Taxing income earned before mid-year departure

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worryfreeinvestor
Posts: 144
Joined: Thu Mar 24, 2005 6:17 pm
Location: Seattle, WA

Taxing income earned before mid-year departure

Post by worryfreeinvestor » Mon Mar 28, 2005 10:20 pm

My wife and I live and work in Canada. On April 30, we will move to California, where I will be working. My wife is self-employed in Canada and has not yet paid any 2005 income tax to Canada. She has not and will not be working in the U.S.
To which jurisdiction will she pay 2005 income tax?

nelsona
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Post by nelsona » Tue Mar 29, 2005 8:16 am

She will pay CDn and Provincial tax on all her self-employed income, from before or after the move, as it will occur in Canada. Like you, she will put an April 30 departure date, but will still be reporting her income as before.

She will also report any income in the US, at a minimum from April 30, and may report for the whole year, depending on how you decide to do your US taxes for 2005.

In cali, she will report any income earned after April 30.

IRS will give foreign tax credit for her Cdn taxes paid on whatever income she does declare in US.

Cali does not generally grant foreign tax credit.

So, as you can see, any income your wife earns after April 30 will be very highly taxed.


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

worryfreeinvestor
Posts: 144
Joined: Thu Mar 24, 2005 6:17 pm
Location: Seattle, WA

Post by worryfreeinvestor » Tue Mar 29, 2005 11:27 am

Thanks. Are you saying that if she continues to earn income after our departure date of April 30, she will report and pay tax on that income to Canada?

nelsona
Posts: 16547
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona » Tue Mar 29, 2005 11:38 am

Possibly.

I would have to know more about her 'fixed-base' in Canada, but if she spends enough days in Canada in 2005, she might not be able to exempt it.

Going forward, in 2006 she might (again depending on days and fixed-base) be able to use treaty to exempt it from Cdn tax (and then of course pay full IRS/SS/Cali tax on it.

In fact she might PREFER to have it taxed in canada, and pay CPP on it rather than exclude it in Canada and pay self-employment tax in US. She would need a certificate of compliance for this, and maybe even maintain her company in Canada.



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

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