My wife and I are both Canadians and she has accepted a scholarship in Washington State to go to school. We will be moving down this summer and will be there a minimum of 3 years. I work for a Canadian company and I am stationed overseas and qualify for the Canadian Overseas Employment Tax Credit (OETC). I work a 6 week on 6 week off schedule so I will only be residing in the states for 6 months per year. My wife will be in the states on an F1 student visa and I will be there on an F2. My question is..... Since I am not working in the US will I be able to continue paying my Canadian taxes and avoid also paying US taxes?.... or...... since I am not working in the US and will not be living in Canada is there another way to reduce my tax liability?
Any help or info would be appreciated.
A Canadian living in the US but working overseas.
Moderator: Mark T Serbinski CA CPA
This one is a bit tricky. I'll try to peel the onion a bit.
First, your wife: By being a student, she technically is NOT becoming a US tax resident, so she can simply choose to continue to be taxed in canada on her world income, and in US on her US-sourced income ONLY. Likely she would face little if any Cdn or US tax, regardless of how she files.
For your situiation, some questions: Would you still have a Cdn home during the time your wife is in WA? If so, and you strictly observe the less than 183 day rule in US, you could simply get by filing a Cdn return, with OETC, as you have in the past.
If you will not have a CDn home, OETC becomes more dicey. You would be non-resident of Canada. However your income would be sourced in Canada and thus taxable there (as a non-resident).
What the situtaion in the other country: Are you taxable there? Is there a way for your firm to make you a contractor?
First, your wife: By being a student, she technically is NOT becoming a US tax resident, so she can simply choose to continue to be taxed in canada on her world income, and in US on her US-sourced income ONLY. Likely she would face little if any Cdn or US tax, regardless of how she files.
For your situiation, some questions: Would you still have a Cdn home during the time your wife is in WA? If so, and you strictly observe the less than 183 day rule in US, you could simply get by filing a Cdn return, with OETC, as you have in the past.
If you will not have a CDn home, OETC becomes more dicey. You would be non-resident of Canada. However your income would be sourced in Canada and thus taxable there (as a non-resident).
What the situtaion in the other country: Are you taxable there? Is there a way for your firm to make you a contractor?
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing 
Hi Nelsona,
Thanks for your response. To answer your questions........
My wife will strictly be a student so she will not have any income to worry about.
We have sold our home in Canada and have purchased one in the US.
Due to my schedule I will probably be in the US just a little less than 183 days per year.
I am currently working in Vietnam and any tax liability that I would have there is covered by my company.
I could become a contractor with my company upon request.
I guess the biggest question I have is what will be the easiest route to go? I considered becoming a NR in Canada but I wasn't sure how that would affect my status in the US with the various tax agreements between the 2 countries. To become a NR contractor for my company I would have to get a bank account that wasn't in Canada for my salary. (Company rules) If I had to choose between countries to pay tax in then I would choose Canada since I qualify for the OETC. I definitely want to go about this in an above board manner as I don't want a visit from the IRS or Rev Can a few years down the road.
I realize that I should sit down and talk to a CPA who has some expertise in this area but I thought I would just throw my scenario out there to see what came back. I appreciate any and all replies.
Cheers,
brianc
Thanks for your response. To answer your questions........
My wife will strictly be a student so she will not have any income to worry about.
We have sold our home in Canada and have purchased one in the US.
Due to my schedule I will probably be in the US just a little less than 183 days per year.
I am currently working in Vietnam and any tax liability that I would have there is covered by my company.
I could become a contractor with my company upon request.
I guess the biggest question I have is what will be the easiest route to go? I considered becoming a NR in Canada but I wasn't sure how that would affect my status in the US with the various tax agreements between the 2 countries. To become a NR contractor for my company I would have to get a bank account that wasn't in Canada for my salary. (Company rules) If I had to choose between countries to pay tax in then I would choose Canada since I qualify for the OETC. I definitely want to go about this in an above board manner as I don't want a visit from the IRS or Rev Can a few years down the road.
I realize that I should sit down and talk to a CPA who has some expertise in this area but I thought I would just throw my scenario out there to see what came back. I appreciate any and all replies.
Cheers,
brianc
You ARE a non-resident of Canada, by your actions.
As to your wife, didn't you say that she will be getting scholarship. That is considered income both by Canadian and US definition.
As to your Vietnamese income tax, do you know what the compny is doing tax-wise? Any tax they are paying is considered income for you.
And what living arrangements do you have in Nam? You may simply be a resident there. This would bring in any treaties that US has with that country.
I wouldn't be pinning all my plans on OETC. Being non-resident in Canada is still better than OETC.
As to your wife, didn't you say that she will be getting scholarship. That is considered income both by Canadian and US definition.
As to your Vietnamese income tax, do you know what the compny is doing tax-wise? Any tax they are paying is considered income for you.
And what living arrangements do you have in Nam? You may simply be a resident there. This would bring in any treaties that US has with that country.
I wouldn't be pinning all my plans on OETC. Being non-resident in Canada is still better than OETC.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing
Hmmmm..... the plot thickens.
I didn't realize that a scholarship was considered income but after some thought I guess that makes sense.
I'm not 100% sure what my company does on my behalf tax wise in Vietnam but I do know that any tax they pay is included on my T4 as a taxable benefit.
As for living arrangements here, I stay in a hotel for my 6 weeks and at the present time I return home to Canada for 6 weeks. We still have a house in Canada but it's been sold as of the middle of June. After that I will be working the same shift but returning to the US instead.
As for the OETC, I wasn't sure it was the best way to go. I was assuming that I would have to pay taxes in either the US or Canada and that I wouldn't qualify for any breaks in the US so the OETC would be the better option. If I officially become a non resident of Canada and I am not liable for taxes in the US because I am not working there or living there for enough days, I would definitely be interested in exploring that avenue.
