emigrate vs filing canadian tax/us tax? pros/cons?

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donningray
Posts: 2
Joined: Sun Mar 18, 2018 4:03 pm

emigrate vs filing canadian tax/us tax? pros/cons?

Post by donningray »

Hi, me and my wife moved to the US from Ontario Canada. We are in the midst of filing our Canadian and US tax returns for 2017. We left in late November 2016 for new US jobs and did not have to file US tax return in 2016 (did not meet income requirement to file) and filed a regular Canadian tax return for 2016 since we had regular T4, RRSP, in Canada for most of 2016.

For 2017 income tax returns, I would like to file a Canadian Resident Tax Return and a US Resident Tax return for 2017 and take advantage of the Foreign tax credit, tax treaty etc.

For personal reasons, it may be more beneficial to do this as opposed to paying departure tax, giving up OHIP etc and emigrating from canada and we have substantial ties (joint home in canada, stocks, RRSP, TFSA, social ties, frequent trips back to Canada) so it may be difficult to establish that we are true non residents. We don't mind paying some taxes in Canada even though we didn't make any income in Canada for 2017 as we don't want to deal with all the hassle of depature tax, deemed disposition on stocks, deemed capital gain on our home, which could be a much more costly situation.

I think we both want to spend 1-2 more year in the US before deciding if we want to work US long term or move back to Canada. Eventually we may need to fully emigrate from Canada, and deal with all these potential departure tax issues, but we don't feel that time is right now so we don't mind filing both CDN and US tax return.

A few questions

1) Is our situation generally normal? Can we continue to file both US and CDN tax returns until we are sure we want to emigrate Canada.

2) We made 401K contributions in the US through employer and traditional IRA contributions through bank. Where can we deduct this in CDN tax return as CDN rules seem to state that we have to add back 401K contributions to W2 Wages and in CDN$$. I'm not sure where to deduct the 401K and IRA contributions.

RC267 , RC268 do not seem to apply. We are not commuters from Canada (RC268) or taken employment in Canada but contribute to US plan (RC267)

3) Can we deduct moving expenses for both CDN and US tax return purposes as we have moved for a new work.

Thanks so much
nelsona
Posts: 18311
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona »

I'm afraid that you don't really have the luxury of "choosing" whether CRA will consider you non-resident or not. As CRA says, it is a matter of fact.

You would definitely be classified DEEMED non-resident (which is identical to non-resident), because although you have a home in Canada, you obviously don't live there anymore, and definitely live in US, so by treaty you are US resident since November 2016.

So, in fact, not only can you not file as a Cdn resident for 2017, you should not have filed a normal Cdn return in 2016. You should have filed in 2016 with a November departure date.

As for US tax, you cannot file as non-resident, because you met SPT and have no basis for exempting your self. In 2016, although you say you did not meet reporting threshold, you should have files anyways, since, I'm sure you hade some tax withheld dfrom your wages, and would have been entitled to a refund.

so...
1. NO it is NOT normal. You leave, you filed departure tax. You come back, you file newcomer returnPeriod.
2. You could deduct 401(k), but not IRAs. But you are not a commuter, and don't live in Canada, so no.
3. Moving expenses (further proff that you actually did move) are only deductible on your US return, starting with your 2016 return, if that is when you incurred moving expenses.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
Serendipity
Posts: 7
Joined: Thu Mar 03, 2016 12:52 pm

Re: emigrate vs filing canadian tax/us tax? pros/cons?

Post by Serendipity »

I know this is an older thread, but I'm trying to wrap my head around the exact same issue.
Question: If he should not have filed that income tax return, why does the CRA even have such a thing as a tax treaty and tax credits anyway? For whom or what scenario?
nelsona
Posts: 18311
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Re: emigrate vs filing canadian tax/us tax? pros/cons?

Post by nelsona »

The tax treaty is primarily for residents of one country, who earn income in the other. For that reason, it also determines residency. And for Canada and US, that essentially becomes where you live and work.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
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