Wife working in Canada/Husband working in U.S

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webcite_99
Posts: 46
Joined: Fri Feb 18, 2005 8:45 pm

Wife working in Canada/Husband working in U.S

Post by webcite_99 »

Situation: wife is a dual citizen (Can & US thru marriage) and resident of Canada. Husband is a US citizen and living with wife in Canada. Wife works in Canada and earns say 50,000 CAD. Husband works for a US company and works vitually from Canada with several trips to US (say 30% of the time) and earns $150,000.

Question: What would be the best tax strategy factoring in tax credits from each country, etc.? How much total taxes would be owed based upon the above and to whom would the husband pay to and whom would the wife pay to, etc.

I assume that this is not too uncommon, and I appreciate all advice on how best to minimize the overall tax burden. Also, are there any particular strategies that would help reduce taxes in this type of situation?

Thanks.
nelsona
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Post by nelsona »

since every penny of income is taxable in canada, the best way to minimize taxes is to move to the province with the lowest tax. or move to a state with no tax, so that her income would be the only one subject to cdn/prov tax.

assuming this is not feasible, rrsps and other cdn tax lowering strategies are your only real solution.

the tax you owe in us, is merely reducing your cdn tax payment, not you over-all taxes, so there is nothing creative to do there.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D
webcite_99
Posts: 46
Joined: Fri Feb 18, 2005 8:45 pm

Post by webcite_99 »

Thanks. To clarify, are you saying that all income earned by both wife and husband is taxable in Canada first (regardless of source) and then applied toward the 160,000 US tax credit? Or would the Husband's income be taxed first in the US then applied to a Canadian Tax credit? Or am I way off on the tax credit issue?

Assuming the couple lives in Montreal (not exactly the low prvincial tax location you suggest), what would be the approximate tax implication based on the wife's $50,000 CAD and the husband's $150,000 USD?

Thanks.
nelsona
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Location: Nowhere, man

Post by nelsona »

Don't get too hung up on who 'taxes first'. US taxes EVERYYTHING, unless specifically excludable. So does canada.

Source is the key: $50,000 or so of your wages are sourced in US, everything else is in canada.

Only your US-source income (say $50,000) would be eligible for any tax credit on your Cdn return.

On your joint US return, her wages would be excluded, so no credit would be needed.

I doubt that any of your wages would qualify, since you probably do not meet the tests for FEIE (i'll let you figure that out), so you would be looking to claim a credit on 1116, for the Cdn tax paid on the $100,000 of Cdn wages.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D
webcite_99
Posts: 46
Joined: Fri Feb 18, 2005 8:45 pm

Post by webcite_99 »

Thanks Nelsona. I hate to keep this string going, but I think the numbers may have gotten mixed up on your answer. Canadian source for wife was $50,000 and US source for Husband was $150,000.

I understand that there is a limit on the US tax credit of $80,000, but unsure about the Canadian tax credit.

So assuming I follow your previous answer, the Husbands $150,000 US source income would be taxed in the US by US federal (state as well? if so, which state?) and then would apply for a crdit from Canada? If this is correct, how would the Canadian tax credit work (limits etc.?)

Thanks again for your patience.
nelsona
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Post by nelsona »

I said $50,000 of your wgaes is US-sourced because you said you only worked in US about 30% of the time. The rest of the time, you are working in Canada and thus the money will be considered Cdn-sourced.


So, I repeat, only about $50,000 of your wages will be eligible foreign income in canada.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D
MaggieA
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Post by MaggieA »

Just a comment on webcite's claim to "work virtually for a US company." Yes, this is pretty common. However, I'm pretty sure neither Canadian nor US tax law has any notion of virtual locations. If your body is physically present in Canada, you're working in Canada, even if you do all your work via VPN on your employer's computer system in the US (or France, or Australia).

This idea that if you reside in Canada and get a job in cyberspace with a US employer, then you're not working in Canada, seems to crop up a lot. However, it's not valid.
nelsona
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Post by nelsona »

And tax courts have consistently held that wage (dependent service) income is sourced where the employee is physically working.

Contract (independant service) income is another story.

in the case above, poster was not absolutely clear on his 'employment' arrangement, so I chariatbly considered $50,000 of his income as US-sourced.

If he is a contractor, CRA could easily and correctly take the position that ALL of the income is Cdn-sourced, denying any foreign tax credit.

And then US could easily say that $50,000 is US-sourced. Poster would then have to use the very complex re-sourcing rules to get tax relief solely on his 1040, on the re-sourced 1116.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D
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