If I was able to do something like this would I need to have an offshore account or would I be able to have an account in the US?
I am getting the feeling that I am falling into a unique category and I appreciate any ideas or suggestions you may have. Thanks again for your reply.
brianc
I didn't realize that a scholarship was considered income but after some thought I guess that makes sense.
I'm not 100% sure what my company does on my behalf tax wise in Vietnam but I do know that any tax they pay is included on my T4 as a taxable benefit.
As for living arrangements here, I stay in a hotel for my 6 weeks and at the present time I return home to Canada for 6 weeks. We still have a house in Canada but it's been sold as of the middle of June. After that I will be working the same shift but returning to the US instead.
As for the OETC, I wasn't sure it was the best way to go. I was assuming that I would have to pay taxes in either the US or Canada and that I wouldn't qualify for any breaks in the US so the OETC would be the better option. If I officially become a non resident of Canada and I am not liable for taxes in the US because I am not working there or living there for enough days, I would definitely be interested in exploring that avenue.
If I was able to do something like this would I need to have an offshore account or would I be able to have an account in the US?
I am getting the feeling that I am falling into a unique category and I appreciate any ideas or suggestions you may have. Thanks again for your reply.
brianc
To break Cdn residency, you need to establish tax residency elsewhere, so that might save you from being declared non-resident by CRA.
You definitely have a unique situation, especially because your wife is a student. If she was going down to US for work, or even as a tourist, she would become resident and their would be pressure for her to have you file jointly with you (to reduce her tax rate). This would make your world income reportable, regardless of where you lived.
For you to remain a non-resident of US, you must be sure to always enter on F2 or J2 (derivative status of your wife) rather than as a tourist. This will prevent your days in US as counting towards the Substantial presence trst. which is the first test US uses to determine if you are taxable on world income in US. Days spent in US as a tourist DO count towrds this tst, and you could see your self meeting it wit has little as 140 days a years in US.
So, to wrap up. While you do not have sufficient ties to be considered a Cdn tax resident, it also looks like you will fail to show any other tax home, which will 'force' CRA to keep you as resident. If you want to remain as an emplotyee, You will thus keep filing as you have in the past, same province, OETC, etc. This is probably better than becoming a US tax resident, since, as you concluded, there would not be any tax break on your income from IRS.
If you want to become an NR employee, I would suggest meeting the tax residency requirements of Viet nam (I have no idea what that means for your taxes, I'll leave that to you).
Just one final point. Usually, to enter US as a student (or a dependant of student) one needs to maintain residential ties outside US. This is not quite the same as the ties for Cdn tax residency, but pretty close. You may want to make sure that you and your wife have a firm address in canada that you can point to as your 'foreign home'. it could be parents, etc. Most Cdns leaving canada eschew such a tactic because they are jeopardizing their Cdn non-residencty, but in your case, no such desire exists.
You definitely have a unique situation, especially because your wife is a student. If she was going down to US for work, or even as a tourist, she would become resident and their would be pressure for her to have you file jointly with you (to reduce her tax rate). This would make your world income reportable, regardless of where you lived.
For you to remain a non-resident of US, you must be sure to always enter on F2 or J2 (derivative status of your wife) rather than as a tourist. This will prevent your days in US as counting towards the Substantial presence trst. which is the first test US uses to determine if you are taxable on world income in US. Days spent in US as a tourist DO count towrds this tst, and you could see your self meeting it wit has little as 140 days a years in US.
So, to wrap up. While you do not have sufficient ties to be considered a Cdn tax resident, it also looks like you will fail to show any other tax home, which will 'force' CRA to keep you as resident. If you want to remain as an emplotyee, You will thus keep filing as you have in the past, same province, OETC, etc. This is probably better than becoming a US tax resident, since, as you concluded, there would not be any tax break on your income from IRS.
If you want to become an NR employee, I would suggest meeting the tax residency requirements of Viet nam (I have no idea what that means for your taxes, I'll leave that to you).
Just one final point. Usually, to enter US as a student (or a dependant of student) one needs to maintain residential ties outside US. This is not quite the same as the ties for Cdn tax residency, but pretty close. You may want to make sure that you and your wife have a firm address in canada that you can point to as your 'foreign home'. it could be parents, etc. Most Cdns leaving canada eschew such a tactic because they are jeopardizing their Cdn non-residencty, but in your case, no such desire exists.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing
It's starting to sound more like I will be better off to stay a Canadian resident. My wife will be in the states on an F1 visa and I will be down there on an F2 so that should take care of the "Substantial presence" you mentioned. We will have to take a look at having a residence in Canada but that shouldn't be too big of a hurdle to get over.
Anyway..... thanks again for all your info nelsona. If I have anymore questions I will make sure to seek your advice again.
Cheers,
brianc
Anyway..... thanks again for all your info nelsona. If I have anymore questions I will make sure to seek your advice again.
Cheers,
brianc
I agree. If your wife was WORKING in US, and becoming taxable there, I think a different conclusion may need to be reached.
Remember to keep track of any moving expenses, to write off against her income. Scholarship taxation is changing in Canada (for the better), so watch for any new regs. In the US, some of her scholarship may be taxable, depending on how much she gets and what she does to get it. The school will be able to heklp on that. Any income that is taxable wqould surely be covered by other expense/deductions that she would be eligible for.
Remember to keep track of any moving expenses, to write off against her income. Scholarship taxation is changing in Canada (for the better), so watch for any new regs. In the US, some of her scholarship may be taxable, depending on how much she gets and what she does to get it. The school will be able to heklp on that. Any income that is taxable wqould surely be covered by other expense/deductions that she would be eligible for.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing