1st year tax filing on TN

cnel · Post by **cnel** » Wed Apr 05, 2006 9:31 am

Kindly provide some advise regarding our situation for tax filing. My husband came to the US to work under TN visa last May 2005.My kids and I followed to live with him in Jan 2006. We still own a house in Canada which is not rented out and we have decided to maintain it for our use when we go back.
My question is, should my husband file his taxes both in Canada and in the US? What tax forms does he need to submit? He was able to earn something in Canada from Jan-April 2005.
Also, are we still considered Canadian residents as we still have a house in Canada since we are just renting an apartment in the US? Any response is much appreciated.

nelsona · Post by **nelsona** » Wed Apr 05, 2006 9:51 am

Because you have taken no steps to move to US until Jan 2006, he is a factual resident until that time. Now, even though you have a house in Canada, which is a mojor tie, the fact that you have joined him in January, make you both 'deemed non-residents' which will affect your 2006 tax return, not 2005. It is your joining him in US which will break his Cdn taxation on his US income. (Note: If you had been trying to sell your house since may, and had only come down once it was sold in January, he would have been deemed to have departed in May, but this was not your case).

For 2005 you will both file as Cdn tax residents, reporting world income to CRA.

He, and possibly you, will also file a return in US, using one of several methods outlined in IRS Pub 519 or Treaty article XXV. There is info on this site on these topics which will not be repeated here.

he will be able to get a credit on his Cdn return for the US taxes he owed for 2005. If he files as a full-year 1040, you will be able to lower is US tax by either excluding Cdn wages by form 2555, or using Cdn tax owed as a credit (on several form 1116's) or by deducting Cdn tax paid on Schedule A.

Note that if one files a 1040, the real estate taxes and mortgage interst paid on the Cdn home are deductible as if the hous e was in US.

nelsona · Post by **nelsona** » Wed Apr 05, 2006 9:53 am

Note too, that once a deemed non-resident, your Cdn home is no longer considered your principal resident, and you will be liable for cap gains should you sell the home more than one year after departure.

You will also have bdeemd disposition on your assets beased on the January departure, in youyr 2006 Cdn tax 'exit return'.

cnel · Post by **cnel** » Tue Apr 11, 2006 1:53 pm

Thanks for all your help Nelsona.

Sorry for an inaccuracy on the previous post. I came to US on Dec. 21, 2005 not Jan. 2006. I started work on Jan. 2006 through TN visa.

Will this mean that my husband is a deemed non-resident of Canada for 2005 tax returns?

Also we are confused about form 2555 lines 10, 28, and 29?
Line 10: put Oct. 1999 (we lived in Canada from Oct. 1999) to May 2005?
Line 28: compute Housing expenses for a 12 month period?
Line 29: Is 365 days correct or do we count the days from Jan to May 2005 that my husband was in Canada?

Regarding form 8833:
1) Do we put US-Canada Treaty Article XXV on box 1?
2) What Internal Revenue Code provision that was overruled or modified by the Treaty?
3) What do we put on box 4?

nelsona · Post by **nelsona** » Tue Apr 11, 2006 3:16 pm

You are both DEPARTING RESIDENTS (follow the instructions in the Emigrants guide). On his Cdn return he will report US income received up until December 21, and request a credit for the US taxes paid on the ammount reported.

You should each be using a separate 2555, NEITHER of you should be claiming any housing allowance, this does not apply to you, unless you made serious money in Canada before leaving. Use the mortgage interest and property tax deduction on your joint 1040 instead.

Hubby will have May as his 2555 date and you will have december. The days used to calculate the exclusion will be more like 150 for him and 350 for you.

You do not need a treaty declaration.

cnel · Post by **cnel** » Tue Apr 11, 2006 6:30 pm

Thanks for the clarification, I thought that we need to use a treaty declaration when filing form 2555. Anyway this makes it less complicated.

Can we also file form 3903 for all the moving expenses for our family?

cnel · Post by **cnel** » Tue Apr 11, 2006 7:55 pm

I am confused about filing two 2555s when we are trying to file jointly.
Does it mean that we cannot file 1040 as "married filing jointly" since line 21 will have two sources (his and my 2555). OR we just add the two 2555s and put it on line 21 of 1040 for "married filing jointly"?

cnel · Post by **cnel** » Tue Apr 11, 2006 9:02 pm

In my husband's Canadian return, what is his foreign tax paid, is it just the Federal income tax withheld or the sum of all the taxes withheld (Federal Income + Social Security + Medicare) from his W-2?

Thanks in advance.

nelsona · Post by **nelsona** » Tue Apr 11, 2006 10:48 pm

Moving expenses are fine, I'll let you figure out 2555: you both need to file one for your 2 foreign incomes.

The fed and state tax eligible are the ACTUAL tax calculated on your returns, not the withheld tax.

TN Holder · Post by **TN Holder** » Wed Apr 12, 2006 3:24 pm

Nelson,

I am using UFile for my Canadian tax return. Just for fun, I selected the Non_Residant for entier 2005" option , but still software is calculating few thousands of dollar as my tax ballanc to CRA.

Please correct me if I am wrong, I was thinking if you were not a residant of Canada (365 days out of Canada), you should not pay anything to CRA?

Thanks

nelsona · Post by **nelsona** » Thu Apr 13, 2006 7:12 am

If you are a non-residnt, the n there is a whole slew of income that you DO NOT REPORT!

Obviously if you report income to CRA, they are going to tax it.