Claiming Expenses in CAN/US
Moderator: Mark T Serbinski CA CPA
Claiming Expenses in CAN/US
I went to the US on a VISA in 2003 and filed as a non resident in Canada under the intention that I would continue to work in the US. My employer ended up bringing me back to Canada in Sep. 04 and our accountant advised me to resubmit to CCRA for 03 indicating that I was incorrect in filing as a non resident of Canada in 2003 and was actual a resident. This resulted in a $3000 penalty for 2003. In 2004 this complicated my taxes since I earned most of my income while working and paid in the US. what's more is that I paid mortgage in Canada the entire time (becasue the May sale of my house was terminated due to my return notification). I also paid rent in the US for the period Jan to Sept 04 in addition to my mortgage. I am sure that I am able to claim the costs of the double housing in either Canada or the US, some how. My employer refuses to allow me to claim a home office expense, even though I recieved no compensation for this expense and maintained a home offce complete with computer, internet and fax. Given that the additional rent paid while working in the US amounts to nearly $12000 US dollars (after tax), this is a very large personal expense. Particularly since I paid almost $15000 in mortgage in Canada over the same period. Is there anything I can do? Many thanks, Richard
The fact that you paid mortgage in Canada, and did not rent out your house, would seem to indicate that you had no intention of leaving Canada, and thus remained a resident of canada throughout all this.
Q: Why did you wait to sell your Cdn house?
As to claiming expenses:
On your Cdn return, as an employee, with an office at work, you cannot claim any expenses for your rent. You didn't need a home office, your boss didn't require that you have a home office (he in fact says the opposite), and you didn't see clients there.
In essence, what you did is convert your Cdn house into a 'cottage' and rented an appartment close to your work.
Thousands of people live like this, and they don't get a tax break for doing it.
On your US return, you *might* be able to claim the rent as an expense, since you remained Cdn resident at the same time thus your <u>family home</u> was different than where you worked (your tax home). There are strict criteria to meet to allow this deduction, especially since you were not working at 2 different sites.
<i>but there is little point in reducing your US tax in this manner, since this will merely reduce your foreign tax credit on your Cdn return (ie. no tax advantage). As you found in 2003, you already are paying more tax in canada than US.</i>
There is no real thing as climing 'double housing': this was your choice, and you are an employee, not self-employed, and not a travelling sales rep.
The fact that you never really met tax residency in US, and kept an empty home in canada, makes it nearly impossible to claim that you were non-resident of canada for any time.
In 2003, you could not have filed as a non-resident. The best you could have done was file as a DEPARTING resident, leaving on the day you started work in US, but , as I said, since you maintained a home in canada, even that option is not there for you.
If you wish, you can claim the rent as a non-refunded employemnt expense on your US tax return, but I think you will find that this will merely make your Cdn tax bill higher to the same extent as the tax you save in US. you can look at 'employment expenses' on the iRS website to see what is deductible.
<i>nelsona non grata... and non pro</i>
Q: Why did you wait to sell your Cdn house?
As to claiming expenses:
On your Cdn return, as an employee, with an office at work, you cannot claim any expenses for your rent. You didn't need a home office, your boss didn't require that you have a home office (he in fact says the opposite), and you didn't see clients there.
In essence, what you did is convert your Cdn house into a 'cottage' and rented an appartment close to your work.
Thousands of people live like this, and they don't get a tax break for doing it.
On your US return, you *might* be able to claim the rent as an expense, since you remained Cdn resident at the same time thus your <u>family home</u> was different than where you worked (your tax home). There are strict criteria to meet to allow this deduction, especially since you were not working at 2 different sites.
<i>but there is little point in reducing your US tax in this manner, since this will merely reduce your foreign tax credit on your Cdn return (ie. no tax advantage). As you found in 2003, you already are paying more tax in canada than US.</i>
There is no real thing as climing 'double housing': this was your choice, and you are an employee, not self-employed, and not a travelling sales rep.
The fact that you never really met tax residency in US, and kept an empty home in canada, makes it nearly impossible to claim that you were non-resident of canada for any time.
In 2003, you could not have filed as a non-resident. The best you could have done was file as a DEPARTING resident, leaving on the day you started work in US, but , as I said, since you maintained a home in canada, even that option is not there for you.
If you wish, you can claim the rent as a non-refunded employemnt expense on your US tax return, but I think you will find that this will merely make your Cdn tax bill higher to the same extent as the tax you save in US. you can look at 'employment expenses' on the iRS website to see what is deductible.
<i>nelsona non grata... and non pro</i>
Nelsona,
Thanks. But for clarification, I submit the follwoing information. We DID sell our house in Canada. We sold it on March 10th/2004. However, after I found out I was returning we had to purchase a new home. This was necessary becasue my wife needed a place to live. At the time I was notified my wife was residing in Canada. She had quit her job already (provided notice) and was negotiating a new position in the US. Since I was returning there was little sense in her moving to the US. This is why we chose to buy a new home in Canada. We took possession June 30th/04. So when I filed as a departing Canadian it was legitimate and the necessary steps were taken (closing my accounts, selling assets, notifying OHIP, importing my vehicle etc). The need to refile my 2003 taxes was based on the advice of our accountant who thought that my return in Sep 2004 may be seen by CCRA as a sign I was not actually planning on moving. In fact I was. Consultation with another tax professional revealed that the intent to leave was real and that my tax status was legitimate because I had no knowledge of my return when I filed as a departing resident in Oct/03. At this point my accountant had already filed the paperwork for the revised 2003 status. So I owe money now. I am still contemplating how to deal with this issue.
