Hi,
I'm new to this forum. I've read a lot of posts here and the information is very valuable!
I would like to ask about my own situation. I am CDN citizen and I getting a job offer from an US employer. They allow me to work 9 months in US and 3 months in Canada every year and I am trying to find out if this will make me taxable in Canada.
I live with my parents in Canada and do not own or rent a house/apt. I will be renting once I arrive in the States. I have a girlfriend (not living together) who will be staying in Canada, and I believe that doesn't affect my non-resident status? I am willing and planning to cancel everything in Canada (bank accounts, health cards, etc) and I do not own any RRSP or investments. I do however own shares in a private corporation that I started with a friend here. The business is new and is not making money yet but I do expect some profits next year even though it won't be significant compared to my salary. I will not be personally running the day-to-day business.
I have actually consulted an accountant before and I was told that, "If you work 3 months in Canada every year, it would not be feasible to cease being a resident of Canada for tax purposes." This sounds really scary[:(]. From what I've read on this forum, I believe that the most important factors in a CND residence status are "house, wife, kids, and 183 days" and I do not have any of these so I don't know why 3 months in Canada would make me taxable. Also, it sounds like regardless of other factors, as long as I live in the States for more than 183 days I will be automatically deemed non-resident in Canada. Is that true?
Thanks a lot and I look forward to any input.
Jack
9 months in US, 3 months in Canada
Moderator: Mark T Serbinski CA CPA
A consistent pattern of returning -- and working -- in Canada three months a year would likely get you viewed as a factual resident of Canada. You do have a home in Canada -- your parents, and this home would continue to be available to you. You really are not <u>breaking </u> ties, which is a condition for non-residency.
If you were doing this after a complete absence from Canada for 2 or 3 years, trhis might be feasiblke, but not in the manner you are describing.
You might be considered "deemed non-resident" but this would be a stretch. Besides, since you would be woring in Canada, there is probably little advantage to reporting this income as a non-resident.
You are porobaly better off simply filing as a full residet in both countries, and use the foreign tax credits to lower you income tax in both Canada and US. This way you will be getting a bigger RRSP contribution room, and may be able to hold on to your Health card if required. The tax burden on you would probably be nil, unlessyou live in QC.
Note that your US employer will have to set you up as a Cdn employee for those 3 months, which may be an admin burden they do not wish to undertake, and you might wish to consider being a contrator, in which bcase it would be an advantge to be a Cdn resident, to avoid high Social security taxes.
<i>nelsona non grata... and non pro</i>
If you were doing this after a complete absence from Canada for 2 or 3 years, trhis might be feasiblke, but not in the manner you are describing.
You might be considered "deemed non-resident" but this would be a stretch. Besides, since you would be woring in Canada, there is probably little advantage to reporting this income as a non-resident.
You are porobaly better off simply filing as a full residet in both countries, and use the foreign tax credits to lower you income tax in both Canada and US. This way you will be getting a bigger RRSP contribution room, and may be able to hold on to your Health card if required. The tax burden on you would probably be nil, unlessyou live in QC.
Note that your US employer will have to set you up as a Cdn employee for those 3 months, which may be an admin burden they do not wish to undertake, and you might wish to consider being a contrator, in which bcase it would be an advantge to be a Cdn resident, to avoid high Social security taxes.
<i>nelsona non grata... and non pro</i>
Hi Nelson,
First of all, thanks for your answers!
> Besides, since you would be working in Canada, there is probably little advantage to reporting this income as a non-resident.
Does "this income" mean the 3 month's income? I don't mind paying CND tax rate for the 3 months, but I was under the impression that once I am recognized as Canadian resident I'll be taxed at CND rate for all 12 month income. Is that true?
> You are porobaly better off simply filing as a full residet in both countries, and use the foreign tax credits to lower you income tax in <b>both </b> Canada and US.
How do I use foreign tax credits to lower my tax in both Canada and US? I thought the way it works is that you pay in full the lower tax, then use that as a credit against the higher tax. Effectively I'll be paying the higher tax just without double taxation.
> The tax burden on you would probably be nil, unlessyou live in QC.
I live in Ontario. What kind of nil tax burden are you referring to? Do you mean that filing as full resident in both places would be similar to filing as resident in US and non-resident in Canada?
Basically I would like to know that in my 3/9 scenario, under the most efficient arrangement, how much more tax will I be paying than working solely in the US?
Thanks a lot for all your advice!
Jack
First of all, thanks for your answers!
> Besides, since you would be working in Canada, there is probably little advantage to reporting this income as a non-resident.
Does "this income" mean the 3 month's income? I don't mind paying CND tax rate for the 3 months, but I was under the impression that once I am recognized as Canadian resident I'll be taxed at CND rate for all 12 month income. Is that true?
> You are porobaly better off simply filing as a full residet in both countries, and use the foreign tax credits to lower you income tax in <b>both </b> Canada and US.
How do I use foreign tax credits to lower my tax in both Canada and US? I thought the way it works is that you pay in full the lower tax, then use that as a credit against the higher tax. Effectively I'll be paying the higher tax just without double taxation.
> The tax burden on you would probably be nil, unlessyou live in QC.
I live in Ontario. What kind of nil tax burden are you referring to? Do you mean that filing as full resident in both places would be similar to filing as resident in US and non-resident in Canada?
Basically I would like to know that in my 3/9 scenario, under the most efficient arrangement, how much more tax will I be paying than working solely in the US?
