectly only cover after 3 months.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
MD2K
Posts: 2
Joined: Wed Dec 10, 2014 10:02 pm
Location: Canada

Post by MD2K »

Thanks.

His income -I guess - $70,000 a year (before taxes) pension, plus whatever the max is - $10,000 for CPP and $6,000 for OAS. => $86,000 a year or so.

Stepmother's Alzheimer care - $7,000/mo => $84,000 a year ; his care $4,000 a month => $48,000/year. Perhaps most of stepmom's care, and maybe lets pretend $10,000 of his, is tax deductible - I assume this means he'll be tax-free here and in USA.

If he go a divorce, I assume the pension could/would be legally split. (Would be a financial maneuver, she hasn't a clue of her surroundings).

Meanwhile, they're on a downward spiral where they likely will outlive the residue of their HELOC equity, probably about $180,000; since he's 90 (in and out of hospital) and she's 97 (and pretty healthy), it's a toss-up. BY my calculations, they have 2, maybe 3 years; his pension is in Canadian dollars, and her nephew is trying to arrange to muck out the house so it can be rented out to at least pay for its upkeep and property tax ($8,000/yr)

I often wonder - what happens to people like this if there's no relative to jump in and run their finances? Does the tax department stop noticing them?
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