landed in Canada in middle of 2004. How to file?

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chjun
Posts: 3
Joined: Sat Feb 19, 2005 8:12 am

landed in Canada in middle of 2004. How to file?

Post by chjun »

My situation might be a little bit headache.

I have been working and still working in Detroit for all year 2004, and landed in Canada in Sept 2004 as permanent resident. I have no questions about US tax return. Here, a few questions about Canada tax return.
edit: I don't have any income form Canada side throughout 2004. I rented an apartment while in Detroit before Sept 2004, and rented another apartment in Windsor after Sept 2004.

1. For Canada tax return, do I need to report the whole year income? or just income from Sept to Dec 2004?
2. For foreign tax credit, could I only claim those tax hold by US federal and state goverment from Sept to Dec 2004?
3. Can I claim Social Security tax and Medicare tax also as foreign tax credit?

Really appreciate your answer and any comments.

Jim
Carson
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Location: Toronto

Post by Carson »

Jim:

1. Just your prorated income from Sept to Dec. Canada taxes you on your world wide income from the date of immigration in Sept.

2. Not the withholding taxes, but the actual taxes calculated on your 2004 US returns. You prorate the total taxes, eg. total income for year = $60,000, total tax on returns =$20,000. Sept to Dec income on Canadian return = $20,000, tax = $6,667. Of course, you'll have to convert the US figures to Canadian dollars.

3. Yes, SS and Medicare are treated for Canadian foreign tax credit purposes as tax paid. Prorate as in #2.

Regards,

CRH
chjun
Posts: 3
Joined: Sat Feb 19, 2005 8:12 am

Post by chjun »

Thanks a lot. one more question about the exchange rate. Can I use the exchange rate of the last day in 2004, which is Dec 31.2004? or I have to use the average exchange rate from Sept to Dec? If either one is OK, I'd prefer to use the last day of 2004 rate since it favors me about 3%.

Jim
nelsona
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Post by nelsona »

The two acceptable methods of currency exchange are 'day-by-day', that is evaluate each transaction with the rate in effect that day, or an average method, using the average over the period that you are reporting.

Unless all your transactions occured on the last day of the year, the Dec 31 rate is probably not realistic.

<i>nelsona non grata... and non pro</i>
gpacino
Posts: 22
Joined: Thu Mar 10, 2005 4:25 pm

Post by gpacino »

I have a similar situation, and i'm wondering if I would need to file a CDN return as a resident or non-resident:

I am: U.S. citizen, working in U.S. for all of 2004, all income from U.S. sources for 2004. Landed as Canadian Permanent Resident, Oct. 2004. However, I still maintain a home in the U.S. (and one in Canada. I spent my time roughly 50/50 in U.S. and Canada).

I know that Canada would consider my PR status as "residential ties", thus requiring that I file a CDN return as a resident, and report my worldwide income.

But, i'll be filing my 1040 as a resident. Would I not be able to claim that since I spent most of my time in the U.S., and that my principal place of business is in the U.S., and since i'm filing as a resident there, then I could be considered a "deemed non-resident" of Canada for tax purposes?

I thought this was the case. Am I making a mistake somewhere?
nelsona
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Post by nelsona »

"I have a similar situation..."

I doubt that your situation is similar, as you go one to describe that you are still working in the US, have a home there, etc.

Cdn PR status is not a MAJOR tie, and does not absolutely <i>require</i> that you report as Cdn resident (it used to, but no more).

Having a home is, and having a spouse living in that home is as well.

If indeed you are spending less than 50% of your <b>NIGHTS</b> in Canada, you could argue that BY TREATY, you are non-resident, and thus a deemed non-resident,

Rememeber, though that

(a) to be 'deemed non-resident', CRA has to ultimately do the 'deeming', not you. you can merely ask, and then be prepared to prove that you meet the tie-breaker requirements of Article IV (which would then allow you to exclude US-sourced income on line 256 of the Cdn return, and

(b) in order to maintain your Cdn PR status, and Cdn healthcare, or if you want eventually to get Cdn citizenship, you do have to reside in Canada a certain number of days within a rolling period of time. Filing as a non-resident (on the basis that you spend little time in Canada) will eventually catch-up with you.

You may be surprised to find that, after including all your US taxes on your Cdn return, the tax you owe will be negligible, and you will have no problem maintaining eligibilty for all the perks which come with actually living in Canada.

