Consequences of not Filing Taxes in Canada while on TN

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sapphire
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Consequences of not Filing Taxes in Canada while on TN

Post by sapphire »

I am a Canadian citizen since 2003. Since November 2004, I’ve been working in the States (TN status). I have filed taxes in the US and Canada for 2004, and in the US (1040) for 2005. I have no real-estate property in Canada, no RRSP, or pension plans’ contributions other than the CPP, to which I have contributed since 2000. From a tax perspective, what will the consequences of not filing taxes in Canada for 2005 be considering the fact that I plan on returning and resuming working in Canada next year or in a couple of years? Can I just return one day and resume filing taxes in Canada?
Duratec
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Post by Duratec »

I'd like to know the answer to that too...
nelsona
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Post by nelsona »

As a non-rtesident, you were supposed to file a 'departure' return in 2004, to finalize your Cdn departure.

That said, if you made no Cdn income in 2005, you do not have to file in Canada, since you do not have any residential ties there. so there is no problem not filing in Canada anymore, until you actually return to live there (or earn income there).

I would go back to 2004 however, and be sure that I correctly indicated my departure from Canada.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
cullen
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Post by cullen »

Nelson:

No disagree ment herer, but just digging deeper. There are a number of TN professionals that are claiming Canadian tax homes and receiveing away from home housing provisions/allowances from the company that is employing them while temporarily in the US. In that case - and you have fielded a similar question recently - they would claim all income in Cananda unless otherwise not qualifying for the benefit (IRS pub 463)
Joe
cullen
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Post by cullen »

The first words of my reply were "No disagreement here..."
Joe
nelsona
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Post by nelsona »

If you are claiming housing allowance for being away from a home that does not exist -- whether you are pretending this ersatz home is in Canada or US, I would call this fraudulent.

If you are on TN and have severed ties in canada, your tax home is exactly whre you are working and living. For you to legitimately claim that you have living expenses, you should be maintaining a home somewhere else.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
nelsona
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Post by nelsona »

IRS Publication 463 is pretty clear on what constitutes a tax home vs. a family home .. and one of the conditions of allowing travel expenses while away from your family homer (assuming that you have not mer the establishment of a tax home at your regular palce of busines) is that you have not 'abandonned' your previous family home, and that your 'on the road' expenses mirror the expenses you are incurring at your family home (lights, rent, phone etc).

A TNer that has met the standard of being a non-resident of canada has most likely abandonned his residence, and has thus become itinerant, and not eligible to claim travel expenses and living expenses in the city where he is currently working.


as for the Cdn tax side of things, even if you did choose to keep your residence in canada, saving US tax by availing yourself of these travel costs, would help little in Canada, since if you are an employee the travel costs are not deductible, so no overall tax savings would be won by claiming any 463 benefit on your 1040: it would merely be recouped by canada.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
cullen
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Post by cullen »

Fully understood.

At the same time, there are a number TN professionals that come to the states for short periods and return to Cananda and/or maintain their ties in Cananda who are provided housing benefits from the company while working temporarily in the US- but they do not file in Canada. When dealing with their tax preparer (or preparers), they do not disclose this arrangement and assume that there is no requirement to file a T1 or consider worldwide income on either return

The tax savings for maintaingg the Canadian residence is in the provided temporary housing (reimbursement) - Otherwise, by claiming non residency in Cananda, the housing benefit will have to be added back to income on the 1040 (constructive receipt) since the tax home would be abandoned.
Joe
nelsona
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Post by nelsona »

There is a difference between recieving a housing allowance from a company, and claiming same as a deduction from the IRS.

a company can give you what they want: they legally report it on your W-2 after all. If you are 'tricking' them into paying you, that is between your employer and you.

The individual, on the other hand cannot claim the expense as a deduction with the IRS if they do not meet the criteria.

if you do keep your home in canada, then yes, you meet the IRS criteria. however, your US tax savings is merely an exercise, sicne it is lost on your cdn return in the form of a reduced foreign tax credit.

personally, I don't see a value in being overly aggressive in reducing my US tax in such a situation, particularly due to the onerous record-keeping required to prove such a deduction. it would also make my cdn tax bill a huge April hit, and probably subject me to quarterly installments.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
cullen
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Post by cullen »

I am focusing on company paid housing (or an allowance based on a per diem). Since it is reimbursed, you cannot claim the expenses. The housing or allowance is not reported on the w-2 when substantiaited. Otherwise without maintaining a tax home in Cananda, it is reported income in the US and there is no point in maintaining residency in Canada.

There are a number of TN'ers that are playing both sides of the fence. Telling the company/IRS one thing about their residency and claiming non-residency in Canada.
Joe
nelsona
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Post by nelsona »

Ah, understood.


You've often used the phrase 'there are a number...' of TNers doing this.

i suspect the number is not that great, other than in your circle. :wink:

You are putting your compny on the line, after all they are now the ones taking an disallowed expense as a deduction.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
cullen
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Post by cullen »

Don't touch those - just know the industry.

Enjoy your posts.
Joe
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