Help on tax return for 2005.

[slamarre]

Hi,

I have a TN Visa. I was hired on Nov 28th 2005 by a US company. I was living in Canada all 2005 year. I had 2 US pay checks in 2005 (Dec 15th and Dec 30th).

I have a couple of question:

1- Do i need to declare those 2 pay check amount in my Canadian Tax return? Can i not put those amount?

2- How the CRA knows that i was hired by a US company? How they will know i got 2 pay checks from a US company?

3- Which IRS form i need to fill out for tax return since i am not a us resident?

4- Any other advice that would help me fill out my US and CDN tax return?

Thanks.

[nelsona]

1. Since you continue to live in Canada, you must report every penny that you earn ANYWHERE on your Cdn and Provincial tax return.

2. They will know because you will tell them.

3. 1040NR

4. When will you move to US? The sooner you do this, the sooner you will simplifiy your taxes. Until then, you will have to report your income in canada and US, and take credit on the Cdn return for the US tax you pay.

[slamarre]

We are planning to move in the US in March 2006. So, for the 2006 fiscal year, i will not have to produce a canadian tax return since i will have reside less than 183.

How i should fill out my 2005 income. Let say that i have earned in 2005 5000$ USD and i paid 1000$ USD of US taxes. What will be the USD revenue i will have to put in my Canadian tax return?

Basically, how to enter the USD dollar amount in my 2005 Canadian tax return and where?

THanks.

[Mark T Serbinski CA CPA]

Here is what you need to do:

1. Include all of your world income on your Canadian return, as nelsona says;
2. Prepare a "dual status return" for the U.S., since you have established U.S. residence and employment in 2005. (Although you also have the option of declaring yourself a U.S. resident for the entire year, that may not be optimal because you have not earned a lot of income in the U.S. in 2005);
3. Claim a foreign tax credit on your Canadian return for the tax noted on your dual status return and state return, plus any social security tax on your W2.
4. You will also need to file a return in Canada for 2006, up to the date of your departure from Canada, using the same procedure as above;
5. Since you will have filed a dual status return in the U.S. in 2005, you will be able to claim a standard deduction for 2006, since you will be considered a U.S. resident for the entire year.

[nelsona]

We are planning to move in the US in March 2006. So, for the 2006 fiscal year, i will not have to produce a canadian tax return since i will have reside less than 183

No, this is incorrect. You will be resident until the day you leave, and thus will ahve to report your YUS income until that date. A resident who leaves during the year files a 'departure' return, and is not considered fully non-resident until the next tax year.

Your foreign income is reported in Cdn dollars on the line(s) it would be included on if it were from canada (wages, interest, etc). You would include in your wages social security/Meidcare tax you paid, as well as any 401(k) contributions you made. These are not deductible in Canada.

You will have to submit a copy of your W-2 and your US tax returns.


As to your tax, you wil include (again, in Cdn dollars) the final fed tax, the final state tax, and the Social security/Medicare taxes you paid, in the foreign tax credit calculation.

The xchange rate is available on the Bank of Canada website. There is some flexibility on what rate you use (daily rate for each transaction, or average rate for the period of all transactions). Be consistent.

[slamarre]

Ok,

Here is a recap that i need to do. Could someone verify that please.

CDN 2005 year tax return
- Declare every pennies that i got from any sources. For the US income, i need to convert this in CDN currency with the BOC rate. The amount i need to declare is the total amount of US dollar before tax right?
- include (again, in Cdn dollars) the final fed tax, the final state tax, and the Social security/Medicare taxes you paid, in the foreign tax credit calculation.
- Join a copy of my W2
- Join a copy of my 1040NR (below)

US 2005 year tax return
- Declare only my US income.
- Join a copy of my W2
- 1040NR
- Copy of Canadian Tax return

CDN 2006 year tax return
- Declare every pennies that i got from any sources until end of Feb 06. For the US income, i need to convert this in CDN currency with the BOC rate. The amount i need to declare is the total amount of US dollar before tax right?
- include (again, in Cdn dollars) the final fed tax, the final state tax, and the Social security/Medicare taxes you paid, in the foreign tax credit calculation.
- Join a copy of my W2
- Join a copy of my 1040NR (below)
- Actually, do in need to fill a Canadian Tax return if i stayed in Canada < than 183 days?

US 2006 year tax return
- Declare only my US income.
- Join a copy of my W2
- 1040NR

Am i missing something here? Please tell me as i am not a acounting "guru".

Thanks for your help.

[nelsona]

Mostly wrong:

US 2005, you have a choice on either filing a 1040NR or a dual-status 1040NR/1040 as mark outlined. In any event you would not be attaching a Cdn return, since you aren't reporting any Cdn income.

CDN 2006, you would include the US income for Jan/Feb but you would only claim roughly 2/12ths of any of the US taxes against that income. Forget about the 183 days, it doesn't apply to you until you leave (I said this already). You will indicate a departure date of Feb xx 2006 on the return page 1, and comply with all requirements outlined in the CRA's "Emigrants" guide for 2006, in spring 2007. You will also notify any Cdn instituitions you deal with that you are non-resident at that point. You would attach your W-2 and a copy of your 1040 (you won't be filing a 1040NR in US except for 2005)

US 2006, you will file a 1040 like everyone else in US, meaning that you and your spouse will declare ALL world income.

Canada 2007, you will have nothing to file unless you own rental property or work in Canada.