As for a the need for a home office; my employer is a wholly owned private Canadian firm that has no US office. As such, they were fully aware that I would need work from my home when I left Canada. To that end, they bought me the office supplies, desk, fax etc needed so I could complete my day to day activities. I am not sure whay they are not open to allowing me to claim a home office expense because I was not reimbursed for these expenses. What's more, is that they are allowing me to claim my vehicle as a business expense becasue they paid me a vehicle allowance for its use. I am confused about it all but hopeful that there is some way I can claim some of the rental/housing expenses I personally paid.
Does this clarify the situation? thanks
Thanks. But for clarification, I submit the follwoing information. We DID sell our house in Canada. We sold it on March 10th/2004. However, after I found out I was returning we had to purchase a new home. This was necessary becasue my wife needed a place to live. At the time I was notified my wife was residing in Canada. She had quit her job already (provided notice) and was negotiating a new position in the US. Since I was returning there was little sense in her moving to the US. This is why we chose to buy a new home in Canada. We took possession June 30th/04. So when I filed as a departing Canadian it was legitimate and the necessary steps were taken (closing my accounts, selling assets, notifying OHIP, importing my vehicle etc). The need to refile my 2003 taxes was based on the advice of our accountant who thought that my return in Sep 2004 may be seen by CCRA as a sign I was not actually planning on moving. In fact I was. Consultation with another tax professional revealed that the intent to leave was real and that my tax status was legitimate because I had no knowledge of my return when I filed as a departing resident in Oct/03. At this point my accountant had already filed the paperwork for the revised 2003 status. So I owe money now. I am still contemplating how to deal with this issue.
As for a the need for a home office; my employer is a wholly owned private Canadian firm that has no US office. As such, they were fully aware that I would need work from my home when I left Canada. To that end, they bought me the office supplies, desk, fax etc needed so I could complete my day to day activities. I am not sure whay they are not open to allowing me to claim a home office expense because I was not reimbursed for these expenses. What's more, is that they are allowing me to claim my vehicle as a business expense becasue they paid me a vehicle allowance for its use. I am confused about it all but hopeful that there is some way I can claim some of the rental/housing expenses I personally paid.
Does this clarify the situation? thanks
<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica" id="quote">quote:<hr height="1" noshade id="quote">Does this clarify the situation?<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">
Marginally, but not to the point of ever making you non-resident.
It does clear up your employment expenses though.
You have never mentionned exactly what date you started working in US (not that it would make much differnce, unless it was jan 2003 rather than december 2003)
Whether or not you intended to live forever in US or not, the FACT that your wife remained in Canada, working, made you and her residents of canada. At the very most it made you a deemed non-resident, but that would have required staying in US all of 2004, which you did not.
So your acct was correct in advising you to file as a resident of canada for ALL of 2003.
You should never have filed as a departing resident in 2003, since you had not made sufficient inroads on establishing your foreign residency until it was clear you were coming back.
Add to this that you were working for a Cdn employer. Did he set up a US payroll for you? Did he pay you as a contractor?
You must clarify, for the tax departments, whether you were working for a US company (spun off by CanCo) or were working <i>in the US </i> for CanCo.
If it is the latter, then you are entitled to the overseas employment tax credit OETC (since you were out of Canada for 6 months), if it is the former, you are probably out of luck.
You've dealt with an acct, what does he say about all this?
I would also be 'requesting' that your firm cooperate with you on any tax matters (ie. pay to have them done, and reimburse you for any extra tax you pay in US), as they have d!cked around with you royally.
They should also be signing any forms that you need in order to justify home office expenses and/;or the OETC
I hope you have been reimbursed for all the cost related to selling and buying your home(s).
But it is better that the COMPANY should be refunding you, not the tax department.
<i>nelsona non grata... and non pro</i>
Marginally, but not to the point of ever making you non-resident.
It does clear up your employment expenses though.
You have never mentionned exactly what date you started working in US (not that it would make much differnce, unless it was jan 2003 rather than december 2003)
Whether or not you intended to live forever in US or not, the FACT that your wife remained in Canada, working, made you and her residents of canada. At the very most it made you a deemed non-resident, but that would have required staying in US all of 2004, which you did not.
So your acct was correct in advising you to file as a resident of canada for ALL of 2003.
You should never have filed as a departing resident in 2003, since you had not made sufficient inroads on establishing your foreign residency until it was clear you were coming back.
Add to this that you were working for a Cdn employer. Did he set up a US payroll for you? Did he pay you as a contractor?