Thanks a lot for all your advice!
Jack
If you manage to have to pay only the 3 months of Cdn wages as a non-resident (which, as you have now been told twice is not likely), you will no doubt find that you will pay HIGHER than what a Cdn resident would pay on those wages, since you will not be entitled to much personal exemptions.
It is a bit of a falacy that the tax rate in US is so much lower than Canada, especially when one takes into account Social Security tax.
<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica" id="quote">quote:<hr height="1" noshade id="quote">How do I use foreign tax credits to lower my tax in both Canada and US? I thought the way it works is that you pay in full the lower tax, then use that as a credit against the higher tax. Effectively I'll be paying the higher tax just without double taxation.<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">
In the US, you will probaly file a FULL 1040, reporting world income. This will yeild the lowest taxrate. You will then either claim a tax credit for the Cdn tax paid on your Cdn wages, or you will take a deduction for ALL Cdn taxes paid.
In Canada, you would take a credit for the US tax paid on your US wages.
Most taxpayers who, for example, live in Windsor (and are thus Cdn/Ontario residents) and work in Detroit, find that they end up paying little or no tax to CRA or Ontario, particularly if they use their RRSP. You, by working in Ontario would of course pay some tax to Canada/Ontario, but not at as high an amount as you may think. I'm going to assume that you won't be making $200,000/yr right off the bat.
Would you, in particular end up paying less tax if you succeeded in getting CRA to give you "deemed non-resident" status. Maybe, but you would have a fight on your hands, and legal/acct fees to get this status, and the uncertainty of keeping that status would certinly eat at those savings.
I'm suggesting not to bother with the fight with CRA, file as a resident in both countries (you are allowed), and take advantage of the tax breaks in both countries available to residents.
<i>nelsona non grata... and non pro</i>
It is a bit of a falacy that the tax rate in US is so much lower than Canada, especially when one takes into account Social Security tax.
<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica" id="quote">quote:<hr height="1" noshade id="quote">How do I use foreign tax credits to lower my tax in both Canada and US? I thought the way it works is that you pay in full the lower tax, then use that as a credit against the higher tax. Effectively I'll be paying the higher tax just without double taxation.<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">
In the US, you will probaly file a FULL 1040, reporting world income. This will yeild the lowest taxrate. You will then either claim a tax credit for the Cdn tax paid on your Cdn wages, or you will take a deduction for ALL Cdn taxes paid.
In Canada, you would take a credit for the US tax paid on your US wages.
Most taxpayers who, for example, live in Windsor (and are thus Cdn/Ontario residents) and work in Detroit, find that they end up paying little or no tax to CRA or Ontario, particularly if they use their RRSP. You, by working in Ontario would of course pay some tax to Canada/Ontario, but not at as high an amount as you may think. I'm going to assume that you won't be making $200,000/yr right off the bat.
Would you, in particular end up paying less tax if you succeeded in getting CRA to give you "deemed non-resident" status. Maybe, but you would have a fight on your hands, and legal/acct fees to get this status, and the uncertainty of keeping that status would certinly eat at those savings.
I'm suggesting not to bother with the fight with CRA, file as a resident in both countries (you are allowed), and take advantage of the tax breaks in both countries available to residents.
<i>nelsona non grata... and non pro</i>
I want to file taxes in Canada and US both for this year.
I broke all my ties in Oct. in Canada. How can I file my taxes in Canada just for 10 months?, how should I calculate my income? how can I use tax credit for 10 months out of a full year US tax?
Is this an straight forward calculation like (income X 10 divided by 12) same for tax? or is more complecated than that?
How should I calculate exchange rate between USD and CND?
Thanks.
I broke all my ties in Oct. in Canada. How can I file my taxes in Canada just for 10 months?, how should I calculate my income? how can I use tax credit for 10 months out of a full year US tax?
Is this an straight forward calculation like (income X 10 divided by 12) same for tax? or is more complecated than that?
How should I calculate exchange rate between USD and CND?
Thanks.
Any income you RECEIVED before you left is taxable in canada.
Lokk at the Emigrants tax guide from CRA for details on how you will file your 'departure' return, including deemed dispositions, etc.
You can use the last paystub you got before departure to determine how m,uch of your wages you report. If it turns out to be 10/12ths, then you will report 10/12ths of the wages, and 10/12ths of the taxes for use as foreign tax credit.
The exchange rate should be an 'average' for the months of jan to October.
This can be found by using the average exchange rate calculator on the bank of Canada website.
<i>nelsona non grata... and non pro</i>
Lokk at the Emigrants tax guide from CRA for details on how you will file your 'departure' return, including deemed dispositions, etc.
You can use the last paystub you got before departure to determine how m,uch of your wages you report. If it turns out to be 10/12ths, then you will report 10/12ths of the wages, and 10/12ths of the taxes for use as foreign tax credit.
The exchange rate should be an 'average' for the months of jan to October.
This can be found by using the average exchange rate calculator on the bank of Canada website.
<i>nelsona non grata... and non pro</i>
For the Cdn portion, it is after taking credit.
1. Do you normal Cdn tax return.
2. Use that tax on any 1116s that you need. Complete your US return.
3. Then go back to your Cdn return and do foreign tax credit calculations.
1. Do you normal Cdn tax return.
2. Use that tax on any 1116s that you need. Complete your US return.
3. Then go back to your Cdn return and do foreign tax credit calculations.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best