As an aside, you will be filing your 1040 as a US citizen, not as a resident. For Americans, residency issues don't mean much to IRS, aside from the Foreign Earned Income Exclusion. You would still be filing a 1040 regardless of what you were doing in Canada/US.

<i>nelsona non grata... and non pro</i>
gpacino
Posts: 22
Joined: Thu Mar 10, 2005 4:25 pm

Post by gpacino »

<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica" id="quote">quote:<hr height="1" noshade id="quote"><i>Originally posted by nelsona</i>

"I have a similar situation..."

I doubt that your situation is similar, as you go one to describe that you are still working in the US, have a home there, etc.
<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">
It seemed similar with the exception that I continued to maintain a home in the U.S., in which I continued to live for half of my time.

<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica" id="quote">quote:<hr height="1" noshade id="quote">
Having a home is, and having a spouse living in that home is as well.
<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">
And I rent a home there with my spouse, so I definitely have residential ties.

<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica" id="quote">quote:<hr height="1" noshade id="quote">
If indeed you are spending less than 50% of your <b>NIGHTS</b> in Canada, you could argue that BY TREATY, you are non-resident, and thus a deemed non-resident,

Rememeber, though that

(a) to be 'deemed non-resident', CRA has to ultimately do the 'deeming', not you. you can merely ask, and then be prepared to prove that you meet the tie-breaker requirements of Article IV (which would then allow you to exclude US-sourced income on line 256 of the Cdn return, and
<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">


<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica" id="quote">quote:<hr height="1" noshade id="quote">
You may be surprised to find that, after including all your US taxes on your Cdn return, the tax you owe will be negligible, and you will have no problem maintaining eligibilty for all the perks which come with actually living in Canada.
<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">
Really? I have not tried to figure it out. I thought CDN taxes were supposed to be higher than US, which would mean my CDN tax, despite US tax credits, might not be so negligible.
If I were to try this, do I pro-rate my salary (only Oct-Dec US income reported on my CDN return), and also pro-rate any exemptions on the CDN return? Then pro-rate the US taxes I paid and take them off?
And, would the same apply to filing a provincial (Quebec) return?
nelsona
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Post by nelsona »

Ah, since you live in QC, it is quite likely that your taxes would be higher than in US.

From what yo udescribe, you are most likley a QC resident. Evertything I said about trying to prove to CRA that you were a deemed non-resident, would also have to be done with MRQ, as they are sticklers about this, so I don't think this is a fight worth wqaging.


Prorating your income is fine, but technically, you are supposed to report the income received after you arrive in Canada, so you may be better off strictly reporting the wages on paychecks received after arrival, not simply pro-rating.

Whatever % of your US wages you do end up reporting, you would use that percentage of US tax/state tax etc towrds your foreign tax credit, first on the federal and then what's left on the QC return.



<i>nelsona non grata... and non pro</i>
KenD
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Joined: Sun Mar 13, 2005 7:02 pm

Post by KenD »

Like the original poster..I moved back to Canada at the end of September. So I'm only going to get taxed on the part of the year I was in Canada? Wow - I would have thought it would be worldwide income for the whole year like it is with the IRS> Does it matter that I'm a citizen returning vs. a new immigrant?
Carson
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Joined: Wed Oct 27, 2004 1:00 pm
Location: Toronto

Post by Carson »

<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica" id="quote">quote:<hr height="1" noshade id="quote"><i>Originally posted by KenD</i>

Like the original poster..I moved back to Canada at the end of September. So I'm only going to get taxed on the part of the year I was in Canada? Wow - I would have thought it would be worldwide income for the whole year like it is with the IRS> Does it matter that I'm a citizen returning vs. a new immigrant?
<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">

That's right.

Nope, just the income received since you became a resident. Canada does not tax based on citizenship, just residency.

CRH
gpacino
Posts: 22
Joined: Thu Mar 10, 2005 4:25 pm

Post by gpacino »

In trying to determine my resident status for Canada, I spoke briefly to a "professional".

Recap: i'm a U.S. citizen, all income from U.S. sources in 2004, became Canadian PR in Oct. 2004.

