I worked in the US (Michigan) and lived in Canada up until March 2005, changed jobs with another company (Alabama), bought a house there, and permanently moved my wife to Alabama at the end of June 2005. I have made the determination that I am a non-resident of Canada at the end of June (when I moved my spouse there), and am responsible to pay Canadian taxes on my US income up to the time that I left Canada (June 05). What I don’t understand is how to determine my tax liability. Do I create a “What-if†US tax return and Michigan tax return based on the income I would have earned in the entire year at the old job and prorate it according to how many days I was in Canada? Or do I tally up all income earned at both jobs up to June 05 and then prorate it? It gets confusing, as I can’t file a US tax return mid-year to figure out my tax liability for that period, and then one for the year end to figure out that portion.
Any help is much appreciated. Thanks!
US worker leaving Canada mid-year
Moderator: Mark T Serbinski CA CPA
Yoy 'tally up' all US income you had until your departed Canada, and report this income on your Cdn 'exit' return. See the "Emigrants" guide for CRA.
You then take a look at your final US tax return, and pro-rate the IRS tax you owed over the year and multiply that amount by a factor equal to what yo ureported in Canada divided by your full income on your 1040. You don't get to 'earmark' which income dollars are more highly taxed: each dollar you earned in 2005 will be considered to have been taxed the same by the feds, MI, and Alabama.
EX: you made $30K while resident in Canada, and $80K for the year.
You will take 3/8ths of your tax as calculated on your 1040 towards your foreign tax credit.
For your FICA tax and state taxes, you can use the same method, with the added complexity that all your MI wages,state taxes and FICA are eligible, since they all occured before departure, and only a prorated portion of your
Alabama wages, state tax and FICA will be eligible.
Whatever Proportion of your US wages you report on your Cdn return, that proportion of tax, calculated at year-end will be used on your Cdn return for credit.
You then take a look at your final US tax return, and pro-rate the IRS tax you owed over the year and multiply that amount by a factor equal to what yo ureported in Canada divided by your full income on your 1040. You don't get to 'earmark' which income dollars are more highly taxed: each dollar you earned in 2005 will be considered to have been taxed the same by the feds, MI, and Alabama.
EX: you made $30K while resident in Canada, and $80K for the year.
You will take 3/8ths of your tax as calculated on your 1040 towards your foreign tax credit.
For your FICA tax and state taxes, you can use the same method, with the added complexity that all your MI wages,state taxes and FICA are eligible, since they all occured before departure, and only a prorated portion of your
Alabama wages, state tax and FICA will be eligible.
Whatever Proportion of your US wages you report on your Cdn return, that proportion of tax, calculated at year-end will be used on your Cdn return for credit.
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
