US Citizen Working in USA, Husband Living In Canada

[syoussef]

Thank you for having such an informative forum.

I'm a US Citizen, My husband is not, My two kids (2 1/2 yrs and 1 yr) are both US Citizens.

We are landing in Ontario by April 2006. I work in the US and plan to keep my job. My husband will live in Canada. My two kids will be back and forth between the US and Canada (evenly). I will visit Canada frequently, but my habitual abode (primary house) will be in the USA. We will rent an apartment in Canada until end of 2006. My husband will not have any income for all of 2006 (my income is the only source).

Questions:

1) Will I be considered a resident of Canada for tax purposes for 2006 or not?

2) Does my husband have to file a tax return in Canada if he has no income for 2006? If he has to file (and I don't), will he have to declare my US income on his return? Will my income affect the calculation of the child tax benefit?

3) If we have to file Canadian tax return, what exactly would we be able to claim as the Foreign Tax Credit? (US Federal Tax/State Tax/Social Security Tax, etc.)?

4) If we have to file Canadian tax return, how will be the tax calculated? (partial income from the day we landed or for the full year)? And how much Foreign Tax Credit (do we get partial or whole year's worth)?

Thank you for your help!

[nelsona]

1. CRA generally takes the position that if your spouse and/or house are in Canada, so are you. You would have to argue your case, and it may not be worth it. Given your hubby's lack of income (maiking him your dependant), you will probably find that you have no Cdn tax liability anyways, so it is not worth the fight. You would have to calculate.

2. He would need to file a return to get the CCTB, and would need to include your world income on Page 1, whether you file or not, and whether or not you are a Cdn resident.

3. The fed and State income taxes calculated on your 1040s, and your fica/medicare taxes withheld during the year.

4. You would begin reporting your US income when you landed, and the tax eligible for the credit would be proportional to the income you reported. (eg. if you report 38% of your US wages in Canada, then you include 38% of your tax in the credit calculation),. By the way, do not forget to first ADD your 401(K) contributions, soc sec and medicare tax to your wages. Its a difference in how wages are reported in Canada, and 401(k) isn't deductible: RRSPs are the way to go for Cdn residents..

Be sure you get your US child tax credit on your 1040.

[syoussef]

Thank you for your responses. I have a couple of follow-up questions.

1. CRA generally takes the position that if your spouse and/or house are in Canada, so are you. You would have to argue your case, and it may not be worth it. Given your hubby's lack of income (maiking him your dependant), you will probably find that you have no Cdn tax liability anyways, so it is not worth the fight. You would have to calculate.

Are you saying I can include my husband as a dependant on my Cnd return? (Are my children dependents as well for the Cdn return?) I'm still new to this, so I'm not sure what benefit dependents have on my Cnd return? Do I get some kind of credit or standard deduction on my dependents as I do on my US tax return?

Would it help my case to not open a bank account, or have a SIN or OHIP, etc.?

When you say I may have to argue my case, do you mean fill out and submit CRA's NR74 form?

4. You would begin reporting your US income when you landed, and the tax eligible for the credit would be proportional to the income you reported. (eg. if you report 38% of your US wages in Canada, then you include 38% of your tax in the credit calculation),. By the way, do not forget to first ADD your 401(K) contributions, soc sec and medicare tax to your wages. Its a difference in how wages are reported in Canada, and 401(k) isn't deductible: RRSPs are the way to go for Cdn residents..

I'm unclear on what you mean by I have to add my SS and Medicare Taxes to my wages? Are you saying I need to include these taxes in my taxable income, and THEN add them back to my Foreign Tax Credit? How does one add Tax Withheld to Income? (confused)

Thanks again.

[nelsona]

1. CRA will automatically consider you a resident because of your spouse and kids being in Canada. This would overrride anything else (or the lack of other ties). The best you coulddo would be to have CRA decide tha tyou are a "deemed non-resident" and this would only be if you spend less than 1/2 your time in Canada, and have a full-fledged home in US (which ytou say you will have in 2006, but not in 2007).

If your spuse has little or no income, then he will be a dependant and you will get a tax break for him. Kids will not, due to your high income, which is normal for most Cdns.

Asa I said, even if you are considered non-resident, your income would still be used to determine any Cdn tax-breaks for your husband. In other words, although you would not be reporting in Canada, he would not be treated like e single parent with no income, so he would not be eligible for CCTB or GST rebates.

4. CRA demands that the SS and Medicare taxes (which are not included in your wage box on w-2) must be added to your wage income. That seems pretty simple. So if your w-2 income was $73K and your SS and med tax was $9K, you put $82 K on the wage line of your CDn return.

Then when calculating the Foreign tax credit, you would put the Fed tax, State tax, and the SS and medicare tax as your eligible tax.

[Figs]

The CRA General Income Tax and Benefit Guide for 2005 states, "The amount on your United States W-2 slip MAY have been reduced by such contributions to a '401(k), 457, or 403(b) plan, US Medicare and Federal Insurance Contributions Act (FICA)'. These contributions are not deductible on your Canadian return. Therefore you have to add these amounts into your income as well."

The way I read this is that it is up to you to figure out whether the W-2 amount (in Box 1) has been reduced by any of these contributions and increase your income accordingly. However, the W-2s that I see are NOT reduced by FICA withholdings. Therefore, in my opinion, you would not need to add the SS and medicare (aka FICA) taxes paid to the amount in Box 1 when caclulating your income for Canadian tax purposes. The W-2 instructions for employers even say to include TOTAL wages in Box 1 BEFORE any payroll deductions. In the end though it is up to you to determine correctly whether the Box 1 amount has been reduced for any such contributions.

[nelsona]

I think you are correct.

[syoussef]

thanks nelsona and figs

i just got my w2. made my calculations, and it looks like box1 already includes all the taxes (FICA, etc.)

nelsona - question

The best you coulddo would be to have CRA decide tha tyou are a "deemed non-resident" and this would only be if you spend less than 1/2 your time in Canada, and have a full-fledged home in US (which ytou say you will have in 2006, but not in 2007).

Just me or would the whole family (hus/children) have to spend less than 1/2 of the time in Canada?

I'm still not clear on how I get CRA to decide on my residency status. What do I need to fill out or who do I need to talk to? Or do I simply file the way I think my residency status should be and let CRA question it if they desire to?

If your spuse has little or no income, then he will be a dependant and you will get a tax break for him. Kids will not, due to your high income, which is normal for most Cdns.

is the credit you're talking about the one that's on the Federal Schedule 1, line 303, where I can claim 15% max of $7344 for the dependant spouse?

thnx again

[nelsona]

Your family members are residents of canada.

The 183 day poilicy would apply to you, since only you would be trying to avoid Cdn tax.

The spousal dedcution is on schedule 1. Use software to do your returns.