I didn't get any opinion on my Canadian resident status, but:

Upon hearing the details of my situation, the "pro" mentioned I should perhaps file a 1040NR. This really surprised me, as everything I read seemed to say that as a U.S. citizen, i'll be filing the 1040 no matter what, and i'll always report worldwide income, no matter where I live.

So, is this guy nuts suggesting that a U.S. citizen can file a 1040NR? It seems like a basic issue.
Carson
Posts: 182
Joined: Wed Oct 27, 2004 1:00 pm
Location: Toronto

Post by Carson »

<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica" id="quote">quote:<hr height="1" noshade id="quote"><i>Originally posted by gpacino</i>

In trying to determine my resident status for Canada, I spoke briefly to a "professional".

Recap: i'm a U.S. citizen, all income from U.S. sources in 2004, became Canadian PR in Oct. 2004.

I didn't get any opinion on my Canadian resident status, but:

Upon hearing the details of my situation, the "pro" mentioned I should perhaps file a 1040NR. This really surprised me, as everything I read seemed to say that as a U.S. citizen, i'll be filing the 1040 no matter what, and i'll always report worldwide income, no matter where I live.

So, is this guy nuts suggesting that a U.S. citizen can file a 1040NR? It seems like a basic issue.
<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">

Doh! Your instincts are good and facts correct. US citizen = full year 1040 with world income. Period.

What line of work is this professional in? Is he/she a Canadian practitioner? If so, I'd expect an opinion on the Canadian matter!

CRH
nelsona
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Post by nelsona »

I hope this person was a professional landscaper, as they are clueless on taxes.



<i>nelsona non grata... and non pro</i>
gpacino
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Joined: Thu Mar 10, 2005 4:25 pm

Post by gpacino »

<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica" id="quote">quote:<hr height="1" noshade id="quote"><i>Originally posted by nelsona</i>

I hope this person was a professional landscaper, as they are clueless on taxes.
<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">

Yeah, "pro" what, I don't know. I didn't pay for this help, at least.

I don't know if you guys are Serbinski employees or what, but do you recommend going to them for assistance, to sort these things out? I see they have an office in Chicago, conveniently that's my U.S. residence. I haven't found any other firms that specialize in these issues in the area, either.

As discussed earlier, nelsona mentioned that since I landed as a Can. PR (although I still lived part time & worked full time in US), I should file as a resident for the part of the year following the landing. However, my wife lived in Canada all year- and having a spouse in Canada gives me "residential ties".

I would think that this would mean that I file as a resident for the full year, not just a fraction. I don't know if CRA/Quebec would consider me a "deemed non-resident", so if not, I would imagine they would consider me a resident for the full year...

To get a better idea, would you suggest filling out NR74 (Determination of Residency Status, Entering Canada)?

With all these questions, I wouldn't mind paying someone (as long as they are experts in this), to take the burden off my mind.
nelsona
Posts: 18311
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona »

<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica" id="quote">quote:<hr height="1" noshade id="quote">As discussed earlier, nelsona mentioned that since I landed as a Can. PR (although I still lived part time & worked full time in US), I should file as a resident for the part of the year following the landing<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">

I doubt that I said that. "Landing" in canada is not sufficient to make you a tax resident. PRs are not obligated to be tax residents (they once were).

I may have said that choosing to say that for tax purposes you live in US, but for long term PR eligibity, you live in canada, may not be mathematically possible after, say, 2 or 3 years.

I may also have said that it is not worth fighting Cdn tax residency, because of your other ties, and because you may have very little tax advantage in doing so, and would be jeopardizing health insurance, PR status, etc.

As to when residency began, it is customary to allow for a spouse who is about to immigrate, shortly after marriage, to use the actual arrival date ("move date") in Canada as the first day of residency, rather than insisting that the day you married you became irrevocable tied to Canada.

I would not file an NR74. I would merely look at it and see whether more of my ties are in US or Canada, if that makes you fell better.

Your other comments about seeking professional help illustrate this: To make a treaty claim that you are not living in Canada will cost you money, as it will have to be done prtofessionally, and will likley cost you more than your tax savings.

I would say that unless you are making well over US$100K, and your spouse is making more than the $80K foreign exclusion, you should simply be filing your taxes as a married US citizen working in US, but living in Canada since Oct 2004, and continuing to do so.

<i>nelsona non grata... and non pro</i>
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