You must clarify, for the tax departments, whether you were working for a US company (spun off by CanCo) or were working <i>in the US </i> for CanCo.
If it is the latter, then you are entitled to the overseas employment tax credit OETC (since you were out of Canada for 6 months), if it is the former, you are probably out of luck.
You've dealt with an acct, what does he say about all this?
I would also be 'requesting' that your firm cooperate with you on any tax matters (ie. pay to have them done, and reimburse you for any extra tax you pay in US), as they have d!cked around with you royally.
They should also be signing any forms that you need in order to justify home office expenses and/;or the OETC
I hope you have been reimbursed for all the cost related to selling and buying your home(s).
But it is better that the COMPANY should be refunding you, not the tax department.
<i>nelsona non grata... and non pro</i>
Thanks again. The company paid me through a US payroll firm in US funds. I was an employer of the Canadian firm since we had no US affiliate. They are paying my tax prep but have not reimbursed me for housing sale/purchase costs. Nor have they committed to paying the tax penalities associated with the change in my workplace.
As for my departure, I left October 10, 2003. According to CCRA there is no defined time limit for me to "clean up" after leaving Canada so the fact that my wife remained until March is not an issue. In fact I called on feb. 8 to confirm this point and they said that as long as she is continuiing to take the steps to move then intent is confimed. Our intention was to have her move completely within 6 months of my departure (Ie. April 10). This is why we sold the house in MArch. We actually were departing Canada.
As for the housing expenses, I am looking into all options. As for my accountant, he is also the corporate accountant. I think he is overly conservative but they are paying him and I don't have the money to pay for an external resource. We'll see what happens now.
As for my departure, I left October 10, 2003. According to CCRA there is no defined time limit for me to "clean up" after leaving Canada so the fact that my wife remained until March is not an issue. In fact I called on feb. 8 to confirm this point and they said that as long as she is continuiing to take the steps to move then intent is confimed. Our intention was to have her move completely within 6 months of my departure (Ie. April 10). This is why we sold the house in MArch. We actually were departing Canada.
As for the housing expenses, I am looking into all options. As for my accountant, he is also the corporate accountant. I think he is overly conservative but they are paying him and I don't have the money to pay for an external resource. We'll see what happens now.
<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica" id="quote">quote:<hr height="1" noshade id="quote">According to CCRA there is no defined time limit for me to "clean up" after leaving Canada so the fact that my wife remained until March is not an issue. In fact I called on feb. 8 to confirm this point and they said that as long as she is continuiing to take the steps to move then intent is confimed<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">
This is, in general, true.
However, the fact that she did not complete this, and the fact that you (and especially she) never completed the move, indicates against non-residency.
I will say this, though, you acct is <i>absolutely incorrect</i> that the mere fact that you returned less than a year after going to US denies you the right to claim to be non-resident for that period.
Had the 2 of you moved in October 2003 (whether or not even selling the house), there would be no question that you would have been non-resident from that day until Sept 2004.
An argument that you were a <u>deemed non-resident</u> is makeable, but at this point, since you have already wavered on this (changing your return), makes such a claim hopeless, in my opinion, without spending some bucks on your own CPA.
Your best tack is likely to forget the claim of non-residency all together, and work on reducing your tax bills by the OETC, moving expenses, travel expenses, living expenses, etc.
I also hope you are looking for another employer.
Lesson: always negociate all the terms of such transfers. It is amazing how many stories I've heard how Cdns literally jump at the chance to move to US, soley for more money, then neglect some key aspects, like negociating moving expenses, which end up costing more than they gained from the move.
And as you found out, simply becaue the move is instigated by your current employer, doesn't bring any added protection.
It's also a good thing that your wife didn't lose her job over this either .. imagine in canCo had decided to repatriate you 3 months later.
<i>nelsona non grata... and non pro</i>
This is, in general, true.
However, the fact that she did not complete this, and the fact that you (and especially she) never completed the move, indicates against non-residency.
I will say this, though, you acct is <i>absolutely incorrect</i> that the mere fact that you returned less than a year after going to US denies you the right to claim to be non-resident for that period.
Had the 2 of you moved in October 2003 (whether or not even selling the house), there would be no question that you would have been non-resident from that day until Sept 2004.
An argument that you were a <u>deemed non-resident</u> is makeable, but at this point, since you have already wavered on this (changing your return), makes such a claim hopeless, in my opinion, without spending some bucks on your own CPA.
Your best tack is likely to forget the claim of non-residency all together, and work on reducing your tax bills by the OETC, moving expenses, travel expenses, living expenses, etc.
I also hope you are looking for another employer.
Lesson: always negociate all the terms of such transfers. It is amazing how many stories I've heard how Cdns literally jump at the chance to move to US, soley for more money, then neglect some key aspects, like negociating moving expenses, which end up costing more than they gained from the move.
And as you found out, simply becaue the move is instigated by your current employer, doesn't bring any added protection.
It's also a good thing that your wife didn't lose her job over this either .. imagine in canCo had decided to repatriate you 3 months later.
<i>nelsona non grata... and non pro</i>